Medicare Part B Premium Increase in Part Offsets Social Security Cost of Living Adjustment

Social Security payments to more than 47 million U.S. residents will increase by 2.7% in January, but nearly half of the expected $25 monthly increase in payments for the typical beneficiary will be offset by higher Medicare Part B premiums, the Washington Post reports (Henderson, Washington Post, 10/20). Most elderly and disabled people have their Medicare Part B premiums deducted from their monthly Social Security checks, the New York Times reports (Pear, New York Times, 10/20).

The annual cost-of-living adjustment, announced Tuesday by the Social Security Administration, is the largest percentage increase in Social Security payments since 2001, when the federal government raised payments by 3.5%. This year's increase will raise average monthly Social Security payments to retirees from $930 to $955 (AP/Washington Times, 10/20). The average retired couple will have their Social Security payments increase from $ 1,532 to $1,574 per month (Shroeder, Wall Street Journal, 10/20).

For most seniors, increased Social Security payments will be offset by the expected 17.4% increase in 2005 for premiums under Medicare Part B -- which covers physician services, outpatient hospital care, some home health services and durable medical equipment (AP/Washington Times, 10/20).

HHS, which announced the premium increase in September, said that monthly Medicare Part B premiums will increase by $11.60 to $78.20 in January, the highest dollar increase in the history of Medicare. According to HHS, the major factor behind increased premiums is higher spending under traditional, fee-for-service Medicare, particularly in higher payments to physicians (California Healthline, 9/7).

Accounting for the Medicare Part B premium increase, the average retiree will see a net increase in monthly Social Security payments of $13.40, the Minneapolis Star Tribune reports (Westphal, Minneapolis Star Tribune, 10/20). According to the New York Times, while annual COLA adjustments for Social Security are tied to the Consumer Product Index, Medicare Part B premiums are set to cover about 25% of the cost of Medicare Part B (New York Times, 10/20).

The Star Tribune reports that 2005 is the "third-consecutive year in which small Social Security increases and rising Medicare premiums have left seniors with only a few dollars per month in additional income." In the last five years, Medicare premiums have increased nearly 60%, according to the Star Tribune (Minneapolis Star Tribune, 10/20).

In response to the news, Senate Minority Leader Tom Daschle (D-S.D.) called on Congress to enact a cap on annual Medicare premium increases of 25% of annual COLA increases (Rainey, Los Angeles Times, 10/20). Federal law already prohibits annual Part B premium increases from exceeding any recipient's Social Security COLA adjustment (Minneapolis Star Tribune, 10/20).

But Rep. Pete Stark (D-Calif.) said, "Nearly 13 million beneficiaries will have half or more of their cost-of-living adjustments taken away by the increase in Medicare premiums next year" (New York Times, 10/20). Several congressional Democrats have introduced legislation proposing a cap on premium increases (AP/Washington Times, 10/20).

House Minority Leader Nancy Pelosi (D-Calif.) said the new Medicare law is responsible for the Part B premium increase, adding that the legislation provides "billions of dollars to the HMOs and the big drug companies" (Los Angeles Times, 10/20). The New York Times reports that the Congressional Budget Office has predicted that premiums for the new Medicare drug benefit, which will be based on total outpatient drug spending under Medicare, will grow at a much faster pace than the Medicare Part B premium.

Daschle said that as a result, "many beneficiaries will see their Social Security checks shrink" after 2006, when the benefit is set to begin (New York Times, 10/20).

David Certner, AARP's director of federal affairs, said that the COLA is "always welcome news," adding, "Those 2% to 3% increases a year make a huge difference" (Los Angeles Times, 10/20).

AARP CEO Bill Novelli said the announcement is "good news and bad news" (Washington Post, 10/20). He said, "Far too many Social Security beneficiaries will see the Social Security cost-of-living adjustment partially or completely eroded by the Medicare premium increases." Novelli added that for 80% of retirees, Social Security is their "primary source of income" (New York Times, 10/20).

AARP Policy Director John Rother, added that the Medicare Part B premium increase, along with an expected increase in heating bills this winter, "means that many people will have no ability to keep up with inflation" (Los Angeles Times, 10/20).

Gladys Leidel, co-president of the Uniondale-East Meadow, N.Y., AARP chapter, said, "They're (the government) giving with one hand and taking away with another." She added, "Everybody is afraid they'll outlive their money" (Bernstein, Long Island Newsday, 10/20).

Democratic presidential nominee Sen. John Kerry (Mass.) at a rally in Pennsylvania said, "For a typical senior, nearly half of this year's Social Security cost-of-living adjustment is going to be eaten away by the record rise in Medicare premiums. And for two million seniors, their entire cost-of-living increase will be completely wiped out by the higher Medicare premiums. That leaves less money for food, medicine and even an occasional gift for a grandchild. That's wrong, and when I'm president, I'm going to change it" (New York Times, 10/20).

The Bush campaign called Kerry's comments "false and baseless attacks" (Los Angeles Times, 10/20). Megan Hauck, deputy policy director for President Bush's campaign, said, "It's a shame to play politics this way, scaring seniors on Social Security." She added, "No senior's Social Security check will be smaller in January than it was in December (New York Times, 10/20).

In an interview Tuesday, Bush said that in the 2000 presidential election campaign, Democrats "tried the same thing; if George W. gets elected, seniors won't get their checks. The seniors will continue to get their checks. But it is wrong to try to scare people into going into the polls" (Long Island Newsday, 10/20).