Medicare will cut Social Security’s “raise” in 2012

October 12, 2011

A girl tries to climb a snow-packed wall in a labyrinth at the Sapporo Snow Festival in Sapporo in northern Japan February 5, 2008.  REUTERS/Yuriko Nakao (JAPAN)After two years without an inflation adjustment, the Social Security Administration is expected to announce a 2012 cost-of-living adjustment (COLA) of more than 3 percent next week. That would be a sizable raise in this economy, and very welcome news to seniors hit hard by rising costs, slumping home equity and very low returns on fixed-income investments.

But the good COLA news will come with a nasty kicker. Many seniors will see a substantial part of the COLA consumed by a higher premium for Medicare Part B (doctor visits and outpatient services), which usually is deducted from Social Security payments. The situation sheds light on the complex interaction of Social Security COLAs and Medicare premiums — and it underscores the critical importance of the Super Committee deficit deliberations on possible cuts to future COLAs.

The annual Social Security COLA is determined by a formula that averages inflation for the third quarter, as reflected by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). No COLA was awarded in 2010 or 2011 due to a quirky spike in the third quarter of 2008, which resulted in a whopping 5.8 percent COLA for 2009. By law subsequent Social Security payments couldn’t rise until the CPI-W exceeded the 2008 level.

This year, the third quarter CPI-W has been running high as a result of higher energy costs. September inflation numbers will be released on October 19th, and most analysts forecast a resulting 2012 COLA greater than 3 percent. Indeed, some expect a number close to 3.5 percent or more.

That’s the good news. Unfortunately, most seniors would see that COLA reduced substantially, due to the way that Social Security benefits and Medicare Part B premiums interact.

The Part B premium usually rises at a rate greater than general inflation — a reflection of medical inflation. However, by law, the premiums cannot rise in any given year by a greater amount than the Social Security COLA – a “hold harmless” provision aimed at preventing Social Security payments from ever falling.

About 75 percent of beneficiaries were exempted in this way from Part B premium increases in 2010 and 2011. Rate hikes were paid only by two groups of seniors: low-income beneficiaries whose premiums are paid by Medicaid (so-called “dual eligibles”) and high-income seniors who pay income-related surcharges.

High-income seniors actually were hit in two ways: not only did they pay higher premiums, but also the rate increases were greater than they would have been absent the “hold harmless” provision. Under the law, Medicare enrollees cover 25 percent of projected Part B program costs; in 2010 and 2011, that projected cost was borne by a much more narrow base of beneficiaries – and by Medicaid, which also was stuck with part of the additional tab.

In 2010, the Part B premium jumped to $110.50 from $96.40 for beneficiaries who actually paid it – and it rose to $115.40 in 2011.

For 2012, the premium is projected at $106.60 – partly because the pool of seniors subject to higher premiums will be so much larger. Oddly enough, that will mean lower premiums for the 25 percent of seniors who fall into the high- or low-income groups – or for those who enrolled for the first time this year and are paying the $115.40 premium.

But what will it mean if you’re part of the other 75 percent – the vast middle class of seniors? That depends on your Social Security benefits.

Let’s say you receive the average benefit — currently $1,177 per month. A 3.5 percent COLA would lift your gross 2012 payment to $1,218. The official Part B premium announcement is still a few weeks away, but let’s assume it is $106.60. If you were held harmless these past two years, that means you’ll pay $10.20 more monthly for Part B, reducing your net benefit to $1,207 – a raise of 2.63 percent.

That’s still a pretty healthy raise. But what if your benefits are below average? About one-third of seniors receive a monthly benefit between $500 and $1,000. Say your benefit is $700; that would translate to a COLA of 2.04 percent after Part B premiums (unless you’re sufficiently low-income to qualify for Medicaid, in which case your premiums are covered under dual eligibility rules).

Part B’s impact on Social Security offers a vivid reminder that seniors are impacted by different types of inflation than the general population – mainly due to medical costs. From 2000 to 2011, the premium increase has averaged 9 percent, and it has increased by double-digit percentages four times. By contrast, the Social Security COLA averaged 2.8 percent from 2000 through 2010.

Yet the Super Committee is said to be taking a hard look at cutting COLAs  by implementing a formula change using the so-called chained CPI. The chief actuary of the Social Security Administration estimates that the chained CPI will rise about 0.3 percentage points less per year than the CPI-W.

Talk of adopting a chained CPI already is ringing the alarm bells of Social Security advocates, many of whom have been pushing for adoption of the experimental CPI-E (for elderly) — a more generous COLA that better reflects seniors costs.

“Social Security does not add a penny to the deficit and it shouldn’t be part of the deficit discussions,” said Nancy Altman, co-director of the Strengthen Social Security coalition. “The President made it clear that he wanted Social Security on a separate track, but I’m hearing from very credible sources that the Democrats are putting Social Security into play, and that the chained CPI is being considered very seriously.”

