POLITICS

Medicare Premiums May Soar as Social Security Payments Stay Flat

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In the absence of legislative action, the White House could authorize the secretary of health and human services, Sylvia Mathews Burwell, to take money from Medicare’s “contingency reserve.” Carolyn Kaster/Associated Press 
WASHINGTON — The 60 million people on Social Security will not receive any cost-of-living increase in their benefits in 2016, the government said on Thursday, but because of a quirk in federal law, nearly one-third of Medicare beneficiaries could see record increases in their premiums unless Congress intervenes.
With millions of older Americans on fixed incomes facing that one-two punch, the Obama administration is urging Congress to moderate or stop the health insurance premium increases, which could raise the cost for some Medicare beneficiaries by about 50 percent — the largest increase, by far, in the history of Medicare. But the House’s leadership crisis could prove to be an obstacle.
Social Security has provided automatic cost-of-living adjustments in every year since 1975 with two exceptions, 2010 and 2011. But inflation was extremely low in 2015, leading to another benefit freeze, Social Security officials said. Gasoline prices, in particular, have declined sharply, holding down overall prices in the economy.
The purpose of the automatic increases is to preserve the purchasing power of Social Security benefits.
Jason Furman, the chairman of President Obama’s Council of Economic Advisers, said recently that the lack of a cost-of-living adjustment resulted from a positive economic development: “the sharp decline in energy prices that is putting more money in families’ pockets” and contributing to the economic recovery.
But that overall trend is not saving the health care sector, where costs are once again climbing with the greater use a of medical services by an aging population. Cost increases are often driven by new technology and expensive prescription drugs. Medicare needs additional money to help pay for Part B of the program, which covers doctors’ services, outpatient hospital care and some prescription drugs.
About 70 percent of Medicare beneficiaries will be protected against higher premiums in 2016. Under federal law, Medicare premiums are linked closely to Social Security benefits, since most people on Medicare have their premiums deducted from their monthly Social Security checks. To protect older Americans, federal law stipulates that, in most cases, the increase in a person’s Medicare premium cannot exceed the increase in the person’s Social Security benefit. The purpose of this “hold harmless” provision is to prevent a reduction in Social Security benefits.
But by shielding 70 percent of beneficiaries from rate increases, that same law exposes the remaining 30 percent to major price shocks. Medicare actuaries predicted in July that the standard premium for those beneficiaries would rise next year to $159 a month, from just under $105 a month for most beneficiaries, the same as in 2013 and 2014.
Premiums are supposed to cover about one-fourth of the projected cost of Part B of Medicare, with general revenues accounting for the remainder. If premiums are frozen for 70 percent of beneficiaries, higher overall Medicare costs must be spread across a smaller group of people.
That smaller group, more than 15 million strong, includes some high-income Medicare beneficiaries who are already required to pay higher premiums; low-income people eligible for both Medicare and Medicaid; beneficiaries who are new to Medicare in 2016; and those who do not receive Social Security checks.
Financially struggling state governments would also suffer because state Medicaid programs pay the Medicare premiums for millions of low-income people who are in both programs. The National Governors Association estimates that the higher premiums will cost states $2.3 billion next year.
In the absence of legislative action, the White House faces a choice between two politically perilous options. It could authorize a big increase in Medicare premiums for those 15 million. Or it could authorize the secretary of health and human services, Sylvia Mathews Burwell, to take money from Medicare’s “contingency reserve,” which serves as a cushion in case actual spending is higher than projected. The contingency fund is already lower than the level recommended by Medicare’s actuaries.
The House Democratic leader, Representative Nancy Pelosi of California, and Speaker John A. Boehner of Ohio had been quietly exploring a possible deal to limit the increase in Medicare premiums.
But with turmoil in Republican leadership ranks, touched off by Mr. Boehner’s plan to retire this month, Congress is barely able to function. He has insisted that the cost of legislation to stabilize premiums, estimated at $7.5 billion to $10 billion, be offset by savings elsewhere in the federal budget.
Senator Orin G. Hatch, Republican of Utah and chairman of the Finance Committee, said any solution should be “fiscally responsible.”
Ms. Pelosi and other Democrats sounded an alarm last week and placed the onus on Republicans.
“For the past month,” Ms. Pelosi said, “we have been reaching out to the Republicans to say, ‘This deadline is racing toward us.’ We must act so that we stop the pain that will be inflicted upon our seniors.”
Representative Jan Schakowsky, Democrat of Illinois, said: “This is a disaster for many older Americans. I get panicked phone calls to my office, begging us to act.”
Ron Thompson, president of the Virginia Alliance for Retired Americans, said the higher premiums would put “too much of a burden on seniors.”
Mr. Thompson said he was puzzled. “Health care costs are going up,” he said, “but the federal government is saying seniors do not need a cost-of-living increase next year.”
The Social Security Act specifies a formula for determining the cost-of-living adjustment based on a broad measure of consumer prices for urban wage earners and clerical workers. Advocates for older Americans say this measure of inflation does not fully reflect price increases for the goods and services they use. Older Americans typically devote more of their budgets to medical care.
State governments, too, say they cannot absorb the hit.
“The cost of protecting Medicare beneficiaries should be borne by the federal government rather than placed on the backs of states,” Dan Crippen, the executive director of the governors association, said last week in a letter to congressional leaders.