The official news came from the federal government yesterday what has been mentioned for weeks: there will be no cost of living adjustment (COLA) for Social Security beneficiaries in 2016 because the Consumer Price Index showed no increase in inflation. That issue itself is subject to controversy because the measure used, ” a broad measure of consumer prices for urban wage earners and clerical workers,” does not fully reflect higher health costs, seniors and their organizations say. In fact, it was the decline in gas and energy prices that led to the index determining that there is zero inflation. However, ask any older or disabled person about the out of pocket costs for health care and prescription drugs and they will assure you that costs have not stayed flat but have escalated.
The lack of a Social Security COLA has big consequences for Medicare. Most beneficiaries have Medicare premiums taken out of their Social Security paycheck. The law protects them from having their monthly check go down; Medicare premium increases can’t exceed the Social Security COLA. With no COLA, about 70% of Medicare beneficiaries are protected from higher Medicare Part B premiums. However, the other 30% are new beneficiaries, higher income beneficiaries and those on Medicaid and Medicare whose premium increase will have to be paid by state Medicaid programs. Since the Medicare law says Part B premiums have to cover 25% of costs, the 30% of beneficiaries not held harmless have to pay higher premiums to meet the 25% overall threshold. That will mean large premium increases from $105 monthly to $159 monthly and even more for higher income beneficiaries who were required to pay more. Some could pay over $500 per month from $335 per month now. The Medicare Part B annual deductible could also rise from $147 to $223.
This domino effect is causing concern at the White House and Congress and the New York Times reports today that the Obama Administration is considering taking money from Medicare’s reserves to reduce the increases for the 30% of beneficiaries effected. Some members of Congress are looking for a fix too but with the chaos in the House of Representatives about picking a new speaker and the need to pass budget and debt extensions, it is unclear what will happen. Outgoing Speaker John Boehner could come up with a deal before he leaves though.
Heading into a Presidential and Congressional election year, action better be taken or lawmakers run the risk of being held responsible for rules that have led to big increases for some. The Social Security cost of living index also needs to be changed to better reflect costs of seniors and the disabled. Just a few years back, President Obama and others were considering support for a “chained CPI” or consumer price index that would have measured inflation in a way that would have reduced increases. It used a method to say that people compensated in their spending habirts when costs go up. However, now with Social Security not having to pay an increase for a whole year, the trust fund will grow. The chained CPI should be thrown out and something more accurate used. After all, if there had been a slight increase in the COLA this year, the effects on Medicare would have been minimized somewhat. Now, if the government goes ahead and uses Medicare reserves, is going to be paying out more money anyway. It’s time to adopt a more rational approach that doesn’t produce this kind of big 50% premium increase that could hit about a third of Medicare beneficiaries.