Don’t expect Social Security COLA for two years
For the first time since 1975, Social Security recipients are not expected to receive a cost-of-living adjustment in 2010 or in 2011.
The loss of the COLA adjustment, which is calculated under a formula set by law, will affect more than 45 million people who receive Social Security, which is the main source of income for more than half of older Americans.
The forecasts for no COLAs in 2010 and 2011 were made by the Obama administration and the Congressional Budget Office, which have also forecast that the COLA should return in 2012, when it will be a 1.4 percent increase. The COLA increase this year was 5.8 percent.
COLAs are intended to preserve purchasing power by increasing benefits to keep pace with consumer prices. In the last year, overall inflation has been low, mostly because of the economic downturn.
A freeze in Social Security benefits would have major implications for Medicare, according to several news reports, because the COLA in effect puts a cap on premiums for Part B of Medicare, which covers doctors' services.
Under federal law, most Medicare beneficiaries have 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 increase, about three-fourths of Medicare beneficiaries will not see any change in their basic premiums for Part B. The monthly premium, now $96.40, is usually deducted from Social Security checks.
But one-fourth of Medicare beneficiaries are expected to see much higher premiums of $104 next year and $120 in 2011. This group includes new Medicare beneficiaries and those with higher incomes (more than $85,000 a year for individuals and $170,000 for couples).
After the Social Security Board of Trustees released its annual report on the financial health of the Social Security Trust Funds May 12, the Obama administration reported that the financial condition of the two largest federal benefit programs -- Medicare and Social Security – has deteriorated, in part because of the recession.
As a result, the Medicare fund that pays hospital bills for older Americans is expected to run out of money in 2017, two years sooner than projected last year. The Social Security trust fund will be exhausted in 2037, four years earlier than predicted, the administration said.
An estimated 5.7 million jobs have been lost since the recession began in December 2007, according to the U.S. Department of Labor. With fewer people working, the government collects less in payroll taxes, a major source of financing for Medicare and Social Security.
Medicare officials predict a 30 percent increase in the number of Medicare beneficiaries in the coming decade, rising to 58.8 million in 2018 from 45.2 million last year.
Projected increases in health costs and the use of medical care are also contributing to the growth of Medicare.
Experts predict that average Medicare spending per beneficiary will increase more than 50 percent, to $17,000 in 2018, from $11,000 last year.
Lawmakers have repeatedly said they would never allow Medicare's trust fund to run out of money. But beneficiaries could be required in the future to pay higher premiums, co-payments and deductibles to help cover the costs.