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Social Security’s annual cost of living adjustment, or COLA, will be only 0.3 percent in 2017, it was announced today. The COLA is pegged to consumer price inflation in the year that ended last September. Today’s announcement follows a zero 2016 COLA. This year’s slight increase will also raise other benchmarks, Social Security said, including the annual wage ceiling subject to payroll taxes. It will rise to $127,200 from $118,500 this year.
The price index used to set the COLA measures consumer prices paid by everyone in urban areas. It has long been criticized for failing to reflect the actual inflation of prices for things that older Americans consume, especially health care.
“Over the past eight years, the current COLA formula has led to average increases of just over 1 percent, with three of those years seeing no increase at all,” the National Committee to Preserve Social Security & Medicare said. “For the average senior, the 2017 COLA will mean an extra $4.00 per month which would barely cover the average cost of one Lipitor pill, a prescription drug frequently prescribed to seniors.”
Besides disappointing Social Security beneficiaries for a second straight year, the meager COLA will once again trigger Social Security’s complicated “hold harmless” rules that involve Part B Medicare premiums. These premiums are projected to rise much more next year than COLA benefit increases.
The hold harmless rule says that Social Security benefits cannot be reduced from one year to the next. This is normally no big deal. But anyone on Social Security and Medicare must, by law, have their Medicare Part B premiums (which insure doctor and other outpatient expenses) deducted from their Social Security payments. Again, this is normally not a problem. If Medicare premiums rise, they are simply paid out of higher Social Security benefits generated by that year’s COLA.
But a 0.3 percent COLA is too small to pay those projected increases in Part B premiums. These premiums are $104.90 a month this year for most people and $121.80 for another large group of Medicare beneficiaries. People now paying these premiums out of their Social Security payments will see their entire COLA eaten up by the higher Part B premiums.
As an example, a person receiving $1,500 in Social Security each month would see this amount raised in 2017 by $4.50, or 0.3 percent. Their Part B premiums also would rise by this amount, leaving their Social Security benefit the same as this year.
However, only about 70 percent of Medicare beneficiaries are held harmless. The other 30 percent would see their Part B premiums rise by a much larger amount in 2017. This group, Medicare explains, “consists of new enrollees during the year, enrollees who do not receive Social Security benefit checks, enrollees with high incomes who are subject to the income-related premium adjustment, and dual Medicare-Medicaid beneficiaries (whose premiums are paid by state Medicaid programs.”)
Medicare is required by law to collect about 25 percent of Part B program expenses from Medicare policyholders. Because 70 percent of Medicare beneficiaries are held harmless, the agency must collect all higher beneficiary premiums from the other 30 percent.
Last year, when the COLA for 2016 was set at zero, folks who were not held harmless initially faced 2015 Part B premium increases exceeding 50 percent. Eventually, Congress stepped in and floated a $7.5 billion loan to Medicare. This limited the blow to folks not held harmless, although they still faced a 2016 Part B premium increase of 15 percent. Senior advocacy groups are pushing for similar help this year.
In its annual report, the Medicare trustees said Part B premiums for those not held harmless would need to rise to $149 a month to comply with Medicare’s rules. That projection was based on the trustees’ projection of a 0.2 percent COLA. The slightly larger actual COLA will reduce that $149 premium, but not by much, noted Dan Adcock, director of government relations and policy for the National Committee.
In addition to higher premiums for those not held harmless, the Medicare trustees have projected a big increase in the annual deductible that all Medicare enrollees must pay for Part B covered expenses before their Medicare insurance begins paying claims. It is $166 this year and is projected at $204 next year.
When the official 2016 COLA was announced last October, Congress was still in session and could move with relative speed to enact a fix for this year. However, Congress is not scheduled to be back in session until after the elections. This delay will, among other things, create a lot of headaches for the Social Security Administration, which must program any changes into its computers and 2017 benefits process.
Sylvia Burwell, head of the U.S. Department of Health and Human Services, has some discretion to mitigate higher Medicare costs for beneficiaries, Adcock noted. But Congress must act to head off large-scale hikes.
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