THERE WAS practically no inflation over the past year, which means that 60 million people living on Social Security won’t be getting an annual inflation adustment in their benefits. You’d think that’s a good-news story, or at least a neutral one — what’s not to like about older Americans essentially holding steady economically?
Alas, due to a little-known law, this seemingly benign situation is actually creating a bit of havoc elsewhere in the federal entitlement system, specifically in Medicare. In years when Social Security beneficiaries get no inflation bump, their Medicare premiums can’t go up — except for roughly a third of retirees, who must shoulder all of the burden of rising costs. Consequently, about 15 million seniors are looking at premium spikes of up to 50 percent for Part B, the program that covers outpatient care. A typical increase would be from about $105 per month to $159, according to a Congressional Research Service report. And older Americans are howling in protest, to a Congress that’s already having trouble meeting deadlines regarding the budget and the federal debt ceiling.
The first step in thinking about this problem is to keep it in perspective. Yes, a 50 percent increase is abrupt, but all seniors would have faced a 15 percent increase if Social Security benefits had received an inflation adjustment. What’s more, about a third of those facing a premium spike are either high-income retirees, who may appropriately be expected to pay more, or brand-new enrollees, who aren’t really being hit with an increase because they weren’t in the program before. (Welcome to Medicare, guys!) About two-thirds of the affected population are elderly poor people for whom Medicaid pays Medicare benefits; in their case, what we’re really looking at is a major shifting of costs to the states, which would have to pay about $2.3 billion extra.
Three principles should guide Congress in considering a fix. First, in a situation in which everyone was expecting a 15 percent premium increase, no one now slated to pay more is entitled to a zero increase, especially not better-off seniors who can reasonably pay more. Second, the poorest beneficiaries, who are the majority of those affected, should be protected. And third, the entire cost of the fix — $7.5 billion, assuming that Congress does, in fact, limit the increase for the 15 million seniors to 15 percent — should be paid for with offsets elsewhere in the budget, preferably from other health-care programs. This glitch is no reason to dip into Medicare’s reserve fund, as some have suggested.
As it happens, President Obama’s last budget recommended a phased-in increase in Part B deductibles for new beneficiaries, starting in 2019, which would save $7 billion all by itself. Adopting a change like that could help pay for a fix, while giving Medicare a measure of what it really needs: structural reform.