Government: No benefit increase for Social Security next year

Robert Powell | Special to USA TODAY

Show Caption Hide Caption Social Security benefits won't rise in 2016 The government said Thursday there will be no benefit increase next year for millions of Social Security recipients, disabled veterans and federal retirees. It's just the third time in 40 years that payments will remain flat.

It could be belt-tightening time for the nation’s 65 million seniors. For just the third time in four decades, Social Security recipients won't get an annual cost-of-living adjustment.

The announcement Thursday by the Social Security Administration means many older Americans may see a reduced standard of living, particularly 30% of Medicare beneficiaries — an estimated 17 million Americans — who could see their Part B premium and deductible rise 52% because of provisions in the Social Security law.

The decision also introduces a $12 billion complication into already contentious budget talks between Congress and the White House.

The price tag for Congress to protect seniors from the higher Part B premiums and deductibles could be around $10 billion. Plus, states are likely to ask Congress for $2 billion to cover the extra cost of Part B premiums for the 10 million dual Medicare-Medicaid beneficiaries whose premiums are now paid by state Medicaid programs.

Seniors won’t get a cost of living adjustment, known as a COLA, in 2016 because such increases are tied to the general rate of inflation — no inflation, no increase. In the past year, prices for the goods and services used to calculate inflation fell, mostly due to a dip in fuel prices.

While prices on paper may have dropped, experts say the actual cost of living for Social Security beneficiaries is rising and their quality of life is falling. Social Security recipients have lost nearly a fourth of their buying power over the last 15 years, according to the Senior Citizens League. Consider: The cost of housing, often a retiree’s greatest expense, rose 44% since 2000; heating oil, 159%; eggs, 117%; and gasoline, 76%. In contrast, Social Security COLAs averaged just 2.2% per year since 2000, or just 36.3% overall.

“Not having a benefit increase wouldn’t be that big of a deal if the goods retirees consumed had declined in value, on average,” said David Blanchett, head of retirement research at Morningstar Investment Management in Chicago. “This would mean that retirees were actually slightly better off than average. However, since the goods retirees consume have actually increased in price over the last year, it means that retirees are going to be slightly worse off next year vs. this year, since their Social Security retirement benefits aren’t going to be increasing, but their expenses have been.”

The difference will be especially pronounced for retirees who are spending more on medical care, because that expenditure group had the largest inflation rate over the last year, Blanchett said. “The impact isn’t huge, but it will likely mean retirees will have to cut back a little bit going into 2016,” he said.

In the meanwhile, seniors can hope for the best as they prepare for the worst. Lawmakers in Congress have introduced a bill to protect some 17 million seniors from the Medicare Part B premium increase. And the Department of Health and Human Services can decide against increasing the Medicare Part B premiums and deductibles.