(Washington, DC) – Social Security checks in 2020 are almost 20 percent lower than they otherwise would be, due to the long term impact of extremely low annual inflation adjustments, according to a new analysis from The Senior Citizens League (TSCL). This analysis comes as the Social Security Administration announced today that the 2021 cost – of - living adjustment COLA will be just 1.3 percent, making it one of the lowest ever paid.
“People who have been receiving benefits for 12 years or longer have experienced an unprecedented series of extremely low cost-of-living adjustments (COLAs),” says Mary Johnson, a Social Security policy analyst for The Senior Citizens League (TSCL). What’s more those inflation adjustments do not account for rapidly rising Medicare Part B premiums that are increasing several times faster than the COLA. The situation is causing those with the lower Social Security benefits to see little growth in their net Social Security income after deduction of the Part B premium.
The new analysis by Johnson compared the growth of retiree benefits from 2009 – through 2020 to learn how much more in income retirees would receive if COLAs had grown by a more typical rate of 3 percent. The analysis found that an “average” retiree benefit of $1,075 per month in 2009 has grown to $1,249 in 2020 but, if COLAs had averaged 3 percent, that benefit would be $247 per month higher today (19.8 percent higher), and those individuals would have received $18,227.40 more in Social Security income over the 2010 to 2020 period.
During that period COLAs have averaged just 1.4%. In 2010, 2011, and 2016 there was no COLA payable at all and, in 2017, the COLA was just 0.03 percent. “But COLAs have never remained so low, for such an extended period of time, in the history of Social Security,” says Johnson, who has studied the COLA for more than 25 years. Over the 20 - year period covering 1990 to 2009, COLAs routinely averaged 3 percent annually, and were even higher before that period.
The suppressed growth in Social Security benefits not only creates ongoing benefit adequacy issues for retirees, but also Medicare budget problems when the COLA is not sufficient to cover rising Part B premiums for large numbers of beneficiaries. When the dollar amount of the annual Medicare Part B premium increase is greater than the dollar amount of an individual’s annual cost – of – living adjustment (COLA), the Social Security benefits of about 70 percent of Medicare beneficiaries are protected by the hold-harmless provision in the Social Security Act. The Medicare Part B premium of those individuals is reduced to prevent their net Social Security benefits from being lower than the year before.
That said, roughly 30 percent of beneficiaries are not protected by the provision, and they can be subject to substantial spikes in the Part B premiums. In the past, the costs of the unpaid portion of Medicare Part B premiums of those who were protected by hold harmless were shifted to those who were not protected by the provision. Because fewer people were covering the costs Medicare Part B premiums, increases were significantly higher than usual.
The people who are not covered by hold harmless include higher income beneficiaries, beneficiaries who have not started Social Security yet and who pay for Medicare by check, and about 19% of beneficiaries whose incomes are so low that their state Medicaid program pays their Medicare Part B premiums on their behalf.
A provision of a recently enacted government spending bill restricts Part B premium increases in 2021. The bill caps the Part B premium increase for next year at the 2020 amount plus 25% of the difference between the 2020 amount and a preliminary amount for 2021. The preliminary amount would be calculated the same way that it would have been without the bill but would prevent dramatic increases that may have occurred as a result of Medicare Part B premiums growing when the COLA is so low.
While restricting a potential Part B spike in any given year is good news for beneficiaries, the problem itself isn’t going away any time soon. “Unless Congress acts to boost Social Security benefits and finds a better way to adjust benefits for growing Medicare costs, this problem will continue occur with greater frequently in the future,” says Johnson. “This approach of imposing future premium repayments doesn’t fix the problem — it’s like a payday loan. It just makes the premiums grow faster later, and the problem is triggered again the next time when COLAs are extremely low,” Johnson says. The Senior Citizens League is working to get legislation introduced that would provide an emergency COLA of 3 percent in 2021. To learn more, visit www.SeniorsLeague.org.
With 1.2 million supporters, The Senior Citizens League is one of the nation’s largest nonpartisan seniors’ groups. Its mission is to promote and assist members and supporters, to educate and alert senior citizens about their rights and freedoms as U.S. Citizens, and to protect and defend the benefits senior citizens have earned and paid for. The Senior Citizens League is a proud affiliate of The Retired Enlisted Association. Visit www.SeniorsLeague.org for more information.