COLUMN-Cost-of-living adjustment is what needs adjustment

(The writer is a Reuters columnist. The opinions expressed are his own.)

CHICAGO, Oct 15 (Reuters) - It is official: Seniors will not get a cost-of-living adjustment in Social Security benefits in 2016.

That is setting off a fresh debate about the program’s inflation formula and its impact on Medicare premiums.

The Social Security Administration confirmed this week that benefit payments will stay flat next year due to unusually low energy prices, which have kept overall inflation rates down.

It 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. 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.

This has a couple of repercussions. One is that 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.

Another creates an imbalance in Medicare Part B premiums. 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 enrollees 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.

A legislative fix is a must for those facing this increase, which includes anyone who is delaying filing for benefits, some federal retirees and many 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.

Also exposed are 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. Higher-income beneficiaries subject to an income-adjusted Part B premium are subject to the higher premium; so are people who enroll in Medicare for the first time next year.

Bills have been introduced in the Senate and House that would hold premiums steady for all beneficiaries next year. The deductible for Part B for all beneficiaries would stay at $147, staving off a projected increase to $223.

Advocates for seniors are optimistic that a short-term fix will happen - despite the current chaotic situation in the House of Representatives. “There will a bigger spontaneous grassroots reaction to this than we might normally expect,” says Nancy LeaMond, who heads government affairs at AARP.


The key issue is how to pay for the fix. Protecting all Medicare beneficiaries from the increase would cost $10 billion to $12 billion. “The question will be - ‘Is that a reasonable number, does it have to be offset and how do we pay for it?’” says Stacy Sanders, federal policy director for the Medicare Rights Center.

The COLA crunch also points to the need for a longer-term fix at some point.

One way to do this is to change the inflation gauge used for the COLA to the Consumer Price Index for the Elderly (CPI-E), which recognizes the greater role of healthcare costs in spending by seniors.

Healthcare inflation is on the march again after several years of flat growth. That is reflected not only in the Medicare Part B conundrum, but also in projections that many seniors could be facing double-digit increases in Part D prescription drug premiums.

It is also time to re-examine the hold-harmless provision itself. We are no longer in an era in which Medicare and Social Security enrollment are synchronized for all Americans, and it makes no sense to expose only some beneficiaries to outsize premium hikes. (Editing by Beth Pinsker and Dan Grebler)