Medicare Cost Rise Eats Up Part of Social Security Inflation Adjustment

October 14, 2011
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Social Security recipients are likely to get a cost of living allowance (COLA) adjustment next year, based on an increase in the Consumer Price Index. Yet most senior citizens will see part of that increase eaten up by a rise in the Medicare Part B premium, which covers doctor visits and outpatient services and is usually deducted from Social Security payments. Part B premiums are driven by the cost of Medicare, which has been going up faster than inflation.

Social Security recipients are likely to get a cost of living allowance (COLA) adjustment next year, based on an increase in the Consumer Price Index. Yet most senior citizens will see part of that increase eaten up by a rise in the Medicare Part B premium, which covers doctor visits and outpatient services and is usually deducted from Social Security payments. Part B premiums are driven by the cost of Medicare, which has been going up faster than inflation. The impact differs for different people, and some won’t feel any effect, but many beneficiaries will see their Social Security increase cut to 2 or 2.5 percent instead of 3.5 percent.

I wish the impact were more substantial and more transparent. In fact, the best would be for seniors to get a letter explaining that they would have seen an increase of 3.5 percent but instead will get zero, thanks to rising health care costs. That would mirror what’s happening in the private sector, where increases in the cost of employer sponsored health care have largely offset wage growth. Come to think of it, maybe employers should also make this phenomenon explicit by showing employees a hypothetical wage increase and illustrating how the raise is being withheld to pay the rising health insurance bill.

This plan would make it a lot clearer how failure to act on health care cost control is taking money out of people’s pockets.


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