21 comments

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the chained CPI has already been signed into effect by the president and congress last month

Posted by kahuna444g | Report as abusive

Isn’t it enough that congress has stolllen the social security trust fund. now they want tom steal our promised benefits from those of us who are already drawing social security.

Posted by butter23fly | Report as abusive

I maintain my mother’s cost of living expenses, to the penny, every month. Her last SS increase was announced 10/2008. Since that time, her food has increased 26%, her homeowner’s taxes and insurance have increased 21% and her budget (including above) has increased 17.5%overall. Simply because this democrat administration believes old people should “just take an aspirin,” failing to acknowledge actual increases in their living expenses just hastens what “just take an asirin” suggests.

Posted by IQ168 | Report as abusive

You state “Rate hikes were paid only by two groups of seniors: low-income beneficiaries whose premiums are paid by Medicaid (so-called “dual eligibles”) and high-income seniors who pay income-related surcharges.” This oversimplifies: For example, I’m a (non high income) senior who does not receive social security. Because I don’t receive social security my medicare part b premiums have increased each year and now my rate is $115.40. Those who receive social security (and are not high income) have had their rates frozen. Believe it or not, this unfair situation is built into the very complex medicare law.

Posted by keebler | Report as abusive

3.5% and they think thats alot!!!!!!!!!!!compare that to the price increases on everything and then tell me what it looks like. what does our so called leaders get when they vote themselves a raise?

Posted by cer5327 | Report as abusive

Take the Super Committie’s pension and medical benefits away from them and put them on social security and medicare, see how fast things get fixed!

Posted by bram2508 | Report as abusive

You say

“In 2010, the Part B premium jumped to $110.50 from $96.40 for beneficiaries who actually paid it – and it rose to $115.40 in 2011. For 2012, the premium is projected at $106.60 – partly because the pool of seniors subject to higher premiums will be so much larger. Oddly enough, that will mean lower premiums for the 25 percent of seniors who fall into the high- or low-income groups – or for those who enrolled for the first time this year and are paying the $115.40 premium.”

This is incorrect as relates to high-income Medicare subscribers, to what happened in 2010 and 2011, and to what will happen in 2012.

In 2010 and 2011, everybody “actually paid it.” But most kept paying the $96.xx for the reasons you explain related to no SSA COLAs. The rates you quote $110.xx in 2010 and $115.xx in 2011 — are what new “middle-class” (your disparaging term) enrollees to Medicare paid, not what high-income subscribers paid. High income subscribers paid much more, as much as $369 a month if their income was over $200,000. (And they talk about “means testing Medicare” as a future idea. If I was making that kind of money in my 60s/70s/80s I would simply keep myself on the payroll of the company I founded or used to be the CEO of and take its health insurance while I flew around on my corporate jet.)

In 2012, the premium for those who have been paying $96.xx a month for three years is going up not because the pool is “larger” but because — as you describe elsewhere — Social Security is going up.

This makes me wonder about the accuracy of the rest of your article.

Posted by DennisByron | Report as abusive

times are tough enough already without another slap on the wrist by raising medicare premiums for seniors. In my prime i had eyeglass coverage, hearing aid coverage, and dental,denture coverage….now that Im a senior i have none of the above. figure that one out…but raise those premiums…what a way to go..cant see, hear, or eat.

Posted by bechinamoon | Report as abusive

Near Peoria, IL, the govt. is building an $800,000,000 Eastern Bypass even though tri-county population has decreased since 1980. And you want to cut social security??? In govt., the right hand doesn’t know what the left hand is doing!

Posted by minipaws | Report as abusive

kahuna444g – Pretty sure that’s not accurate. Please present a link to a reputable source on this because I’ve looked high and low and there’s nothing on this already being passed and signed just that it’s being discussed still.

For those blaming this or any that the rates aren’t realistic: Although I agree with you that they’re not realistic by LAW it’s (on the books since 1983) Soc Sec COLA increases are AUTOMATIC and done based on increases in the CPI-W from the third quarter of the prior year to the corresponding quarter of the current year (according to the gov Medicare site.

The problem is that the rates are not only unrealistic to what real life costs are for Seniors and Disabled but the Medicare rates are increasingly taking out of what little beneficiaries receive. This creates a situation where instead of instead of that tiny increase it’s even tinier and sometimes nothing at all. (Benefits can’t go lower because of Medicare increases by law).

Posted by ML_Johnson | Report as abusive

It would be nice to see an increase in my Social Security check each month. Last year, because of Medicare increases my net Soc Sec. check droped from $813 to $801/month. The previouse two years I also lost a chunk of money from my checks.
I’m not the only one this happened to. I know several people who lost ground with the checks the recive. Some of them lost they’re apartments & homes because of it.

