Ray's Round Up: Social Security and Medicare in 2016

Social Security and Medicare in 2016 – a Bad News, Good News, Bad News Announcement

The biggest news impacting older Pennsylvanians didn’t come from Harrisburg this week.  Instead, it was the announcement from Washington, DC about the Social Security Cost-of-Living Adjustment (COLA) for 2016 – or rather the lack of one.  The Social Security Administration said that for only the third time since 1975 there would be no increase in monthly Social Security payments for beneficiaries.

This doesn’t make a lot of sense to many older Pennsylvanians who are paying more for prescription drugs, doctors’ co-payments, electricity, and many items they use on a daily basis.  Why was this decision made?  It goes back to the formulas that most of us have forgotten from our math classes in high school, as well as the history of the Social Security program (see, education does matter!).

Before 1975, there wasn’t an annual Social Security cost-of-living increase.  Instead, the U.S. Congress and the President would debate whether Social Security beneficiaries deserved an increase, a debate which became increasingly political every year.  In the early 1970s, inflation became a huge economic problem in the United States (this was the era of the “WIN – Whip Inflation Now!” Buttons). Congress, feeling the pressure from Social Security recipients, decided to take the politics out of Social Security cost-of-living increases.  A Social Security Administration panel devised a formula to determine a cost-of-living index which would set the percentage increase in Social Security benefits each year.

There has been a great deal of debate about this formula since it was introduced.  Some have claimed the formula was too generous and over-estimated the actual expenses of older Americans and threatened the long-term health of the Social Security system.  Others, including AARP, have felt the formula doesn’t give enough weight to health care costs, which constantly increase at rates higher than the general inflation rate and which seniors use in higher proportions.

Apparently the biggest factor in determining that there would be no Social Security COLA for 2016 is the price of gasoline.  While it is true that gas prices at the pump are significantly lower now than they were a year ago, this points out a flaw in the formula.  On average, older Americans drive many fewer miles than the overall population, which means the cost of gasoline should not have as large a role in determining the COLA.  At the same time, health care costs have again begun to increase, particularly for out-of-pocket expenses.

The law that was passed in 1975 was put in place to keep politics out of the debate about the Social Security COLA.  But it doesn’t mean that we shouldn’t take a look at adjusting the formula to better reflect the true cost-of-living in 2015 for older Americans.  It won’t result in a COLA increase for 2016 however; by law, this week’s announcement is the final word on the matter for next year.

Hey Ray, I thought you said there was good news….

There is a silver lining in this announcement.  Despite the fact that health care costs are going up, a provision of the Medicare law states that if Social Security beneficiaries do not receive a COLA, their Medicare Part B premiums cannot increase.  So for 70 percent of Medicare beneficiaries, their Medicare Part B premium will remain at $104.90 per month in 2016.

Good, but what about the other 30 percent? Uh oh, you said there was more bad news….

There are certain Medicare beneficiaries who are not covered by the provision that prevents a Part B premium increase if there is no Social Security COLA.  Some Medicare enrollees do not receive Social Security.  Others will turn 65 in 2016 and will be enrolling in Medicare for the first time.  And others still have incomes above $85,000 for individuals or $170,000 for married couples and already pay higher Medicare Part B premiums.  With health care costs increasing, and 70 percent of Medicare beneficiaries protected from paying higher premiums, those in these three categories will pay significantly more in 2016.  For example, a new Medicare enrollee will pay a Part B premium of $159.30 in 2016.  Those with high incomes could pay upwards of $250 a month or in some cases a lot more.  More than 7 million older Americans will be impacted by this situation next year.

There have been proposals for a legislative fix for this situation in Congress, but one problem stands in the way – finding the money to pay for it.  AARP and other organizations have issued a strong call to elected officials to prevent this huge increase in monthly Medicare Part B premiums for 7 million older Americans.  There are only 2 ½ months for action on this issue, but for everyone facing a $600 a year or more increase in their health insurance costs, those 12 weeks may seem like an eternity.

Meanwhile, back in Harrisburg

Both the State House and State Senate will be in session next week.  Lawmakers will again try to work on a solution to the state budget impasse, as Pennsylvania has now been without a budget for over 100 days…

 

“Ray’s Round Up” features updates on current state and federal issues by Ray Landis, AARP PA’s Advocacy Manager.