Social Security Recipients Will Receive No Cost-of-Living Increase in 2016

Price measure to calculate annual living-cost adjustment was down 0.4% in third quarter

By Nick Timiraos, Wall Street Journal, October 15, 2015

Pictured are blank U.S. Treasury checks being printed

Blank U.S. Treasury checks run through a printer at a U.S. Treasury
printing facility in Philadelphia. The Labor Department said Thursday
that 2016 will be the third year this decade with no cost-of-living
increase. (Photo by William Thomas Cain/Getty Images)

For the third time this decade, Social Security recipients won’t be seeing an annual cost-of-living adjustment next year, officials said Thursday.

Blame soft inflation, including the nearly 30% drop in gas prices over the past year. The official price measure used to calculate the annual living-cost adjustment was down 0.4% from last year’s level in the third quarter, the Labor Department said Thursday.

Congress adopted the formula in the 1970s. While it has resulted in an average benefit increase of 4.1% over the past 40 years, benefits have gone up an average of just 2% over the past 10 years. There were no increases in 2010 and 2011.

The formula also calculates future living-cost adjustments from the highest price level from the third quarter of any year, meaning that any future benefit increases must reflect gains over the level of summer 2014, which was higher than this year. That could hold down raises in 2017.

The lack of inflation also means there won’t be an increase in the amount of wage income—currently $118,500—subject to payroll taxes.

Some 56 million Americans receive Social Security benefits along with another eight million who collect a benefit called Supplemental Security Income, which goes mainly to the poor and disabled. The average monthly Social Security check is $1,224.

Social Security checks remain a critical source of incomes to many American households. An estimated 26 million more people would have fallen below the government’s official poverty line last year without the payments, according to the Census Bureau.

The absence of any living-cost bump will trigger a “hold harmless” provision that prevents Medicare premiums from rising for about 70% of beneficiaries, who will continue to pay their existing monthly premiums of $104.90.

Under current law, however, premiums for the other 30% of beneficiaries—including new enrollees, those who don’t receive Social Security benefits and enrollees with higher incomes—must be raised substantially to compensate. Federal actuaries estimated in July that those monthly premiums would rise 52% to $159.30.

Officials who oversee the Medicare program at the Department of Health and Human Services are reviewing ways to reduce the increase.

AARP, the seniors-advocacy group, pre-emptively called on Congress this week to extend the hold harmless provision to all Medicare beneficiaries, while budget-deficit hawks have warned against allowing the costs of any changes to increase deficits.

Write to Nick Timiraos at nick.timiraos@wsj.com

Related article: Medicare Rates Set to Soar

http://www.wsj.com/articles/social-security-recipients-will-receive-no-cost-of-living-increase-in-2016-1444917257

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