Forecasts by the Obama administration and the Congressional Budget Office indicate that Social Security beneficiaries will not receive any cost-of-living (COLA) increase in 2010 or in 2011.

The COLA is intended to preserve the purchasing power of Social Security by increasing benefits to keep pace with consumer prices. 

In the last year, overall inflation has been low, largely because of the economic downturn and a decline in energy prices.

The Congressional Budget Office has predicted that inflation will remain low for several years, so Social Security might not pay a cost-of-living increase until January 2013. The President’s budget assumes no increase in 2010 or 2011, then a 1.4 percent COLA in 2012.

The absence of a COLA will be a shock to older Americans already hit by plummeting home values, investment losses and rising health costs. More than 50 million people receive Social Security, and for the first time in more than three decades, recipients will not get any increase in their benefits next year.

Most seniors have never been through a year in which there was no Social Security COLA.  Beneficiaries have received automatic cost-of-living adjustments every year since 1975. The increase for 2009 was 5.8 percent.

In theory, low inflation is good for people on fixed incomes, but it is creating political and policy problems for Congress, which is just learning of the implications for Social Security and Medicare.  A freeze in Social Security benefits would have major implications for Medicare because the COLA puts a cap on premiums for Part B of Medicare, which covers doctors’ services.

Under federal law, most Medicare beneficiaries have some protection. Their basic Part B premiums cannot rise more than the dollar amount of the cost-of-living increase in their Social Security checks. So if there is no COLA, their basic Part B premiums will not increase.

However, that protection does not extend to Part D of Medicare, and millions of beneficiaries could see higher premiums for drug coverage. Social Security and Medicare trustees will describe the outlook for benefits and premiums in their annual reports later this month.

David Certner, from AARP, described the outlook for consumers: “If, as expected, there is no COLA in Social Security next year but premiums for drug coverage increase, as expected, millions of beneficiaries will see their Social Security checks reduced for the first time.”

For those of you too young to remember, Medicare is a government insurance program that covers Americans who are 65 and older. When President Lyndon B. Johnson signed the bill creating Medicare on July 30, 1965, only half of America’s elderly had any health insurance. Today, those 65 and older represent the only age group in America with virtually universal coverage.

The program now covers 45 million Americans 65 or older, as well as younger people with permanent disabilities. About half of Medicare beneficiaries live at or below 200 percent of the federal poverty line (i.e., $20,800 annual income for a single person and $28,000 for a couple). Over a third of the beneficiaries are afflicted with three or more chronic conditions.

In 2009, Medicare is expected to cost the federal government about $480 billion. That represents over a fifth of total national health spending on personal health care, 13 percent of the federal budget and close to 3.5 percent of the country’s gross domestic product. These outlays are financed with a combination of payroll taxes (41 percent), general tax revenues (39 percent), premiums paid by the elderly (12 percent) and sundry other sources, including interest earned on a trust fund established for the program.

In May 2009 the Obama administration said the Medicare fund is expected to run out of money in 2017, two years sooner than was projected.

The projected date of insolvency, a widely used measure of the benefit programs’ financial health, shows the immense difficulties the President and Congress will face in trying to shore Medicare up while also extending health coverage to millions more Americans.

Data for this week’s column came from Congressman Nathan Deal’s office. 

My thanks go to the Congressman and his staff for all their help.

Let me know what your concerns are over the possibility of no COLA increases in Social Security benefits in 2010 and 2011. 

Rep. Amos Amerson can be reached at 689 N. Chestatee Street, Dahlonega, GA 30533; (706) 864-6589; e-mail hamerson@windstream.net. Or you can contact Gerald Lewy at (706) 344-7788.  He’ll know how to get your message to me.