President Obama calls for a $250 payment for retirees to offset no cost-of-living adjustment in Social Security benefits in 2010. By Mary Beth Franklin, Senior Editor September 30, 2009 It’s official. There will be no increase in Social Security benefits in 2010, marking the first time since annual cost-of-living adjustments became automatic nearly 35 years ago that , seniors will not get a raise in their retirement benefits. The Obama administration pre-empted today’s announcement by the Social Security Administration by calling on Congress to approve a $250 payment for 57 million people including Social Security and Supplemental Security Income recipients as well as veterans and retired public servants at a cost of more than $13 billion. RELATED LINKS Social Security Catch-22 Secret Ways to Boost Your Social Security “The additional assistance will be especially important in the coming months as countless seniors and others have seen their retirement accounts and home values decline as a result of this economic crisis,” President Obama said in a statement released by the White House on Wednesday. This will be a repeat of the $250 Economic Recovery Payments that were sent to more than 55 million retirees last May.But even if Congress approves the president’s proposal, which is strongly supported by House Democratic leader Nancy Pelosi of California and the AARP, the nation’s primary lobbying group for retirees, some beneficiaries will still receive smaller Social Security checks next year. That’s because the Medicare Part B premium, which most retirees have deducted from their monthly checks, is scheduled to increase, resulting in a net decline in benefits for some. The House voted overwhelmingly last month to freeze Medicare Part B premiums at current levels to prevent beneficiaries from suffering a cut in cash flow. The Senate hasn’t acted yet, but Senate Finance Committee chairman Max Baucus (D-Mont.) is looking into the issue. Without congressional approval, Part B premiums, which pay for doctor visits and outpatient services for the nation’s elderly and disabled, are expected to rise from $96.40 per month this year to $104.20 per month in 2010. Advertisement The $7.80-a-month hike won’t affect most of Social Security beneficiaries – more than 75% of them are protected by a “hold-harmless” provision that prevents Social Security checks from declining from one year to the next. But the remaining beneficiaries will be forced to carry more than their fair share of the burden: The entire cost increase will be spread over those not protected by the hold-harmless rule. “The Part B premium increase is higher than it would be otherwise because the costs are spread across a smaller share of beneficiaries rather than across the entire Medicare population,” the Kaiser Family Foundation says in a new report. Wealthier seniors who have income of more than $85,000 for individuals and more than $170,000 for married couples in 2009, who already pay a surcharge for their Part B benefits, would be among those beneficiaries slated to pay the higher premium in 2010. So would the approximately two million people who are expected to enroll in Medicare for the first time next year. Low-income Americans, who qualify for both Medicare and Medicaid services, will also be affected -- but only indirectly. Medicaid, the health-care program for the poor funded jointly by the federal and state governments, will pay the higher Medicare premium on their behalf -- a bitter pill for cash-strapped states trying to balance their own budgets. No inflation, no COLA Normally, Social Security benefits increase each year to keep pace with inflation. The cost-of-living adjustment is based on the formula triggered by changes in the consumer price index between the third quarter of the previous year and the third quarter of the current year. Advertisement But rather than increasing as usual, consumer prices fell during the July-through-September quarter this year compared with a year earlier. As a result, the Social Security Administration announced today that there would be no increase in retirement benefits in 2010. Social Security Commissioner Michael Astrue endorsed President Obama’s call for $250 payments for 57 million Americans “in light of the human need.” No inflation also means there will also be no increase in the maximum amount of wages subject to Social Security tax. The taxable wage base will remain at $106,800 for 2010. At the same time, the monthly Medicare Part B premium is projected to increase to $104.20 next year and to $120.20 in 2011. The result could be a net decline in Social Security benefits for some retirees. That would be a stark change from this year, when retirees received a huge 5.8% increase in their Social Security benefits for 2009 -- the largest increase in more than 25 years -- while their Medicare Part B premium held steady at the 2008 level. Because consumer prices jumped so steeply in the third quarter of 2008 -- largely reflecting high gasoline prices that subsequently declined -- it could take another year or two for consumer prices to rise beyond that previous high point. As a result, the Social Security and Medicare trustees project there may be no increase in Social Security benefits again in 2011 and only a modest hike in 2012, further exacerbating the problem of stagnant retirement income amid rising health-care costs. Advertisement State of confusion Establishing different Part B premiums for different groups of Medicare beneficiaries is bound to lead to confusion, warns the Kaiser Family Foundation. For example, let’s assume Bob turned 65 in 2009, when he started to collect Social Security benefits and enrolled in Medicare Part B. Although Medicare Part B is scheduled to increase in 2010, Bob will not pay a higher premium if he does not receive a cost-of-living adjustment in his Social Security benefits. He will continue to pay $96.40 per month for Part B next year. Bob’s younger wife, Mary, faces a different situation, however. Mary will turn 65 in January 2010, when she will start collecting Social Security benefits and enroll in Medicare. She will pay the higher Medicare Part B premium of $104.20 per month -- $7.80 more per month for the same services her husband receives -- because as a new enrollee, she is not protected by the hold-harmless provision. But wait, there’s more. The hold- harmless provision does not apply to Part D premiums for the voluntary Medicare prescription-drug program. So Medicare beneficiaries who are enrolled in Part D could see a reduction in their Social Security benefits in 2010 if the premiums for their prescription-drug benefits increase from 2009 to 2010. Part D premiums are often deducted from Social Security benefits, too. So far, Congress has not addressed this issue. Seniors can add, drop or change their prescription-drug plans for next year during the open-enrollment period that begins November 15 and runs through December 31, 2009.For details, see the Medicare Web site.