For the first time since 2009, the U.S. government said Wednesday that it will raise Social Security benefits with a cost-of-living adjustment, up 3.6%, and the announcement was immediately followed by praise—and criticism.
Senate Finance Committee Chairman Max Baucus, D-Mont., who noted that the increase will grow the average benefit by $516 to $14,748 each year, said the COLA increase “is welcome news for seniors facing high prices for everyday items like gas, food and medicine.”
But others, including the AARP and the Insured Retirement Institute, pointed out that after two years of not receiving a cost-of-living adjustment in their Social Security checks, a majority of retirees will not see the full 3.6% increase in their 2012 checks. This is because an expected increase in Medicare Part B premiums will be deducted from recipients’ Social Security payments.
“This will affect the approximately 75% of Social Security recipients who were exempted from Part B premium increases in 2010 and 2011 when there was no COLA,” warned the IRI in a news release.
“Unfortunately, the increase announced today will not completely ease [retirees’] burden,” said AARP Executive Vice President Nancy LeaMond in a statement on Wednesday. “Medicare premiums are also expected to rise for many. And with the decline in housing values, deep losses to retirement and savings accounts and skyrocketing health and prescription drug costs, millions of older Americans continue to struggle to make ends meet.”
The announcement of the COLA increase comes as congressional members of the bipartisan Joint Select Committee on Deficit Reduction look for ways to slow Social Security’s growth. Meanwhile, the annual rate of inflation, also reported on Wednesday by the U.S. Bureau of Labor Statistics, stands at 2%, not including the volatile food and energy components.
“Ironically,” said LeaMond, “some in Washington are calling for permanently reducing Social Security checks for today’s seniors and future retirees. As part of a deficit reduction deal, many are calling on the ‘super committee’ to consider a new way to calculate the COLA, which would cut Social Security benefits by $112 billion over 10 years. This so-called ‘chained consumer price index,’ through compounding, would cut seniors’ benefits by thousands of dollars over their lifetimes–and the older one gets, the larger the cut.”
As costs continue to rise, retirees are especially worried about the growing cost of health care. According to data released Thursday by S&P Indices, U.S. health-care costs rose 5.73% over the 12 months ending in August.
These include the average per capita cost of health-care services covered by both commercial insurance and Medicare programs. This was a marginal increase over the 5.69% annual growth rate posted in July and the fourth consecutive increase since the index hit its lowest annual growth rate of 5.32% in April.
Medicare claim costs, however, have hit a new low, rising at an annual rate of just 2.16% as measured by the S&P Healthcare Economic Medicare Index. The Medicare index recorded its highest annual growth rate of 8.02% in November 2009. “It has consistently and sharply decelerated since then, by about 5.86 percentage points in under two years,” S&P said in a news release.
Overall U.S. inflation also remains low.
According to the labor statistics bureau’s Thursday report on the consumer price index for September, the cost of living for all urban consumers over the last 12 months increased 3.9%. But the main causes of the yearly increase were rising energy and food costs, and without those two volatile components, inflation held at 2% for the second straight month.
“The main take-away from today’s CPI report is that the angst from earlier this year in regard to monetary policy spinning a hyperinflation event for the ages should be duly relegated back to the dark corners where most angst resides,” wrote Steve Blitz, senior economist with New York-based ITG Investment Research, in an analyst note.