Social Security Benefits Expected to Get 2% Boost in 2018--2nd Update

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Social Security recipients are expected to receive next year the largest increase in monthly benefit payments since 2012.

Based on Labor Department data released Tuesday morning, the Social Security Administration is expected to announce a roughly 2.0% increase for monthly checks. It is the largest cost-of-living adjustment since a 3.6% increase in 2012.

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Social Security trustees had projected this summer a 2.2% increase in benefits for the coming year.

About 66.7 million people -- roughly 1 in 5 Americans -- will receive a boost to their income next year due to the adjustment. Social Security benefits adjust each year, with the goal of keeping payments in line with changes in consumer prices.

In 2017, recipients received a 0.3% increase after receiving no cost-of-living adjustment in 2016. That reflected very low inflation in 2015 and 2016 due to plummeting gasoline prices.

Next year's larger increase could be welcome news to seniors, those receiving disability payments and other beneficiaries. There has been no annual increase three times since the recession ended in 2009. That had never previously occurred since Congress approved automatic annual adjustments in the mid-1970s. Annual increases averaged 4.3% in the 1980s and 1990s.

But a larger increase next year could be at least partially offset by increased Medicare premiums. The cost-of-living figure plays a major part in determining premiums for Medicare Part B, which covers doctor visits and other types of outpatient care for elderly and disabled Americans.

While the final figure on the premium increase won't be announced immediately -- the Centers for Medicare and Medicaid Services last year released it in November -- the bump is likely to result in higher premiums for a majority of Medicare beneficiaries.

The cost-of-living adjustment matches up with the recent trend in consumer prices. An uptick in energy prices, and other costs in the economy, propelled consumer prices modestly higher since mid-2016. Hurricanes striking the southern U.S. in recent months pushed gasoline prices more.

But inflation is still low by historical standards.

Little or no cost-of-living increases in recent years drew criticism from AARP, the powerful lobbying group for older Americans. It said many seniors face rising medical and housing costs and may not benefit from lower gas prices to the same degree as commuting workers.

The Social Security Administration determines annual cost-of-living adjustments from a Labor Department inflation gauge, the consumer-price index for urban wage earners and clerical workers, or CPI-W. That is a slightly different measure than the more broadly reported index that covers all urban consumers.

The calculation is based on the average monthly price-index level from the July-through-September period.

Write to Eric Morath at eric.morath@wsj.com

Seniors and other Americans receiving Social Security are set to see the largest increase in benefits in six years, though for many, it will likely go toward higher health-care costs.

The Social Security Administration unveiled Friday a 2.0% increase for monthly checks starting in late December for disability beneficiaries and in January for the larger program covering older Americans. It is the largest cost-of-living adjustment since a 3.6% increase in 2012.

About 66.7 million people -- roughly 1 in 5 Americans -- will receive a boost to their income next year. The average increase would be about $27.38 a month for retiree beneficiaries and $23.44 a month for disability beneficiaries. But the gains could be mostly offset for many because a wider swath of Medicare beneficiaries is likely to pay higher premiums than in recent years.

Social Security benefits adjust each year based on a consumer-price measure, with the goal of keeping payments in line with inflation. The increase is slightly smaller than the 2.2% increase Social Security trustees had projected this summer.

The adjustment "gives some relief to Social Security beneficiaries," said AARP Chief Executive Jo Ann Jenkins, head of the lobbying group for older Americans.

But for many, she noted, the boosted checks may not cover expenses rising faster than overall inflation, such as prescription-drug, utility and housing costs.

Friday's announced cost-of-living adjustment also plays a major part in determining premiums for Medicare Part B, which covers doctor visits and other types of outpatient care for elderly and disabled Americans.

While the final figure on the premium increase won't be announced immediately -- the Centers for Medicare and Medicaid Services last year released it in November -- the 2% bump is likely to result in higher premiums for some 70% of Medicare beneficiaries.

The reason is a provision of the Social Security Act called hold-harmless. It prevents Medicare from passing along any premium increase greater than the dollar increase in Social Security payments to the estimated 70% of beneficiaries who typically qualify for hold-harmless treatment.

Because the cost-of-living adjustment has been low for the past two years, Medicare has been forced to spread much of the projected increase in its costs across the remaining 30% -- a group that includes those who pay higher premiums because of their higher incomes, those who are new to Medicare, and those who receive Medicare but have deferred or aren't eligible for Social Security benefits. That 30% has seen its base premium rise from $104.90 in 2015 to $134 in 2017, even as premiums for the rest increased less than $5, on average.

With the larger adjustment in 2018, Medicare can spread its costs across a much larger group of beneficiaries. This summer, Medicare's trustees projected a standard premium of $134 in 2018.

If that projection holds, the 30% of Medicare beneficiaries who are already paying $134 a month won't see any increase. But the remaining 70% are likely to pay significantly more. And for the average Social Security recipient, $25 of the average $27.38 increase in Social Security would go to covering the rise in Medicare.

If the premium increases by as much as the Medicare trustees forecast, "for a lot of people that could effectively mean they won't see much of that Social Security benefit increase," said Juliette Cubanski, associate director of the program on Medicare policy at the Kaiser Family Foundation

In 2017, Social Security recipients received a 0.3% increase after receiving no cost-of-living adjustment in 2016. That reflected very low inflation in 2015 and 2016 due to plummeting gasoline prices.

There has been no annual increase three times since the recession ended in 2009. That had never previously occurred since Congress approved automatic annual adjustments in the mid-1970s. Annual increases averaged 4.3% in the 1980s and 1990s. Since 2000, increases have averaged 2.2%.

Kitty Ruderman returned to work last year, four years after retiring, because she said her pension and Social Security benefits weren't keeping up with the increasing cost of rent and utilities at her Queens, N.Y., apartment, and rising health-care costs.

"It's very difficult," the 71-year-old said. "Social Security payments are not rising as fast as everything else is rising."

Ms. Ruderman works two days a week entering data as a contractor for the city's Department of Correction. The job pays minimum wage. She said she's reluctant to leave the area where she has spent her life and where her grandson lives, despite the high cost of living.

The cost-of-living adjustment matches up with the recent trend in consumer prices. An uptick in energy prices and other costs in the economy propelled consumer prices modestly higher since mid-2016. Hurricanes striking the southern U.S. in recent months pushed up gasoline prices more. But inflation is still low by historical standards.

The Social Security Administration determines annual cost-of-living adjustments from a Labor Department inflation gauge, the consumer-price index for urban wage earners and clerical workers, or CPI-W. That is a slightly different measure than the more broadly reported index that covers all urban consumers.

Write to Eric Morath at eric.morath@wsj.com

(END) Dow Jones Newswires

October 13, 2017 14:11 ET (18:11 GMT)