Boost unlikely for Social Security

By Robert Pear
New York Times
May 3, 2009

WASHINGTON - For the first time in more than three decades, Social Security recipients will not get any increase in their benefits next year, federal forecasts show.

The absence of a cost-of-living adjustment, calculated under a formula set by law, will be a shock to older Americans already hit by plummeting home values, investment losses and rising health costs. More than 50 million people receive Social Security.

"Most seniors have never been through a year in which there was no Social Security COLA," said David Certner, legislative counsel at AARP, the lobby for older Americans. Beneficiaries have received automatic cost-of-living adjustments every year since 1975. The increase this year was 5.8 percent.

In theory, low inflation is good for people on fixed incomes. But it is creating political and policy problems for Congress, which is just learning of the implications for Social Security and Medicare.

The forecasts, by the administration of President Barack Obama and the Congressional Budget Office, indicate that Social Security beneficiaries will not receive any cost-of-living increase in 2010 or in 2011. The COLA is intended to preserve the purchasing power of Social Security, by increasing benefits to keep pace with consumer prices. In the last year, overall inflation has been low, largely because of the economic downturn and a decline in energy prices.

A freeze in Social Security benefits would have major implications for Medicare because the COLA, in effect, puts a cap on premiums for Part B of Medicare, which covers doctors' services.

If there is no cost-of-living adjustment for Social Security, about three-fourths of beneficiaries will not see any change in their basic Part B premiums, federal officials said. But some beneficiaries do not have this protection and could face substantial increases in their Part B premiums.

In addition, millions of beneficiaries could see higher premiums for drug coverage, provided under Part D of Medicare.

Social Security and Medicare trustees will describe the outlook for benefits and premiums in their annual reports this month.

Officials have already said the condition of Medicare's hospital insurance trust fund is deteriorating because of the recession, which has reduced payroll tax revenue, the main source of money for the fund. Spending on Social Security and Medicare totaled more than $1 trillion last year, accounting for more than one-third of the federal budget.

Most people on Medicare have Part B premiums deducted from their monthly Social Security checks. These premiums have historically increased much faster than Social Security benefits.

Under federal law, most Medicare beneficiaries have some protection. Their basic Part B premiums cannot rise more than the dollar amount of the cost-of-living increase in their Social Security checks. So if there is no COLA, their basic Part B premiums will not increase.

But one-fourth of Medicare beneficiaries are not protected by the law, and their premiums could increase. Most Medicare beneficiaries pay a monthly Part B premium of $96.40. The Congressional Budget Office estimates that the basic premium will rise to $119 next year and $123 in 2011 for those who are not protected under federal law.

Douglas Elmendorf, director of the Congressional Budget Office, predicted that inflation would remain low for several years, so Social Security might not pay a cost-of-living increase until January 2013. Obama's budget assumes no increase in 2010 or 2011, then a 1.4 percent COLA in 2012.

Certner, from AARP, described the outlook for consumers: "If, as expected, there is no COLA in Social Security next year but premiums for drug coverage increase, as expected, millions of beneficiaries will see their Social Security checks reduced for the first time."

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