Government Forecast — Three More Years Of Historically Low COLAs

Government Forecast — Three More Years Of Historically Low COLAs

Benefits May Fall For As Many as Six Million, Says New TSCL Impact Analysis

Although consumers may not see it yet, government economists predict that inflation will be far lower than normal over the next three years. The nonpartisan Congressional Budget Office (CBO) recently forecast that minimal inflation would boost Social Security by no more than 1.3% in 2013, and 1.4% in 2014 and 2015. At the same time, Medicare Part B premiums are expected to continue to rise. Medicare’s actuaries estimate that Medicare Part B premiums, on the other hand, will increase almost 11%, about $10.60 more per month in 2013 from today’s premium of $99.90. This can impact the amount beneficiaries receive in Social Security because Part B premiums are automatically deducted from the payments of most people.

According to a new impact analysis recently prepared for TSCL, if the CBO’s inflation estimates prove correct, Medicare Part B premiums would completely offset the annual cost-of-living adjustment (COLA) of people receiving a monthly benefit of $665 or less this year (prior to deduction for Medicare Part B premiums). The analysis found that more than one out of ten beneficiaries 65 and older, almost six million people, would be affected, and that rising Part B premiums would trigger a special provision of law known as the “hold harmless” provision.

The hold harmless provision was triggered recently in 2010 and 2011 when there wasn’t any COLA. Under the provision, if the increase in the monthly Medicare Part B premium is more than the amount of an individual’s monthly COLA increase, then the Part B premium will be adjusted in order to prevent reductions in benefits from one year to the next. In 2010 and 2011 when no COLA was payable, the benefits of about three- quarters of beneficiaries were protected from reduction by the growth in Part B premiums.

Nevertheless, while the hold harmless provision was helpful in protecting benefits from the rise of Part B premiums, it wasn’t fail- safe. No such provision extends to rising Part D or Medicare Advantage plan premiums. Any increase in those premiums may reduce benefits if the COLA is not high enough to offset them. In TSCL’s annual 2011 Senior Survey, 44% of respondents said their Social Security benefits were lower in 2011 than in 2010, after deducting all Medicare premiums. TSCL believes that dealing with rising Medicare costs won’t be easy, but will require a difficult balancing act as Congress deals with growing deficits and program financing. To keep Medicare premiums more affordable for beneficiaries, TSCL believes that the federal government needs to do a better job of preventing and going after an estimated $43 to $60 billion in fraudulent, wasteful, and abusive Medicare claims. TSCL is working for legislation that provides seniors with a more fair COLA that better reflects the portion of income they spend on healthcare costs.

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Sources: The Budget And Economic Outlook, Congressional Budget Office, January 31, 2012. 2011 Medicare Trustees Report, May 13, 2011.