The Social Security and Medicare Raises for 2013 is Scam inflicted on seniors

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.”