Social Security determines its succeeding year’s COLA in October each year by comparing the average CPI-W for July through September of that same year to the average CPI-W for July through September of the last year which produced a COLA. I call this the “baseline.” This year, the baseline we are working from is the period from July through September, 2008, which generated a 5.8% COLA in 2009. The average CPI-W for July 2009 through September 2009 and the average CPI-W for July 2010 through September 2010 did not exceed the baseline (the 2008 average.)
The Baseline CPI-W Amounts
July 2008 CPI-W: 216.304
August 2008 CPI-W: 215.247
September 2008 CPI-W: 214.935
2008 Average CPI-W: 215.495. This is shown as the bottom gray line on the graph.
Since then the CPI-W has been lower, until January, 2011. The months we are now concerned with are July through September, 2011. What happens before then shows a trend line and may be predictive.
The Current CPI-W
The CPI-W increased sharply in March 2011, about 1.1% over February 2011. According to the Bureau of Labor Statistics, “Gasoline and food prices continued to rise and together accounted for almost three quarters of the seasonally adjusted all items increase in March. The gasoline index posted its ninth consecutive increase and has now risen 14.4 percent over the last three months. The household energy index rose as well, with advances in the fuel oil and electricity indexes more than offsetting a decline in the index for natural gas. The food at home index continued to accelerate in March, rising 1.1 percent as all six major grocery store food groups increased.”
Current CPI-W Amounts
July 2010 CPI-W: 213.898
August 2010 CPI-W: 214.205 (+ 0.14%)
September 2010 CPI-W: 214.306 (+ 0.05%)
October 2010 CPI-W: 214.623 (+ 0.15%)
November 2010 CPI-W: 214.750 (+ 0.06%)
December 2010 CPI-W: 215.262 (+ 0.24%)
January 2011 CPI-W: 216.400 (+ 0.53%)
February 2011 CPI-W: 217.535 (+ 0.52%)
March 2011 CPI-W: 220.024 (+1.14%)
There are 4 gray lines on the chart. The lowest one, at 215.435, is the baseline CPI-W, which has to be exceeded in July through September for there to be any COLA in 2012. The other gray lines, at 217.650, 219.800, and 222.000, are the levels for COLAs of 1%, 2% and 3%, respectively. As of March, we have just crossed the 2% line. If current trends continue, we may cross 3% next month.
All of this is speculative. Remember, it’s where the CPI-W is in July through September that actually determines the COLA. And, given the putative “crisis” situation in Washington, who knows whether any COLA will survive in the political battles to come. Each 1% of COLA costs about $7 billion each year forever. I do not trust President Obama and Congress not to discard COLAs altogether as a deficit reduction measure (which isn’t appropriate, since Social Security benefits do not add to the deficit.)
The May report from the Bureau of Labor Statistics, showing the April 2011 CPI-W, will be released May 13. Check back.
This information is also repeated verbatim from preceding reports, and is repeated here as a reminder.
If we get a Social Security COLA in 2012, Medicare Part B premiums will increase by a significant amount.
Part B premiums have been kept at the 2009 amount, $96.40, in 2010 and 2011, for about 75% of beneficiaries who were eligible for Part B prior to January 2010. According to law, the Social Security check amount cannot be decreased, so beneficiaries entitled before January 2010 could not have their Medicare Part B premiums increased. The Trustees project that the 2012 Part B premium amount will be $111.40, based on the assumption that there will be a COLA in 2012. This is an increase of $15.00.
The average Social Security beneficiary receives $1170.00 per month. Let’s say that we do get a 1% COLA in January, 2012. That would mean that the COLA to a beneficiary receiving the average amount would be an increase of $11.00. This is less than the projected increase in the Medicare Part B premium, so the COLA for a beneficiary receiving the average amount would be entirely absorbed by the Part B increase, with $4.00 left over to be applied to the 2013 COLA (if one is payable) along with the 2013 Part B premium increase.
If the COLA is 2%, the increase for an average beneficiary would be $23.00. After his Part B premium increase was deducted, he would see a net increase of $8.00. At 3%, the increase would be $35.00 for an average beneficiary. After deduction of the higher Part B premium, this would give the average beneficiary a net increase of $20.00.