Posted by Thomas_J | Report as abusive

kahuna444g – I am very interested in seeing where you got this information as I don’t think there has been any passage of anything as you claim. I think this was discussed as one of many possibilities when the Republican House was trying to drive the American economy off a cliff and darned near succeeded.
Diogenes

Posted by diogenes9876 | Report as abusive

Not only is the goverment out of touch with reality it would seem that they would police medacare with more forcefulness. every day we read about doctor and hospitals gouging and inflating their bills. Some of the procedures that medicar pays out are not even performed.I never see any doctors going to jail. Whats with ssc and medicare any way.what in the hell is happening in America?

Posted by pcllr072 | Report as abusive

all the sites I have found say that the supercommittee is considering changing to the chained cpi, but it has not happened…..

http://www.nasi.org/discuss/2011/10/cola -lite-theres-rumor-supercommittee-may-pu sh-chained-cpi

Posted by Anonymous | Report as abusive

Besides the increase in medicare payments automatically deducted from my SSDI, I’ve just received notice that my Rx co-pays will double beginning Jan 1 2012. So in effect, I will receive less in 2012 than I have for the last 3 years. After running a business for 35 years, paying 2x Social security due to being self employed, employing 15 – 20 folks for the majority of those 35 years, I feel that the Government is in breach of contract, changing the rules as it seems fit.That never worked for me in business. I’d have been sued.
And people are up in arms over 3.6% increase in Cost of Living.Retired and disabled are being screwed so that the corporate citizens can keep theirs.Next they’ll be able to vote, What a joke, on me.

Posted by downthedrain | Report as abusive

Wow a whole $38 per month…while actual costs have gone up over 25% per year for housing, utilities, food and medical expenses people are satisfied and grateful with a lousy 3.6% that will get eaten up by Medicare increases….how sad is that?

Posted by OooSillyMe | Report as abusive

People who rely on Medicare benefits will ultimately suffer because I don’t see why primary care physicians will want to stay in the business, at least the ones who primarily see Medicare patients. The way I see it doctors will be left with two choices: 1. See less Medicare patients and more private pay patients (or) 2. Stop seeing Medicare patients altogether. If you can’t cover your overhead… right?

On the same token, I don’t see how we plan on balancing the budget unless cuts are made to healthcare spending as it accounts for 23% of the federal budget. It’s the most expensive in the world (Average expenditure per person is $7,960) and to top it off our healthcare system is ranked 37th out of the top 40 developed nations in the world (Source: Organization of Economic Cooperation) Somethings wrong. Wouldn’t you agree?

Also, has anyone else seen this video on the Medicare Crisis: http://www.signaturemd.com/the50cut

Posted by PanAm2707 | Report as abusive

Every little bit helps, Thanks Obama

Posted by LMichael | Report as abusive

This article is incorrect that with very low income dual eligibles, their Medicare premium is paid.

My Medicare Part D raised their premiums in 2012 way above what is paid by Medicaid. They will probably have to attach my social security income, because I can’t squeeze the extra $10+ out of my tight budget to pay the premium.

Posted by heartfocus | Report as abusive

After over a decade of fighting for my life, last week something amazing happened. I found hope. I started writing again, I began to update my programming skills, my kids faces lit up and my ailing mother smiled for the first time in years. At 11 AM this morning, every nightmare I fought through, every tear I cried, every fear, doubt, horror, silent screams I had almost left behind came back. An hour ago, I knew I would be off disability within the year. I knew I was going to help other people achieve the same success. I was going to be able to help our country. I was going to get my life back. 100$ a month took away almost every minute of the last 12 years. $100 a month is the line between making it or becoming one of the Disposable Americans. I lay in bed for five years. I didn’t speak for 2. I have 3 degrees, I am in the best shape of my life physically, and was fighting back from hell all by myself. I am alone. I am alone. No support at all and yet I had accomplished a miracle. $100 a month. If anyone reading this has an avenue to get my story out to the public, it is already written, I just need encouragement to bring me back. I need help so I can help others. I can’t give up, I can’t. Please, I don’t know how to ask for help, but I know my story needs to be heard. $1200 a year just took my CFI payment away from another student, my abilities and talents from being able to add to our countries assets. $1200 a year…I have so much to offer and my country has not only abandoned me but it condemns me. I no longer want to be a victim damnit. I was so damn close. My hopes and energy go out to all of you whose hope and faith have just been mortally damaged. Hang in there, I am going to beg everyone for help so I can fight this set back. I will not be disposed of quietly.

Posted by LSHT | Report as abusive

I forgot to mention. My disability check is now less than it was in 2009. I am not on Medicare. I have fought through my horror with as little tax payer assistance that I could get by on. I gave my children to their father so as to keep off of welfare and give them a better chance and a better life. I moved in with my ailing mother to help her. I sold everything I had to keep my mother from stressing out. I am not perfect. My bad decisions and mistakes caused my trauma. However, because of my journey I am that much better trained and equipped with the tools to help other people avoid my path and even more so to identify the people that I can hope to be able to encourage and offer emotional support to help them find their way back. If anyone feels a connection to my posts, please contact me. As Madonna sang, “I Have A Tale to Tell”. A tale worth being heard.

Posted by LSHT | Report as abusive