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OLR Research Report


Social Security COLAs

The Social Security Administration has just announced that there will be no cost-of-living adjustment (COLA) for 2010. This means that benefit amounts will remain at 2009 levels through 2010. This is the first time COLAs will not be applied since Congress authorized automatic increases in 1975.

HOW COLAS ARE DETERMINED

Federal law provides that both Social Security, including retirement and disability, and Supplemental Security Income (SSI) benefits increase automatically each year by the same percentage increase in the Bureau of Labor Statistics' Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-UW). This ensures that the purchasing power for people receiving these benefits is not eroded due to inflation. There was no increase in the CPI-UW from the third quarter of 2008 to the third quarter of 2009, therefore there is no COLA in 2010.

COLAS IN THE PAST

Since 1982, COLAs have been effective with benefits payable for December (received by beneficiaries in January). Table 1 shows the COLAs since 2000.

Table 1: Social Security COLAs—2000-present

Year

COLA %

2000

2.5

2001

3.5

2002

2.6

Table 1: -Continued-

Year

COLA %

2003

1.4

2004

2.1

2005

2.7

2006

4.1

2007

3.3

2008

2.3

2009

5.8

2010

0

MEDICARE IMPLICATIONS

Many Social Security recipients are eligible for Medicare, and most have their Part B premiums deducted from their Social Security benefit. A “hold harmless” provision in federal law essentially prevents these individuals' Part B premiums from rising more than the Social Security COLA. Since there is no COLA this year, Part B premiums will not rise if a beneficiary's income is under $85,000 (if filing an individual tax return) or $170,000 (joint filers).

But many (an estimated one-quarter of Social Security beneficiaries) will pay higher premiums. Most of these individuals (1) pay their own premiums, (2) pay a higher Part B premium based on higher income, (3) are newly enrolled in Part B, or (4) are dually eligible for Medicaid (in which case the state Medicaid program pays the Medicare Part B premium). Premiums for those beneficiaries under the above income threshold will rise from $96.40 to $110.50. Higher-income beneficiaries will pay even more. Table 2 shows the Part B premiums to be paid in 2010.

Table 1: Medicare Part B Premiums in 2010

 

Individual Filers

Joint Filers

2010 Monthly Premium

If yearly income is

$96.40 if beneficiary had SSA withhold from Social Security benefit in 2009

$110.50 for all others

$85,000 or less

$170,000 or less

$154.70

85,001-107,000

170,001-214,000

221.00

107-001-160,000

214,001-320,000

287.30

160,001-214,000

320,001-428,000

353.60

Above 214,000

Above 428,000

Source: U.S. Department of Health and Human Services (2009)

The US House of Representatives recently passed legislation (H.R. 3631) that would freeze Part B premiums for all beneficiaries. As of yet the Senate has taken no action.

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