Social Security Payments Rise by 4.1%, Largely Offset by Medicare Part B Premium Increases
Social Security payments will increase 4.1% for 2006, with the average retired worker receiving an additional $39 per month, the New York Times reports. However, about one-fourth of the increase for the average retired worker will go toward a more than $10 increase in the Medicare Part B premium, which covers physician and outpatient services, the Times reports (Pear, New York Times, 10/15).
CMS officials last month said Medicare Part B premiums for 2006 will increase $10.30 to $88.50. CMS officials attributed the increase to rapid growth in physician office visits, use of laboratory tests and other medical services and hospital outpatient services (California Healthline, 9/19).
For the majority of beneficiaries who enroll in the Medicare prescription drug benefit, the Medicare premium -- which is usually deducted from beneficiaries' Social Security checks -- "will take all that remains" of the increase in Social Security payments, according to the Times (New York Times, 10/15). More than 48 million U.S. residents receive Social Security benefits, including 3.3 million retired workers (Huntley, St. Petersburg Times, 10/15).
The cost-of-living adjustment, which began in 1975, is applied annually based on the increase in the Consumer Price Index from the third quarter of the previous year. Federal law mandates that the annual COLA does not exceed the Medicare premium increase (Lipman, Atlanta Journal-Constitution, 10/15).
The sharp increase in the CPI over the third quarter was largely because of high energy prices, which rose 12% in September (Henderson, Washington Post, 10/15). The 2006 COLA is the largest increase since a 5.4% adjustment in 1991 (Baltimore Sun, 10/15).
By comparison, the 2005 adjustment was 2.7%, the fourth consecutive year the increase was less than 3% (St. Petersburg Times, 10/15).
William Novelli, CEO of AARP, said the COLA is "welcome news" for Social Security beneficiaries, but he added that the adjustment "is being eaten up by rising gasoline and heating costs, another double-digit increase in the monthly Medicare Part B premium and escalating health care bills" (New York Times, 10/15).
Barbara Kennelly, president of the National Committee to Preserve Social Security and Medicare, said many seniors rely on Social Security as their primary source of income, adding, "The COLA is the only raise they'll see, and yet it is already disappearing before their eyes" (Atlanta Journal-Constitution, 10/15).
Diane Swonk, chief economist at Mesirow Financial, said, "Of all the people who need the increase, the elderly and those on fixed incomes need it the most because they're paying higher prescription drug costs," adding, "But it doesn't do enough for them, and it adds pricing pressure on other goods in the economy. It is kind of a Catch-22 increase" (Chandler, Chicago Tribune, 10/15).