For the second year in a row Social Security recipients will not receive a cost-of-living increase in 2011, the Social Security Administration announced today. This year was the first without a boost in Social Security payments since automatic increases for inflation began in 1975. Here’s a look at why more than 58 million retirees will receive checks for the same amount next year that they do today.
Blame it on gas prices. Annual increases in payments are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers. Beneficiaries last received a 5.8 percent increase in 2009, the highest benefit boost in over 25 years, shortly after gas prices spiked in 2008. However, the index decreased between the third quarter of 2008 and 2009, so retirees received checks for the same amount this year.
Not enough inflation. Seniors will not receive a cost-of-living increase until this measure of inflation climbs above where it was in the third quarter of 2008, which has not happened yet. The Consumer Price Index averaged 215.495 in the third quarter of 2008, which is still higher than the 214.136 average calculated in third quarter of 2010. “We’re in a period of time in which the purchasing power of Social Security benefits has risen at a rate above inflation,” says Andrew Biggs, a resident scholar at the American Enterprise Institute and a former deputy commissioner of the Social Security Administration. “There will continue to be no cost-of-living adjustments until inflation catches up.”
Seniors groups, however, say that retirees need a cost-of-living adjustment this year because the Consumer Price Index does not adequately take into account all the challenges older adults face. “Over the past two years, older Americans have paid more for utilities and food, experienced a decline in housing values, tried to recover from deep retirement account losses, struggled with rising health and prescription drug costs, and faced longer periods of unemployment for those who need to work,” says Nancy LeaMond, executive vice president of AARP.
The Social Security Board of Trustees estimates that there will be a small 1.2 percent cost-of-living adjustment in 2011 and a slightly larger 2.4 percent increase in 2012. Past Social Security cost-of-living adjustments have ranged from 1.3 percent in 1998 and 1986 to 14.3 percent in 1980.
Medicare premiums. The lack of a cost-of-living adjustment is resulting in many retirees paying lower Medicare premiums than they otherwise would. Medicare Part B premiums increase each year to an amount sufficient to fund approximately 25 percent of the projected cost of the Medicare Part B program. But, by law, Part B premiums cannot increase faster than Social Security payments. Part B premiums for existing beneficiaries will stay the same next year. “Part B premiums are not rising to cover the full share of Medicare premiums that individuals are supposed to cover,” says Biggs. “People are paying $96 per month when they should be paying $120 dollars a month.”
Most existing Medicare Part B recipients will continue to pay $96.40 per month next year. However, new enrollees, high-income beneficiaries, and low-income participants in state Medicaid programs are not protected by the law and must pay higher premiums to offset the lower premiums existing beneficiaries are paying. Most new 2010 enrollees in Medicare Part B pay $110.50 per month. The Medicare Board of Trustees estimates that monthly premiums for most new enrollees will be $120.10 in 2011 and $113.80 in 2012. Medicare Parts C and D premiums could also increase for both new and existing Medicare enrollees.