No Social Security Raises Even if Medicare Soars
The White House could authorize Sylvia Mathews Burwell to use money from Medicare’s “contingency reserve.” Credit Carolyn Kaster/Associated Press
WASHINGTON — The 60 million people on Social Security will not receive any cost-of-living increase in their benefits in 2016, the government said Thursday, but because of a quirk in federal law, nearly one-third of Medicare beneficiaries could have record increases in their premiums unless Congress intervenes.
With millions of older Americans on fixed incomes facing that one-two punch, the Obama administration is urging Congress to stop — or at least moderate — the health insurance premium increases, which could raise the cost for some Medicare beneficiaries by about 50 percent — the largest increase in the history of Medicare. But the leadership crisis in the House of Representatives could prove to be an obstacle.
Social Security has provided automatic cost-of-living adjustments in every year since 1975, with exceptions in 2010 and 2011. But inflation was extremely low in the past 12 months, leading to another benefit freeze, Social Security officials said. Gasoline prices, in particular, have declined sharply, holding down overall prices in the economy.
Jason Furman, the chairman of President Obama ’s Council of Economic Advisers, has put a positive spin on the absence of a cost-of-living adjustment. It results, he said, from a “sharp decline in energy prices that is putting more money in families’ pockets” and is contributing to the economic recovery.
Many older Americans do not see it that way. “People can afford to drive to the drugstore because gas prices are lower, but once they get there, they may not be able to afford their prescriptions,” said Joshua E. Rosenblum, a spokesman for AARP, a lobbying group for older Americans.
With the greater use of medical services by an aging population, health costs have again begun to climb, driven in part by new technology and expensive prescription drugs. Medicare needs additional money to help pay for Part B of the program, which covers doctors’ services, outpatient hospital care and some medications.
About 70 percent of Medicare beneficiaries will be protected against higher premiums in 2016. Under federal law, Medicare premiums are linked closely to Social Security benefits because most people on Medicare have their premiums deducted from their monthly Social Security checks. To protect older Americans, federal law stipulates that, in most cases, the increase in a person’s Medicare premium cannot exceed the increase in the person’s Social Security benefit. The purpose of this “hold harmless” provision is to prevent a reduction in Social Security benefits.
But by shielding 70 percent of beneficiaries from premium increases, that same law exposes the other 30 percent to price shocks. Medicare actuaries predicted in July that the standard premium for those beneficiaries would rise next year to $159 a month, from a little less than $105 a month for most beneficiaries, the same as in 2013 and 2014.
The actuaries also predicted an increase in the annual deductible for Part B of Medicare, to $223 next year, from $147 in 2015. Beneficiaries generally must pay the deductible before Medicare begins to pay.
Premiums are supposed to cover about one-fourth of the projected cost of Part B of Medicare, with general revenues accounting for the remainder. If premiums are frozen for 70 percent of beneficiaries, higher overall Medicare costs must be spread across a smaller group of people.
That smaller group, of more than 15 million, includes some high-income Medicare beneficiaries who are already required to pay higher premiums and may be able to afford the price increase. It also includes beneficiaries who are new to Medicare in 2016; those who do not receive Social Security checks; and low-income people eligible for both Medicare and Medicaid. whose premiums are paid by state Medicaid programs.
Even some affluent beneficiaries could struggle with the higher costs. For those with incomes of more than $214,000 a year, Medicare actuaries say, premiums next year could exceed $500 a month, up from about $335, if Congress does not change the law. Financially struggling state governments are expressing concern because they are responsible for many low-income beneficiaries. The National Governors Association estimates that the higher premiums will cost states $2.3 billion next year.
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In the absence of legislative action, the White House faces a choice between two politically perilous options. It could authorize a big increase in Medicare premiums for those 15 million. Or it could authorize the secretary of health and human services, Sylvia Mathews Burwell, to take money from Medicare’s “contingency reserve,” which serves as a cushion in case actual spending is higher than projected. The contingency fund is already lower than the level recommended by Medicare’s actuaries.
The House Democratic leader, Representative Nancy Pelosi of California, and Speaker John A. Boehner of Ohio had been quietly exploring a deal to limit the increase in Medicare premiums.
But with turmoil in Republican leadership ranks, touched off by Mr. Boehner’s plan to retire this month, Congress is barely able to function. He has insisted that the cost of legislation to stabilize premiums, estimated at $7.5 billion to $10 billion, be offset by savings elsewhere in the federal budget .
Senator Orrin G. Hatch of Utah, the chairman of the Finance Committee, which has jurisdiction over Medicare, said any solution should be “fiscally responsible.”
Ms. Pelosi and other Democrats sounded an alarm last week and placed the onus on Republicans.
“For the past month,” Ms. Pelosi said, “we have been reaching out to the Republicans to say, ‘This deadline is racing toward us.’ We must act so that we stop the pain that will be inflicted upon our seniors.”
Representative Jan Schakowsky, Democrat of Illinois, said: “This is a disaster for many older Americans. I get panicked phone calls to my office, begging us to act.”
Ron Thompson, the president of the Virginia Alliance for Retired Americans, said the higher premiums would put “too much of a burden on seniors.”
“Health care costs are going up,” Mr. Thompson said, “but the federal government is saying seniors do not need a cost-of-living increase next year.”
The Social Security Act specifies a formula for determining the cost-of-living adjustment based on a broad measure of consumer prices for urban wage earners and clerical workers, but older Americans say this measure of inflation does not fully reflect price increases for the goods and services they use. Older Americans typically devote more of their budgets to medical care.
State governments, too, say they cannot absorb the hit.
“The cost of protecting Medicare beneficiaries should be borne by the federal government rather than placed on the backs of states,” Dan L. Crippen, the executive director of the governors association, said last week in a letter to congressional leaders.
An earlier version of this article misspelled the given name of the senator from Utah whose committee has jurisdiction over Medicare. He is Orrin G. Hatch, not Orin.
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A version of this article appears in print on October 16, 2015, on Page A21 of the New York edition with the headline: No Social Security Raises Even if Medicare Soars. Order Reprints | Today’s Paper | Subscribe
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