For the third time in five years, there will be no Social Security benefits increase for the next fiscal year.
This lack of increase is almost unprecedented. In the 40 years since the price measure formula was adopted in 1975, an annual cost-of-living adjustment happened every fiscal year except for in 2010, 2011, and now, fiscal year 2016.
Unfortunately, the bad news for seniors doesn't stop here…
Because benefits won't be raised, older individuals could face pricier Medicare costs as well.
What's causing Social Security benefits stagnation is lack of inflation – and lack of inflation has been due to low oil prices.
Let's look at how this domino effect happened and how it could potentially impact what is already one of the nation's most-underserved populations…
How Social Security Benefits Are Tied to Oil Prices
Oil has fallen because, plain and simple, there's just too much of it. U.S. oil production has surged, and OPEC continues to pump record amounts.
Gas prices help to put plunging oil prices into perspective. As of Oct. 14, a gallon of regular gas costs $2.30 – about $0.90 less than this time last year, reported AAA. Dean Baker, co-founder of the Center for Economic and Policy Research, told WSJ that because of plunging oil prices, there's no inflation happening.
Meanwhile, the amount of money that Social Security allocates as payout is adjusted annually to account for the rate of inflation. This is known as the cost-of-living adjustment, or COLA. The COLA is set every October based on the September inflation report.
Social Security beneficiaries aren't the only ones affected by the COLA. According to the The Associated Press on Oct. l5, the adjustment also affects the benefits of:
- 4 million disabled veterans
- 5 million federal retirees and their families/survivors
- 8 million people who get Supplemental Security Income (the disability program for the indigent)
For the 12 months that ended in September 2015, the inflation measure used by the Social Security Administration was down 0.6%, reported CNN Money on Oct. 15. (Gas prices dropped almost 30% in the same period.)
From 2014 to 2015, Social Security actually rose 1.7%. In fact, it has trended up for three consecutive years (2013, 2014, and 2015). But the increases have been minute, all under 2%. According to Social Security's official website, the average retiree's monthly benefit is about $1,300 a month. This means last year's increase was a whopping $22 per month.
Still, it was something.
But if oil prices don't increase at all, then Social Security benefits stay flat. And over the past 12 months, oil prices have done the complete opposite of increasing. "The inflation measure used by the Social Security Administration was down 0.3% for the 12 months that ended in August, largely due to a 23% drop in gas prices," CNN Money explained.
That's a hefty plummet.
If this news weren't bad enough, about 30% of Medicare beneficiaries will have to pay up to six times the rate of healthcare inflation, reported USA Today on Oct. 15. Currently, the majority of Medicare beneficiaries will see their premiums rise 52% to $159.30 per month ($318.60 for married couples). But individuals whose incomes exceed certain thresholds (about 5% of all Medicare beneficiaries) could see premiums rise to anywhere from $223.00 per month up to $509.80 (or $446 to $1,019.60 for married couples). What's more, the Medicare Part B deductible will rise 52% for 7 million enrollees.
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- CNN Money: No Raise for 65 Million on Social Security