For the first time in 35 years, older Americans will receive no cost-of-living increases (COLA) in their Social Security checks in 2010 according to Congressional Budget Office estimates. The forecast is based on expected low inflation, in contrast to 2009 when the COLA added 5.8 percent to Social Security benefits.
Next year's zero COLA is bad news enough for many retirees living on fixed incomes during a recession. But millions of them also face much higher Medicare Part B premiums next year.
Under an obscure “hold-harmless” provision of federal law, basic Part B premiums in any year cannot rise higher than that year’s COLA. So a zero COLA means that the basic premium (currently $96.40 a month) must stay the same. “The intent of the policy is to protect the amount of the Social Security payment from being reduced by an increase in premium costs,” says Peter Ashkenaz, spokesman for the Centers for Medicare & Medicaid Services (CMS).
The hold-harmless policy gives this protection to the majority of people enrolled in Medicare Part B who also receive Social Security, Railroad Retirement or Civil Service retiree benefits.
But it does not apply to one in four (or about 11 million) beneficiaries who:
- do not have their Part B premiums withheld from their Social Security checks, or
- pay a higher Part B premium based on higher income, or
- are newly enrolled in Part B.
Premium amounts are normally set so that beneficiaries actually pay for only about 25 percent of the costs of Part B benefits, which cover doctors’ visits and other outpatient services. The remainder is paid out of federal funds. Next year, if the premium is frozen for most beneficiaries but costs rise, the shortfall in revenue for that 25 percent falls on the wallets of the one in four beneficiaries not protected by the hold-harmless provision.
"In the absence of a Social Security COLA, unless Part B premiums are increased substantially on those who are not held harmless, the Supplemental Medical Insurance trust fund, which finances Part B, is at risk of exhaustion," according to an analysis by the Congressional Research Service.
For these beneficiaries, the basic Part B premium could rise to $119 a month in 2010, according to Congressional Budget Office projections. And if zero Social Security COLAs continue in later years, as CBO expects, it could rise to $128 by 2012. For people with incomes over $85,000 a year who already pay higher premiums—surcharges of between $38.50 and $211.90 a month in 2009—these amounts would be far more.