Social Security benefits to increase for first time since 2009
Social Security benefits will go up by 3.6 percent in 2012 to adjust for the cost of living. It is the first such raise since 2009. The increase is welcome news for seniors in this tough economy. However, many will see much of that increase eaten by increases in Medicare premiums.
First COLA increase in three years
The Cost of Living Adjustment (COLA) will add about $42.57 monthly for the average retired American in 2012. The average monthly Social Security payment is $1,182.40 at this time. Due to low inflation, there was no COLA adjustment for Social Security in 2010 or 2011.
Medicare premiums to increase
Social Security benefits are also linked to Medicare premiums. The increase in Social Security income will also allow for the first increase in Medicare Part B premiums since 2009. Medicare Part B covers doctor visits and outpatient services. The Medicare Part B premiums for 2012 will be announced before the end of October, says a spokesperson for the Centers on Medicare & Medicaid Services.
For those still working, the Social Security COLA increase will also result in a raised earnings ceiling for payroll taxes. Since 2009, the ceiling has remained at $106,800. In 2012, that figure will rise to $110,100. The “hold harmless” clause in the law prevents Social Security payments from decreasing from one year to the next. Since there was no COLA increase for 2010 and 2011, no increase was allowed in the Part B Medicare premiums for existing beneficiaries. Thus the premium has been frozen at $94.60 monthly for about 75 percent of beneficiaries.
Welathier beneficiaries to take up slack
Another provision of the Social Secuirty law requires Medicare Part B premiums to cover 25 percent of the total provider services. Because those premiums have been frozen for most beneficiaries and health care costs are still on the rise, Medicare will have to tap those newer, higher-earning beneficiaries to provide that 25 percent. The wealthiest of the new beneficiaries could be paying close to 80 percent of provider costs.