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No cost of living hike for Social Security recipients next year, government says

No cost of living hike for Social Security recipients next year, government says
To make ends meet, life-long dairy farmer Glen Mead, 70, works at a Montrose, Pa., rock quarry. For just the third time in 40 years, there will be no cost-of-living adjustment for millions of Social Security recipients. (Brett Carlsen / AP)

Social Security recipients will not see an increase in benefits next year for the third time since 2010 — the only three times the increases have been skipped in the last four decades.

The lack of a cost-of-living adjustment, or COLA, also affects federal retirees and their survivors, disabled veterans and recipients of Supplemental Security Income, the disability program for the poor. More than 70 million Americans are affected overall.

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Because Social Security benefits affect Medicare, the decision could end up costing California's Medi-Cal program an additional $550 million next year, which one state official has called an "urgent fiscal issue."

By law, Social Security benefits go up if there's an increase in a certain government measure of inflation. But inflation has stayed low, in large part because of a national drop in gasoline prices, the government said Thursday in announcing the decision.

Several million beneficiaries could feel a financial pinch in 2016 because the lack of an increase in Social Security benefits won't offset higher premiums they face for Medicare coverage next year.

Advocacy groups for seniors argued that the lack of a COLA increase in Social Security will cause financial stress on a more widespread scale because it's eroding seniors' buying power overall, especially for healthcare.

"It's been devastating news to people," said Mary Johnson, policy consultant for Social Security and Medicare at the Senior Citizens League.

Her group and others contend that the inflation index that's used to calculate the COLA adjustment is skewed toward younger, working Americans and does not adequately reflect rising costs for retirees, including medical care.

They're pushing Congress to match Social Security benefits with what they consider a more accurate measure of inflation faced by seniors.

Social Security's COLA adjustment is based on the consumer price index for urban wage earners and clerical workers, or CPI-W, a broad gauge of consumer prices generated by the Bureau of Labor Statistics. It measures price changes for food, housing, clothing, transportation, energy, medical care, recreation and education.

The drop in gas prices and other energy costs helped lower that index, but "the things that seniors spend money on — healthcare, food and housing — are things that have all gone up [in price] so seniors are falling behind," said David Certner, legislative policy director at the retiree organization AARP.

At the Ahmanson Senior Center in Los Angeles, Dorothy Rhea, 65, said she was just starting to tap her

Social Security benefits

and had recently received her second check of about $300.

"The way the economy is going now, I think people could have used the Social Security increases," said Rhea, a retired postal-service worker who lives in Los Angeles.

Nearly 60 million retirees, disabled workers, spouses and children get Social Security benefits. The average monthly Social Security payment is $1,224.

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The COLA also affects benefits for about 4 million disabled veterans, 2.5 million federal retirees and their survivors, and more than 8 million people who get Supplemental Security Income. Many people who get SSI also receive Social Security.

At the Watts Senior Citizen Center, retired postal worker Carl Poingsett Jr., 68, said he receives only $45 a month from Social Security but manages with other retirement funds.

Still, he and his wife have cut spending on groceries and utilities to save money and while his Social Security income isn't large, "it would have given us a little extra."

"Everything is going up," Poingsett said. "How am I supposed to pay?"

One rising expense that especially concerns Social Security recipients is the annual premium for Medicare's so-called Part B, which covers doctor and outpatient medical services.

Most Social Security recipients have those premiums deducted directly from their Social Security payments, and the annual COLA increase often is enough to cover any rise in the premiums.

If there isn't a COLA adjustment, a federal "hold harmless" law protects about 70% of beneficiaries from those higher premiums so that their Social Security payments are not reduced.

But the remaining 30% of Medicare beneficiaries do face a premium increase because the higher Medicare premiums can't be spread among all Social Security recipients. AARP estimates the premiums for those who will have to pay could jump 52% to $159.30 a month from $104.90.

The situation also "throws a wrench into state medical budgets" because states pay part of the Medicare premiums for about 10 million low-income beneficiaries nationwide, said Benjamin Veghte, vice president for policy at the National Academy of Social Insurance.

California has about 1.3 million of those so-called dual-eligible recipients for Medicare and Medi-Cal, the most of any state, according to the Henry J. Kaiser Family Foundation.

Anticipating that Social Security benefits would not rise, Jennifer Kent, director of California's Department of Health Care Services, sent a letter Oct. 1 to California's congressional delegation, urging them to find a way to mitigate the added $550 million cost facing Medi-Cal for dual-eligible recipients.

As a modest silver lining, because there will be no increase in benefits, there won't be an increase in the maximum Social Security tax. This year that's $7,347, or 6.2% of all wage income up to $118,500, with the same amount paid by employers. It will be the same next year.

In the meantime, Rhea said she used her two Social Security checks to help support a sick family member. If her benefits had gone up next year, she would have put the extra cash toward basic needs such as groceries.

"I'm a little more blessed in my situation," Rhea said. "It's not much, but it helps."

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