Most of the Medicare-eligible people who receive Social Security have their Medicare Part B premiums automatically deducted from their benefit checks. In recent years, however, Medicare Part B premiums have grown far more rapidly than beneficiaries’ annual Cost-Of-Living Adjustments (COLAs), taking a substantial portion, or sometimes all, of the annual increase. Including the 3.3% COLA that becomes effective January 1, 2007, over the past five years COLAs have increased just 13.6% while Medicare Part B premiums have grown 60% over the same period of time.(1)
A little-known provision of law, that may be one the government’s best-kept secrets, protects the Social Security checks of individuals from going down when Medicare Part B premiums increase. Specifically, the law says that if the amount of the Part B premium increase is greater than the dollar amount of an individual’s annual Social Security COLA, the premium owed by that person would be reduced to the amount required to assure no reduction in the Social Security “cash payment” (net benefit after deduction of the Part B premium) in the following year.(2)
In recent years, for the first time, Medicare premiums have grown large enough to completely consume the amount of COLA received by people with the lowest benefits. This study found that when this happens, over time, the net cash benefit — the amount a person receives after deduction for the Part B premium — ceases to grow, but remains “fixed,” despite a small annual COLA.
In addition, the fiscal burden on Medicare grows as well. Not only will the entire COLA of beneficiaries be required to cover the increase in Part B premiums, but, by law, the government will need to provide further adjustments to the amount of Part B premiums of affected individuals in order to avoid a reduction in their net Social Security benefit. As Medicare premiums grow larger over time, more and more seniors and the disabled will see little, and then no, increase at all in their net benefit in coming years. The Medicare program deficit will grow as the government absorbs the adjusted Part B premium amounts.
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Conclusion:
Unless Congress acts to cut the rate of growth of Medicare Part B premiums, and improve the adequacy of the COLA, the annual COLA simply won’t be enough to cover Part B increases for tens of millions of seniors and the disabled in the future. Cutting the rate of growth of Medicare Part B premiums is essential to maintain program sustainability and affordability for both beneficiaries and taxpayers now and for the long haul. A more adequate COLA is important to help maintain the spending power of net Social Security benefits longer as beneficiaries become older and more likely to have health conditions that require a greater portion of their incomes.
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