By Mark Miller
CHICAGO Oct 11 Last October seniors got some
really good news about their Social Security cost-of-living
adjustment. This October? Not so much.
This year seniors have benefited from the robust 3.6 percent
2012 Social Security cost-of-living adjustment (COLA). Adding to
the good news, they learned Medicare premiums wouldn't take much
of a nick out of their inflation raise.
Next year, the Social Security COLA for 2013 is expected to
be 1.4 percent - and for many seniors, much of that will be
eaten up by a higher Medicare Part B premium.
We won't get the final word on the 2013 Social Security COLA
until October 16, after the Bureau of Labor Statistics (BLS)
releases inflation numbers for September. But it's not looking
good for retirees on a fixed income.
To reach the yearly COLA adjustment the Social Security
Administration averages together third-quarter inflation as
measured by the Consumer Price Index for Urban Wage Earners and
Clerical Workers (CPI-W). July and August reports are pointing
toward a COLA of just 1.4 percent.
However, many seniors won't even get that much because of
the interplay of the COLA and premiums for Medicare Part B,
which covers outpatient services. These two go hand in hand
since the premium is deducted from most seniors' benefits.
Last year the Part B premium rose by a modest $3.50 per
month, which meant seniors kept most of that large 3.6 percent
COLA. For example, a senior receiving the average monthly Social
Security benefit ($1,177) received a net 3.3 percent increase.
Experts expect the Part B premium to rise from 5 percent to
10 percent in 2013; the Medicare trustees said earlier this year
that a 9.2 percent increase was most likely. That translates to
a $9.20 monthly increase over this year's $99.90 premium. That
means some seniors will see no net increase at all, while many
others will get far less than 1.4 percent.
"It certainly isn't going to be enough to face the higher
heating bills and all the other higher expenses seniors will
face next year," says Mary Johnson, a Social Security and
Medicare policy analyst for the Senior Citizens League (SCL), a
nonpartisan consumer advocacy group.
The likely paltry COLA will also add to the debate over what
measure of inflation is most appropriate for determining Social
Security's annual benefit adjustments.
WHO PAYS THE FREIGHT
Here's how it works. By law, most Medicare enrollees can't
be charged a Part B premium that produces a net reduction in
Social Security benefits. Assuming the Social Security and
Medicare percentages come in as forecast, this "hold harmless"
feature would protect seniors with Social Security benefits of
$625 or lower, according to SCL.
Seniors with higher benefits would see a small inflation
raise. A senior with a $1,000 monthly benefit would see a 0.48
percent net increase after the Part B adjustment; for a $1,500
monthly benefit, the net COLA would be 0.79 percent.
The hold-harmless provision doesn't protect three groups of
beneficiaries: high-income seniors, new enrollees in Medicare
this year (whose benefits can't decline from one year to the
next), and low-income seniors who are eligible for Medicare and
Medicaid. (This last group doesn't pay the premium out of pocket
anyway; state Medicaid programs pick up the costs.)
High-income beneficiaries include individuals with annual
income starting at $85,000 (single filers) or $170,000 (joint
filers), and move up from there.
This group pays full freight on the Part B premium, plus an
income-based surcharge. And the surcharges aren't limited to
Part B: Extra premiums also are charged for prescription drug
plans (Part D) and Medicare Advantage plans (Part C).
This year's small COLA will figure in Washington's
discussion of selecting the best inflation measure for
determining Social Security's annual benefit adjustments.
Many advocates for seniors argue that the CPI-W understates
the inflation that affects seniors - mainly their healthcare
expenses. They've been pushing for adoption of a more realistic
measure that better reflects seniors' costs - an experimental
index maintained by the BLS called the CPI-E (for elderly).
Meanwhile, the key federal deficit reduction plans that have
been advanced in Washington advocates moving in the opposite
direction. These plans have recommended adopting a measure of
inflation called the "chained CPI." That index would rise more
slowly than the current measure (the CPI-W).
That debate is apt to continue for some time. Meanwhile, next
year's COLA looks like an "October surprise" for seniors on