Column: For U.S. retirees, 2017 COLA lacks fizz

[June 23, 2016]  By Mark Miller

CHICAGO (Reuters) - Retirees will receive a paltry increase in their Social Security checks in 2017 - the second consecutive year of flat or near-flat benefits, and the fifth year of inflation adjustments below 2 percent.

Next year’s cost-of-living adjustment (COLA) will be just two-tenths of 1 percent, according to predictions in the annual report of the trustees for Social Security and Medicare, released on Wednesday.

That number could be revised upward this autumn, when the official COLA is released, said Paul Van de Water, senior fellow at the Center on Budget and Policy Priorities - perhaps as high as one-half of 1 percent.

“The trustees’ assumptions are based on inflation numbers that are a few months old,” he said. "The latest numbers suggest the COLA could be a bit higher.” Still, for a retiree receiving the average monthly Social Security benefit - $1,341 - the raise is not likely to top a paltry $5 per month.

Don’t spend it all in one place, folks.

TWEAKING THE FORMULA

The COLA news underscores the need to revisit Social Security’s formula for keeping seniors even with costs - and it will provide fresh fuel for proponents of a broader expansion of benefits as part of any eventual program reform.

Progressives have been calling for a more generous annual COLA formula. The current formula is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which gauges a market basket of goods and services of working people –who tend to be younger and spend less on healthcare than seniors.

A more generous COLA would be tied to the CPI-E, an experimental measure created by the U.S. Bureau of Labor Statistics focused on inflation affecting seniors.

Healthcare cost increases have been moderate over the past few years, but they are starting to rise. The trustees project that per-beneficiary costs in Medicare’s Part B (outpatient services) will rise 3.1 percent next year.

Even so, if the Social Security COLA is very low, the monthly premium for Part B could stay flat at $104.90 per month for the third consecutive year. That is because of a “hold harmless” provision in federal law that prevents premiums from rising if the increase would result in a net reduction in Social Security benefits.

The hold-harmless clause would protect roughly 70 percent of Medicare enrollees from a premium increase. But it also would push rising program costs onto the remaining 30 percent, who could see premiums jump to $149. That group includes new Medicare enrollees, anyone on Medicare who is delaying filing for Social Security benefits, and some federal and state employees. Premiums for high-income seniors - who already pay surcharges - also would rise.

However, uncertainty about the final COLA means it is too early for these seniors to hit the panic button. “The number might not be that large,” said Van de Water.

The trustees also project a 5.6 percent jump in cost of the Part D prescription drug program. That will push average Part D premiums to $40, from $34 this year, notes Juliette Cubanski, associate director of the program on Medicare policy at the Kaiser Family Foundation, who adds that average deductibles will rise to $400 from $360 this year.

"Much of the increase is due to introduction of high-cost specialty medications," she said.

LOOMING DEBATE IN CONGRESS

Social Security’s overall health did not change much in the past year. The combined trust funds for Social Security’s retirement and disability benefits still are projected to be depleted in 2034, at which point current income would be enough to pay about three-quarters of benefits. But the financial report card should set the stage for a reform debate in the next Congress.

That debate is expected to focus on restoring long-range stability to Social Security’s trust fund - and modernization and possible expansion of benefits. Expansion has been a centerpiece of Senator Bernie Sanders’ presidential campaign; Hillary Clinton and President Barack Obama have also moved into the expansion camp (http://reut.rs/28Q9Ke5).

The ideas floating around for expansion range from targeted increases aimed at helping low-income seniors and those who live to very advanced ages, to a more generous COLA and across-the-board increases.

(Editing by Matthew Lewis)

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