Summary:

The most recent Congressional Budget Office (CBO) budget and economic report forecast that annual Cost-Of-Living Adjustments (COLAs) for Social Security recipients will increase by just 1.5 percent in 2008(a).   The CBO also estimates that Medicare spending in 2007 will rise ten times faster, by 15 percent this year(b).   If these forecasts prove to be correct, it spells trouble for millions of seniors and the disabled who have Medicare premiums automatically deducted from their Social Security checks.

According to this analysis for TREA Senior Citizens League, the increase in projected Medicare Part B premiums for 2008 would require the entire annual COLA in 2008 for as many as 22 million beneficiaries — about half of all Social Security beneficiaries. 

Background:

Part B premium rates are supposed to be set to match program costs.  However, in recent years Congress has routinely enacted legislation that substantially affects program costs after the premium rates for the year have been set.   This ongoing problem has made it very difficult to achieve adequate levels of funding for Part B.  The 2006 Medicare Trustees Report on pages 22 and 23 describes this in detail (c).

Last year in May, and again in July, Medicare Trustees estimated the Part B premium for 2007 would be $98.20 (d).   The actual base premium announced in September was $93.50, or $4.70 less per month.  One reason cited for the lower premium was lower payments to physicians.  However, before adjourning for 2006, Congress increased reimbursements to physicians and certain other providers, affecting costs for 2007 after the September announcement of the 2007 premiums. 

In their 2006 report, however, the Medicare Trustees forecast that correcting Part B’s deficit would require an 11 percent increase in the 2007 premium.  The Trustees further said that should legislative changes block pending physician reimbursement reductions (which they did), the premium increase would need to be even larger.  Instead of 11 percent, however, the Centers for Medicare and Medicaid Services announced a premium increase of only 5 percent.  

Assumptions:

Based on this, this analysis assumes there is a 6 percent unaccounted for premium increase still pending.   Part B premiums have increased on average about 11.6 percent over the past five years.  When the unaccounted for 6 percent premium increase is added to the 11.6 percent average Part B premium increase a premium increase of at least 17 percent would appear to be required in 2008.

Findings:

This analysis projects the base Part B premium for 2008 could increase $15.90 to $109.40 per month.   Average benefits in 2007 are $1044 (e).   A 1.5 percent COLA would increase the average benefit in 2008 to $15.70 per month.  However, if Part B premiums increase $15.90, the entire COLA would be needed to help pay the increase in premiums. 

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With 1.2 million members, TREA Senior Citizens League is one of the nation's largest nonpartisan seniors groups. Located just outside Washington, D.C., 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.  Please visit www.SeniorsLeague.org or call 1-800-333-8725 for more information.

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notes:

(a).The Budget and Economic Outlook: Fiscal Years 2008 to 2017, Congressional Budget Office, January 24, 2007, pg. 57.  http://www.cbo.gov/showdoc.cfm?index=7731&sequence=0&from=7
(b). Ibid, page 54.
(c). 2006 Medicare Trustees Report, May 1, 2006.  http://www.cms.hhs.gov/ReportsTrustFunds/
(d). Ibid, page 165.
(e).Social Security Announces 3.3 Percent Increase for 2007, Social Security Administration, October 18, 2006.

February 2007