By CQ Staff; CQ Politics ~ May 27, 2009

New Social Security recipients and upper-income seniors could face a steep increase in their monthly Medicare premiums for the next two years, according to an analysis released Tuesday by a nonprofit health research group.

Millions more will see their finances squeezed if their premiums for Medicare Part D prescription drug coverage go up during that period.

Congress could intervene to soften the blow, but doing so would be costly at a time of ballooning deficits.

The study, by the Kaiser Family Foundation, points out that Social Security and Medicare trustees project no cost-of-living adjustment (COLA) to Social Security benefits in 2010 and 2011, and only a tiny one in 2012. The COLA is pegged to an inflation index, and the economic recession has erased increases in the relevant index.

This year, seniors received a 5.8 percent COLA, the largest in more than a quarter-century, but those days are gone for the near future.

Over the next two years, however, monthly premiums for Medicare Part B coverage will increase sharply under existing law, which requires premiums to cover 25 percent of program costs. Part B pays for doctor bills and other outpatient costs, and the monthly premiums that seniors pay are deducted from their Social Security benefits. The 2009 premium for most beneficiaries is $96.40 per month.

Medicare trustees project Part B premium increases to $104.20 per month in 2010 and $120.20 per month in 2011.

A “hold harmless” clause in existing law will protect about 75 percent of current Social Security beneficiaries from any increase in their Medicare premiums in the years when there is no COLA, or when it falls below the increase in the monthly Part B premium.

But many of the remaining seniors, according to Kaiser, could see their Part B premiums rise, cutting into their monthly Social Security benefits. The first group that will be hit by these increases, without receiving any COLA to offset the pain, are new enrollees in Social Security, Kaiser said.

The second affected class comprises relatively affluent Medicare beneficiaries — those with adjusted gross incomes above $85,000 for individuals and $170,000 for married couples, who already must pay a surcharge for their Medicare coverage.

The final group, the largest of those affected, is composed of low-income seniors. But they will not have to pay the increased Medicare Part B premiums themselves. Instead, the Medicaid program, funded jointly by state and federal governments, will cover the increase. But that means higher Medicaid costs for those governments.

All Medicare beneficiaries who pay monthly premiums for the separate Part D prescription drug coverage could face a financial squeeze if those premiums increase over the next two or three years, unless they can find a cheaper plan, Kaiser said.

“At a time of great economic uncertainty, with many seniors experiencing a significant decline in their retirement savings and with nearly two-thirds relying on Social Security for at least half their income, the projected absence of a COLA in the coming years could represent an added hardship for many recipients,” the report said.