October 15, 2009
The Social Security Administration has made it official, announcing Thursday what many had predicted; there will be no cost of living increase in Social Security Benefits next year.
It will be the first year without an automatic Cost-of-Living Adjustment (COLA) since the adjustment mechanism went into effect in 1975.
"Social Security is doing its job helping Americans maintain their standard of living," Michael J. Astrue, Commissioner of Social Security said. "Last year when consumer prices spiked, largely as a result of higher gas prices, beneficiaries received a 5.8 percent COLA, the largest increase since 1982. This year, in light of the human need, we need to support President Obama's call for us to make another $250 recovery payment for 57 million Americans."
But senior advocacy groups were quick to label the announcement a disaster for seniors.
"This is a serious problem and unless Congress acts, millions of seniors will see their checks stay flat or even reduced while the costs of prescription drugs, utilities and health care continue to climb fast," said Barry Jackson, AARP's online advocacy manager in an email sent to the organization's millions of members just minutes after the announcement was made.
The Social Security Act provides that Social Security and Supplemental Security Income benefits increase automatically each year if there is an increase in the Bureau of Labor Statistics' Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year to the third quarter of the current year. This year there was no increase in the CPI-W from the third quarter of 2008 to the third quarter of 2009.
In addition, because there was no increase in the CPI-W this year, under the law the starting point for determinations regarding a possible 2011 COLA will remain the third quarter of 2008.
But Jackson said the CPI-W is not a reliable indicator of the expenses faced by seniors. "The reality is that the bad economy this year has hit seniors particularly hard. They spend an average of $4,400 out of pocket every year on health care alone. With home values dropping, losses in the stock market, and low returns on interest bearing accounts, it's no wonder that more Americans are counting on the promise of Social Security," he said in his email.
Jackson said seniors should demand that Congress provide "at least modest relief."
Some other changes that would normally take effect in January 2010 based on the increase in average wages also will not take effect, even though average wages did increase. Since there is no COLA, the statute prohibits an increase in the maximum amount of earnings subject to the Social Security tax as well as the retirement earnings test exempt amounts. These amounts will remain unchanged in 2010.
Medicare changes?
The Department of Health and Human Services has not yet announced if there will be any Medicare premium changes for 2010. Should there be an increase in the Medicare Part B premium, the law contains a "hold harmless" provision that protects about 93 percent of Social Security beneficiaries from paying a higher Part B premium, in order to avoid reducing their net Social Security benefit.
Those not protected include higher income beneficiaries subject to an income-adjusted Part B premium and beneficiaries newly entitled to Part B in 2010. On September 24th, the House passed legislation by 406-18 that would, on a fully paid-for basis, prevent abnormally large premium increases.
President Obama has asked the Senate to enact this legislation before it becomes too late for the Social Security Administration to update its computer systems to implement this needed change, the agency said.
