Social Security Cost-of-living Adjustment Expected to Be Lower

USA Today

WASHINGTON (AP) — The nation's nearly 49 million Social Security recipients are in line to get a smaller average increase in their monthly benefit checks in 2007 than they did this year, though less of the gain will be eaten up by rising Medicare premiums.

Private economists are predicting an increase of around 3.4% for 2007. That follows a benefit increase of 4.1% this year, which was the largest percentage rise in 15 years.

The Social Security Administration was to announce the 2007 cost of living adjustment, or COLA, on Wednesday. Social Security recipients will see the increase reflected in their January checks.

Mark Zandi, chief economist at Moody's Economy.com, said he expected the increase would be 3.4%, which would translate into an increase of around $34 for the average Social Security recipient, currently getting a monthly check of $1,011.

The COLA amount is based on the rise in the consumer price index in the July-September quarter of this year compared with the same quarter in 2005.

By law, benefit payments for Social Security retirees, the disabled and persons earning Supplemental Security Income are adjusted each year to keep inflation from eroding the benefits.

At this time last year, inflation pressures were increasing after Hurricane Katrina shut down oil and natural gas production facilities along the Gulf Coast.

While energy prices jumped again this spring, reflecting increased tensions in the Middle East, they have been falling over the past two months.

Gasoline prices have dropped by an average 80 cents a gallon since rising above $3 a gallon in early August. The fall in energy costs has boosted consumer confidence and raised hopes that Americans will see lower heating bills this winter.

The government already has announced that most seniors will get a break in the Medicare premiums they must pay for insurance that covers doctors' visits and outpatient hospital care, known as Medicare Part B. That premium payment will increase by 5.6% next year to $93.50, up from the $88.50 they are paying this year. That premium has risen by double-digit amounts over the past three years.

However, not all Medicare recipients will be so lucky. As part of the 2003 passage of a prescription drug benefit, Medicare will begin next year charging higher premiums to wealthier Medicare recipients.

The higher payments will apply to about 1.5 million beneficiaries with incomes of more than $80,000 annually. Many in this group will see their monthly premiums for doctors' visits rise to $106. The premium could go as high as $162 for the very wealthiest.

The Bush administration has said the monthly premium for prescription drug coverage, known as Part D, should average $24 next year, the same as this year. But Democrats dispute that estimate, saying they expect the average premium for drug coverage to rise by about $5 next year.

Analysts said most seniors are still getting a break compared to last year.

"Seniors should be helped by the drop in energy costs, which will make their heating bills more tolerable, and the lower increase in health premiums," said David Wyss, chief economist at Standard & Poor's in New York.

Advocates for the elderly said the cost of living adjustment was a critical safety net for the nearly one-third of retirees who rely on Social Security for 90% or more of their income.

"The COLA is more than helpful. It is crucial," said David Certner, legislative policy director for AARP, which represents people 50 and older. "Without the COLA, you would see the purchasing power of retirees cut in half in a 15-year time period."

President Bush, who pledged to make overhaul of Social Security and Medicare top priorities in his second term, has seen his plan to partially privatize Social Security run into stiff opposition in Congress.

He and Treasury Secretary Henry Paulson have pledged to continue searching in Bush's final two years in office for a solution to the funding problems both programs face with the looming retirement of 78 million baby boomers.