Why Seniors Need An Emergency COLA: Help Us Pass Emergency COLA Legislation

Why Seniors Need An Emergency COLA: Help Us Pass Emergency COLA Legislation

Medicare costs are continuing to escalate in 2010, but unless Congress takes immediate action, it’s all but certain that seniors won’t receive an annual cost-of-living adjustment (COLA) to help offset the increase next year. The Senior Citizens League strongly endorses new legislation introduced by Representative Walter Jones (NC), H.R. 3557, to provide an emergency COLA increase for 2010.

The bill calls for an “average” COLA increase, which according to our calculations would equal about 3%. For retirees with an average monthly benefit of $1,153 in 2009, that would be an increase of $34.60 per month — an additional $415.20 in 2009. TSCL believes that could offset rising Medicare Part B and Part D premium increases for almost every senior, and may help offset some other out-of-pocket health care cost increases as well.

If Social Security benefits don’t increase, while senior costs continue to climb, that would take a big chunk out of the spending power of retirees’ Social Security benefits. The majority of Medicare beneficiaries have their Part B premiums automatically deducted from their Social Security benefits, and nearly 7 million have Part D and Part C Medicare Advantage premiums automatically deducted as well. Seniors would end up with considerably less Social Security to live on in 2010 after paying the rising out-of-pocket Medicare costs, leaving less to cover other rising costs.

Without an emergency COLA, the financial impact of rising Medicare Part B premiums on beneficiaries is expected to vary significantly. A provision of the Social Security Act known as the “hold harmless” provision guarantees that the Social Security benefits of most seniors and the disabled will NOT be reduced when the Medicare Part B premium increases by more than the amount of that person’s COLA. The Part B premiums will therefore be adjusted so that the monthly Social Security benefits of people protected by this provision will not be reduced from one year to the next.

But not all beneficiaries are protected by the hold harmless provision. The provision covers about three-quarters of beneficiaries who would not see any change in their basic Part B premiums in 2010, according to the Actuary for the Centers for Medicare and Medicaid Services. But one quarter of beneficiaries would face reductions to their monthly Social Security checks as money is deducted to cover the increased Part B premium costs. And although the “hold harmless” provision provides protection from the rising Part B premiums, that provision of law does not apply at all to Part D drug coverage or Part C Medicare Advantage plan premiums. If a person’s Part D or Medicare Advantage plan premium goes up, he or she would have less Social Security to live on in 2010. An emergency COLA, however would offset those costs and prevent those reductions.

Who will be affected by higher Part B costs? According to the Congressional Research Service, they include:

  • Higher income beneficiaries who pay “income-based” or Means Tested premiums. In 2009, people with incomes of more than $85,000 (individual) or $170,000 (couple) pay a higher portion of the premium depending on their income.
  • New Medicare enrollees in 2010. Because they are participating in Medicare for the first time, they are not protected because they have no prior premium to serve as a “hold harmless” baseline.
  • Low-income beneficiaries who are eligible for both Medicare and Medicaid. According to the Congressional Research Service, state Medicaid programs pay the Medicare Part B premiums of about 18% of Medicare beneficiaries. Although this group is not protected by the hold harmless provision, because their state Medicaid program pays their Medicare premium it is not deducted from their Social Security. Increases in Part B premiums would not reduce their Social Security their benefits.

Without action by Congress, the situation would also create inequities or a new “notch” in premium costs for new Medicare enrollees in 2010 (and in 2011 if there is no COLA as currently projected). New enrollees would be subject to paying the “unadjusted” Medicare premium while those who fall under “hold harmless” protection would continue to pay the adjusted $96.40 per month. An estimated 850,000 people would be affected in 2010 alone. Here’s an example:

John, age 66, is already enrolled in Medicare in 2009. He pays $96.40 per month. Because there is no COLA, and the basic Medicare Part B increases, his Part B premium will remain $96.40 because he’s protected by the hold harmless provision. His premium will be adjusted to prevent a reduction in his Social Security in 2010. His wife Jane is 64. She’s not eligible to enroll in Medicare Part B until 2010. Her monthly premium would be an estimated $104 instead of $96.40. She won’t have “hold harmless” protection until 2011.

The “Medicare Notch” could affect a growing number of people if inflation remains unusually low while Medicare premium increases are relatively high. With no COLA in 2011 as the Social Security Trustees predict, people protected by the hold harmless provision in 2009 would continue to pay $96.40 per month, people who enrolled in 2010 would continue to pay $104 because now they would be protected by hold harmless, but new enrollees in 2011 would pay an estimated $120 per month.

During recent healthcare reform hearings, TSCL submitted a statement to the Senate HELP Committee expressing support for an emergency COLA in 2010. The COLA could be set high enough to cover the rise in Medicare Part B and the average rise in Part D premiums. Doing so would help prevent reductions in seniors’ benefits, and a Medicare notch in premiums, and provide protection from benefits taking a big hit in buying power. TSCL believes that H.R. 3557 as introduced by Representative Walter Jones (NC) would do just that.

If seniors are to get an emergency COLA in 2010 we need your help. Please contact your Representative and ask that he or she co-sponsor H.R. 3557. To send an email — http://www.tscl.org/action/guidetocontactingcongress.asp.

Sources: 2009 Annual Medicare Trustees Report, May 12, 2009. “How Medicare Part B Premiums Would Be Affected If There Is No Social Security COLA,” Kathleen Romig, Jim Hahn, Congressional Research Service, May 4, 2009 7-5700.