The Social Security Administration announced Sept. 30 that there would be no increase in retirement benefits next year – the first freeze in more than three decades. Law professor Richard L. Kaplan, an expert in elder law, discusses the reasoning and the consequences in an interview with News Bureau Business & Law Editor Jan Dennis.
What is the basis of the freeze?
It is a very unusual development. Since automatic cost-of-living adjustments began in 1975, there has never been a year when Social Security benefits did not increase. This year’s result is due to the fact that the Consumer Price Index has gone down during the 12-month period that is used to adjust these benefits. The law prohibits benefits from being cut, so the result is that benefits will remain unchanged.
Many older people complain that their cost of living, especially medical expenses, continued to rise despite the CPI decline. So should they get an increase nonetheless?
Current law ties adjustment of Social Security benefits to the CPI computed for “urban wage earners and clerical workers.” That index may not be especially representative for older Americans whose consumption patterns differ from the so-called basket of goods that is used to derive the CPI. But until the government designs a variant of the CPI specifically for older people, no cost of living increase is allowable unless the currently computed CPI rises.
Could Congress change the law?
Certainly. Congress could authorize the creation of an elder-oriented CPI and mandate that Social Security benefits be adjusted by that new index, but that change would likely take some years to implement. In the meantime, certain advocates have proposed a small increase on the order of 1 percent. But again, such a change requires legislative enactment. The Social Security Administration cannot make such a change on its own.
Since medical costs continue to rise, will Medicare premiums rise next year and effectively reduce Social Security benefits?
The law has a so-called “hold harmless” provision that requires the increase in Medicare Part B premiums to not exceed the increase in Social Security benefits. If there is no increase in Social Security benefits, then Medicare premiums cannot increase either.
Does this “hold harmless” provision cover all Medicare beneficiaries?
No, but it does cover three out of four Medicare beneficiaries, and two-thirds of the rest are low-income persons whose Medicare premiums are paid by the state and federal governments through the Medicaid program. There are two groups, however, who are not shielded from Medicare’s premium increases by this provision – new enrollees in Medicare and higher-income enrollees whose Medicare Part B premiums are tied to their income as reported for income tax purposes. I examine this latter feature in my article titled “Means-Testing Medicare: Retiree Pain for Little Governmental Gain.”
Is Congress likely to assist people who are not protected under current law?
Quite possibly. On Sept. 24, the House of Representatives voted to exempt all Medicare beneficiaries from any increase in their Medicare premiums next year. This change in the law must still pass the U.S. Senate, but the House vote in favor of this measure was an overwhelming 406 to 18, suggesting that this proposal has extremely broad bipartisan appeal – at least among lawmakers who must face the voters next year.
You have mentioned Medicare Part B, but what about the premiums for Part D, the prescription drug program under Medicare? Are those premiums also constrained by the “hold harmless” provision or the proposed legislation?
Neither. That is, enrollees in Medicare Part D may face increases in their premiums next year despite the lack of any increase in their Social Security benefits. Part D is a very different program in every respect. With Part B, the government offers a one-size-fits-all arrangement with a stipulated price. In Part D, there is neither single plan nor any single price. Instead, there are at least 45 different plans in every state, and often more. Thus, a Medicare beneficiary whose current drug plan increases its premium more than he or she wants to pay can switch to some other plan, perhaps even one costing less than that person’s current plan. But Part D enrollees need to consider their options very carefully. The various plans have significant differences in their coverage of specific pharmaceuticals, dosage amounts, and dosage frequencies. I explain this program in my article titled “The Medicare Drug Benefit: A Prescription for Confusion.”
