The combination of low inflation and rising
Medicare costs threatens the adequacy of seniors' income
Mar
20, 2018 @ 11:44 am
Automatic cost-of-living adjustments are supposed
to help Social Security benefits keep pace with inflation, but years of low
inflation and rising Medicare costs are threatening the adequacy of a key
component of seniors' income.
Over the past eight years, Social Security
COLAs have averaged just 1.2% per year while Medicare Part B premiums have
increased on average more than 10% per year during the same period, according
to a new report from The Senior Citizens League, a nonpartisan advocacy group.
In most cases, premiums for Medicare Part B, which pays for doctors' visits and
outpatient services, are deducted directly from Social Security payments.
About half of all Medicare beneficiaries
report that they spend up to one-third of their Social Security income on
health care costs, and another 23% report spending up to 50% of their Social
Security benefits on health care, according to an advance copy of the TSCL
report, which is scheduled to be released Wednesday.
The report takes a closer look at the Social
Security "hold harmless" provision, which was first established in
1988. The rule says the annual increase in Medicare Part B premiums cannot
exceed the annual increase in Social Security benefits, to protect most seniors
from a net decline in Social Security benefits from year to year. In most years,
even a modest COLA increase in Social Security benefits is sufficient to
accommodate an annual increase in Medicare Part B premiums. In fact, the hold
harmless rule wasn't tested for more than 20 years.
But all that changed in 2010. Following the
Great Recession, inflation turned negative. By law, Social Security benefits
can't decline, but they can be frozen. In 2010, there was no COLA increase in
Social Security benefits and consequently, most retirees did not see an
increase in their Medicare Part B premiums.
But the hold harmless rule doesn't protect
everybody, and the remaining 30% of Medicare beneficiaries must shoulder a
bigger increase in the years when the hold harmless rule comes into play.
People who are enrolled in Medicare but not collecting Social Security —
including those who choose to delay their Social Security benefits until they
are worth more at an older age — are not protected by the hold harmless
provision. Neither are newly enrolled Medicare beneficiaries and high-income
retirees, defined as individuals with modified adjusted gross income topping
$85,000 and married couples whose joint income exceeds $170,000.
"Since 2010, inflation has been at
unprecedented lows, but Medicare Part B premiums have increased
substantially," the report said. "The majority of Medicare recipients
have seen little or no growth in their Social Security benefits after deduction
of the Part B premium for several years in a row."
No COLAS were paid on Social Security benefits
in 2010, 2011 and 2016. In 2017, the COLA was just 0.3%, increasing average
Social Security benefits by about $5 per month. The hold harmless provision was
triggered in each of those four years.
This year, Social Security benefits increased by 2%, boosting
average benefits by about $27 per month. But Medicare Part B premiums increased
by $25 per month in 2018, virtually wiping out any increase in benefits.
"With Medicare Part B premiums expected
to grow two to three times faster than the rate of Social Security benefits,
there's widespread concern about the ability of Social Security benefits to
keep pace with rising Medicare costs and
the adequacy of benefits," the report said.
In 2017, the Medicare trustees forecast that
Medicare Part B premiums would increase about 5% per year over the next decade.
The Centers for Medicare and Medicaid Services recently estimated that health
care spending in general would increase even faster, growing an average of 7.4%
per year over the next 10 years. Meanwhile, the annual Social Security COLA is
expected to be about 2.4%, according to the Congressional Budget Office.
"Cost-of-living adjustments would need to
double their current average rate of growth and Medicare Part B increases would
need to slow by half the historic rate of growth since 2000 to ensure the
adequacy of Social Security benefits for the majority of beneficiaries,"
the report said. "If COLAs continue to average 1.2% as they have since
2010, the Social Security hold harmless provision would continue to be
triggered with great frequency in coming years."
The most important thing that people nearing
retirement should consider doing is to delay Social Security benefits until age
70, the report said. Benefits grow by 8% per year for every year they are
postponed beyond full retirement age up to age 70.
"The higher your benefit and COLA, the
easier it will be to cover Medicare Part B and other health care costs in
retirement," said the report's author, Mary Johnson, a
Social Security and Medicare policy analyst for The
Senior Citizens League.
No comments:
Post a Comment