The net amount of Social Security checks will stop increasing for as many as 20% of Social Security recipients within the next six years, says a new study by Advisor editor Mary Johnson.  That’s because, in relatively few years, rising Medicare Part B premiums will completely consume annual Cost-Of-Living Adjustments for growing numbers of seniors. 

Most people who receive Social Security have their Medicare Part B premiums automatically deducted from their benefit checks.  A little-known provision of law protects the Social Security checks of individuals from going down when Medicare Part B premiums increase more than the COLA.  Specifically, the law says that if the amount of the Part B premium increase is greater than the dollar amount of an individual’s annual Social Security COLA, the premium owed by that person would be reduced to the amount required to assure no reduction in the Social Security “cash payment” (net benefit after deduction of the Part B premium) in the following year.

In recent years, for the first time, Medicare premiums have grown large enough to completely consume the amount of COLA received by people with the lowest benefits.  The study found that when this happens, over time, the net cash benefit — the amount a person receives after deduction for the Part B premium — ceases to grow, but remains “fixed,” despite a small annual COLA. 

In addition, the fiscal burden on Medicare grows as well.  Not only will the entire COLA of beneficiaries be required to cover the increase in Part B premiums, but, by law, the government will need to provide further adjustments to the amount of Part B premiums of affected individuals in order to avoid a reduction in their net Social Security benefit.  As Medicare premiums grow larger over time, more and more seniors and the disabled will see little, and then no, increase at all in their net benefit in coming years.  The Medicare program deficit will grow as the government absorbs the adjusted Part B premium amounts.

This study found that the point at which this occurs is uncomfortably close.  Based on Social Security Administration statistics through June 2006, an estimated 2.3 million beneficiaries, more than 4% of Medicare-eligible Social Security recipients, have already started to feel the effects.  Even more disturbing, however, some 20% of today’s retirees and disabled, about 9.9 million people whose net monthly benefits are $587.50 or lower in 2006, could see their benefit checks stop increasing within the next six years due to Part B premium costs.

Read the entire study here.

Today the problem is starting to affect many individuals who can least afford it — those with a very low monthly benefit of $322 or lower in 2006, after the deduction for the Part B premium.  The Medicare Part B premium increase completely offset their COLAs in 2004 and exceeded their COLAs altogether in 2005. 

Compounding the problem, this special provision of law does not extend to Part D premiums.  Any increases in drug plan premiums that are automatically deducted from Social Security benefits, and which exceed the amount of COLA, will reduce the individual’s net Social Security benefit the following year.

TSCL believes that Congress should act to cut the rate of growth of Medicare Part B premiums, and improve the adequacy of the COLA.  Cutting the rate of growth of Medicare Part B premiums is essential to maintain program sustainability and affordability for both beneficiaries and taxpayers now and for the long haul.  TSCL continues to lobby for a more adequate COLA that’s calculated using a seniors-only Consumer Price Index that better reflects the portion of income seniors spend on health care costs.

Sources:
2006 Social Security and Medicare Trustees Reports, May 1, 2006.  “Medicare Premiums and Deductibles for 2007,” Centers for Medicare and Medicaid Services, September 13, 2006.  “Social Security Announces 3.3% Benefit Increase for 2007,” Social Security Administration, October 18, 2006. SEC 1839 (f) Social Security Act.  OASDI Monthly Statistics, September 2006, Social Security Administration, November 13, 2006.

January 2007