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Tens of millions of seniors will see no annual cost-of-living adjustment in their Social Security checks in 2016, the government said Thursday, unwelcome news that also will flatten benefit payments for retired federal workers and service members.
It is only the third time in 40 years — all of them during the Obama administration — that the Social Security Administration has not increased its payments. The raises are tied to the consumer price index (CPI).
About 65 million retired and disabled workers, spouses and children collect Social Security benefits every month, the equivalent of about 1 in 4 households. Another 15 million are disabled veterans, federal retirees and their survivors, and those on Supplemental Security Income, the disability program for the poor.
The raises are tied to the consumer price index (CPI), which has been flat because of lower gasoline prices.
The lack of a raise triggers other bad news for retirees: Higher medical costs.
Most Americans have their outpatient care premiums for Medicare Part B deducted directly from their Social Security checks, and the annual cost-of-living increase usually covers any increase to premiums. When it doesn’t, a longstanding “hold harmless” law protects about 70 percent of seniors from having their Social Security payments reduced.
But that leaves about 30 percent of Americans on Medicare to cover a hike to premiums that otherwise would be spread across everyone. That group includes people new to Medicare, federal retirees who don’t receive Social Security payments and about 3.1 million people with higher incomes, that is, those making more than $85,000.
Their premiums could rise by 52 percent, by about $54 a month to $159, according to calculations earlier this year by the Medicare Trustees, and more for those with higher incomes.
White House press secretary Josh Earnest said Thursday that the administration “is aware of this, frankly, unintended policy consequence resulting from the formula for calculating cost of living adjustments. And so we’re aware of this problem and it is something that we’re concerned about.”
Earnest said the White House has had “discussions” with members of Congress about the issue “and our interest in trying to resolve it” but declined to elaborate.
The Consumer Price Index is based on the Labor Department’s assessment of inflation, which is being held in check by increasing gasoline production and lower prices at the pump. Labor officials said Thursday that CPI for all items fell 0.2 percent in September after a decline of 0.1 percent in August.
While medical costs are increasing, consumer prices for a range of goods from food to housing have not risen enough overall to produce an increase in benefits, and have dropped from a year ago, say economists, who have predicted for months that there would be no cost-of-living increase.
Shortly after the Social Security announcement, Medicare announced the start of open enrollment for seniors who want to change their coverage or sign up for benefits. But the government did not give details on next year’s premiums, which also take effect in January.
Close to 70 groups representing seniors and federal retirees groups have been lobbying Congress for months to pass legislation to stop the increase in premiums for everyone. Democrats in Congress have introduced bills to freeze the Part B premium and deductible for 2016, but their chances of passage are uncertain.
“This is about more than just money,” Richard Thissen, president of the National Active and Retired Federal Employees Association, said in a statement. “It is about basic fairness. There is no reason why two people with the same income should pay different Medicare premiums based on whether the money is coming from a Social Security check or a checking account.”
Medicare premiums would jump disproportionately for retired federal workers who are covered by the old Civil Service Retirement System and who do not receive Social Security benefits, among millions of others.
According to the latest government data, as of a year ago there were 1,461,000 federal retirees drawing benefits from the older system. Some of them do qualify for Social Security benefits through other employment, and a small percentage fall under a hybrid that includes Social Security. Groups representing retired federal employees estimate that more than 800,000 retirees in this system would have to pay the higher premiums.
There are another 568,000 federal retirees under the newer Federal Employees Retirement System, which includes Social Security.
The lack of an inflation adjustment also likely means there will be no change for 2016 in the investment maximums in employer-sponsored retirement savings plan such as 401(k)s and the Thrift Savings Plan for federal employees. Currently the general limit is $18,000, with another $6,000 “catch-up” investment allowed for investors in the year they turn age 50 and after. Also likely to be unchanged are limits on individual retirement account investments, currently $5,500, with an extra $1,000 “catch-up” allowed.
The Internal Revenue Service typically makes an announcement about those limits shorter after the cost of living determination.
By law, the cost-of-living adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, a wide-ranging assessment of consumer prices by the Bureau of Labor Statistics. Food, housing, clothing, transportation, energy, medical care, recreation, education — these all go into the calculation. If prices rise, benefits rise. If they stay more or less flat, so do benefits.
Groups that advocate for retirees have long complained that CPI is a poor measure for Social Security benefits. People who are working have different spending patterns than retirees, they argue, driving more and spending less on health care and long-term care than those who have stopped working. But medical care is where prices are rising faster than other goods. Advocates favor using what’s called the CPI-E (E for elderly), which attempts to take into account the different spending patters for retirees.
“The government needs a new approach – one that recognizes the reality of rising costs in many areas, especially health care, that are putting pressure on American seniors,” Rep. Eliot Engel (D-N.Y.) said in a statement.
He has introduced a bill that would amend current law by requiring the use of the Consumer Price Index for the Elderly rather than the Consumer Price Index for Urban Wage Earners and Clerical Workers, when calculating annual cost of living adjustments for people on Social Security.
“It is absolutely outrageous and disgraceful that our seniors are suffering because we continue to use an antiquated formula to determine cost of living increases,” said, who represents parts of the Bronx and Westchester County.
Only twice before, in 2010 and 2011 since cost-of-living adjustments started, has there been no bump up in benefits. Retirees did receive a 1.7 percent cost-of-living increase for 2015, a 1.5 percent boost for 2014, a 1.7 percent increase for 2013 and a 3.6 percent bump for 2012.
Congress enacted automatic increases for Social Security beneficiaries in 1975, when inflation was high and there was a lot of pressure to regularly raise benefits. Since then, increases have averaged 4 percent a year.
Eric Yoder contributed to this story