Social Security cost-of-living adjustment coming in January, but Medicare costs to rise

Social Security recipients are about to receive some good news – a 3.6 percent increase in their benefits starting in January 2012.

The Social Security Administation announced the increase today, giving comfort to the millions of retirees and disabled people getting by just on their Social Security check, especially at a time when they are seeing their home values plummet and their savings dwindle.

The 55 million Social Security recipients can expect to increases averaging $39 a month, or just over $467 for the year. In December, more than 8 million people who receive Supplemental Security Income, the disability program for the poor, will get increases averaging $18 a month, or about $216 for the year.

Though advocates for seniors and the disabled welcome the news, celebration should be checked by the reality of increases in Medicare premiums slated to take effect at the same time. For some individuals, higher Medicare Part B premiums could wipe out as much as a fourth of their raise from Social Security, according to projections by the trustees who oversee the programs. Medicare will be announcing the 2012 Part B premiums early next week. These premiums cover doctor visits and are automatically deducted from the Social Security check.

Benefits recipients are rejoicing today, but "It may be cold comfort, however, once they see just how high next year's Medicare premiums will go," said Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare.

The annual cost-of-living, or COLA, adjustment has been in place since 1975 and is tied to an inflation measure. There were no COLA adjustment in 2010 and 2011 because inflation was too low for an adjustment. Monthly Social Security payments average $1,082, or about $13,000 a year.

Medicare Part B premiums are set each year to cover 25% of the program’s cost. They have been frozen at 2009 levels for about 75 percent of beneficiaries because there has been no increase in Social Security payments.

The announcement of the benefit increase comes as Congress is looking for ways to slow the growth of the program. It has been estimated that the annual cost of the program will climb by 75 percent in the next decade, reaching nearly $1.3 trillion in 2021.

One option, advocated by Republican members of Congress and the White House, would calculate the annual update in benefits using an alternative measure of inflation, known as the “chain-weighted version” of the Consumer Price Index. The budget office says such a change could save more than $100 billion over 10 years.

Benefits advocates say that this is tantamount to a backdoor cut in benefits. Representative Nancy Pelosi of California, said that any savings in Social Security should be used to strengthen the program, not to reduce the deficit.

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