No Social Security COLA for next year: Here’s what it means

Update: Congress and The White House reached a tentative budget deal the week of October 26 that includes a provision blunting the 52 percent increase in Medicare Part B premiums discussed below. If the deal is signed into law, Part B premiums for the 30 percent of beneficiaries not held harmless would rise from the current rate of $104.90 per month to $120 per month next year, plus a $3 surcharge.

It’s official: seniors will not get a cost-of-living adjustment in Social Security benefits in 2016. And that’s setting off a fresh debate about the program’s inflation formula, and how it impacts Medicare premiums.

The Social Security Administration confirmed today that benefit payments will stay flat next year due to unusually low energy prices, which have kept overall inflation rates down.
File and suspend guide - adIt is not a matter of choice – by law, the cost-of-living adjustment (COLA) is determined by a formula that ties it to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is compiled by the U.S. Bureau of Labor Statistics (BLS). But the CPI-W gauges a market basket of goods and services of working people – who tend to be younger and spend less on healthcare than seniors. I explored the impact of rising healthcare costs in a recent WealthManagement.com column.

Medicare has forecast a 52 percent hike in Part B premiums, to $159.30, that will affect 30 percent of Medicare enrollees – about 16.5 million people. The majority of people will not face any increase, because there is a “hold-harmless” provision in federal law that protects most people from Part B increases if there is no corollary cost-of-living increase in Social Security.

(Since there is no COLA, the maximum earnings subject to the Social Security tax will remain at $118,500 next year; also unchanged at $15,720 is the amount of income from work exempt from the retirement earnings test penalty, which is applied to people who claim benefits before their full retirement age.)

Who is exposed
  • Anyone who is delaying their filing for Social Security benefit
  • Federal retirees who participated solely in the older Civil Service Retirement System and therefore don’t receive Social Security benefits
  • State government workers – most of whom participate in defined-benefit pension plans and are not covered by Social Security during their tenure as state employees.
  • Low-income “dual-eligible” seniors who receive Social Security and also participate in both Medicare and state-run Medicaid programs. Their premiums are absorbed by state Medicaid budgets.
  • Anyone enrolling in Medicare for the first time next year.
  • Higher income beneficiaries already subject to an income-adjusted Part B premium would be hit with the increase as well, producing some eye-popping numbers. For example, enrollees in the initial income threshold ($85,000 modified adjusted gross income for an individual tax return and $170,000 for a joint return) would pay $223 monthly, compared with $146 this year. But in the highest income bracket, the monthly premium would jump to $509.80 from $335.70.

Bills have been introduced in the Senate and House that would hold premiums steady for all beneficiaries next year. The Part B deductible also would be stay at $147 for all beneficiaries, staving off a projected increase to $223. We’ll have to wait to see where that goes; advocacy groups are optimistic but difficult to forecast considering the current chaos in the House of Representatives.

It’s also time to reexaamine the formula used to determine the COLA itself. I’ve written often about the need to use an index that does a better job measuring the inflation facing seniors. The hold-harmless feature itself should be studied, since so enrollment in Social Security and Medicare are no longer synchronized. AARP indicated some interest in this in an interview I did this week with Nancy LeaMond, head of government affairs.

“Given the negative and inequitable impact, the implementation of the important hold-harmless policy is worth revisiting,” she told me.

Learn more in my Reuters Money column this week.

Comments

  1. Mary Sekera says:

    Does anyone ever check the prices on FOOD? They have skyrocketed!!

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