Government: No benefit hike for Social Security next year

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This Medicare Shock Affects Some 7M People Next Year

WASHINGTON (AP) — Older Americans got a double dose of bad news Thursday: There will be no cost-of-living increase in Social Security benefits next year, and Medicare bills are set to soar for many.

It's just the third time in 40 years that Social Security payments will remain flat. All three times have come since 2010.

READ MORE: No Social Security increase next year, gas prices to blame

The annual cost-of-living adjustment, or COLA, by law is based on a government measure of inflation that was released Thursday. Low gas prices — a boon to all Americans — are driving down consumer prices. Currently the average price of a gallon of regular gasoline is $2.30, about 90 cents less than it was a year ago, according to AAA.

Regardless of inflation, the lack of a COLA isn't sitting well with many seniors, especially those on a fixed income.

"The price of food has gone up. (The) price of where you live has gone up unless you live in a government-assisted place. Where are you going to get the money to live on?" said Susan Bradshaw, who lives in a retirement community in Atlanta.

How and When to Claim Social Security

The COLA announcement did bring some good tax-related news for high-income workers.

Social Security is financed by a 12.4 percent tax on wages up to $118,500, with half paid by workers and the other half paid by employers. The amount of wages subject to Social Security taxes usually goes up each year. But because there is no COLA, it will remain at $118,500.

See photos of this year's gas prices as they continue to decline:

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U.S. gas prices continue to decline
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Government: No benefit hike for Social Security next year
Photo by: Dennis Van Tine/STAR MAX/IPx 1/17/16 Gas Prices Tumble Toward $1.00 Iran sanctions have been lifted which will wash the world with more oil. By some estimates, the country can export 500,000 barrels a day. The increase in global supply begins just as the lowest U.S. gas prices for a gallon of regular hover above $1.30 in some parts of the country. The current national average is $1.90. As crude collapses toward $25, gas prices are on their way down, again.
Gas prices are displayed at an Exxon gas station in Woodbridge, Virginia, January 5, 2016. Oil prices fell further January 5 as the crude supply glut overshadowed a diplomatic row between key producers Saudi Arabia and Iran as fuel prices in the US have fallen below $2 per gallon. AFP PHOTO / SAUL LOEB / AFP / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
Photo by: Dennis Van Tine/STAR MAX/IPx 1/11/16 The price of crude oil Monday plummeted another 5% to $31.41 a barrel Monday based on WTI Crude Oil. That's the commodity's lowest closing price since hitting $30.73 a barrel on Dec. 5, 2003, according to Bloomberg data. Talk about a brutal implosion that keeps raging. Oil prices are down 16%, just this year. That's coming off a brutal 2015 when oil prices dropped 30%. Oil prices have been falling in a historical collapse. Oil prices are now down a staggering 79% from the 20-year high of $145.29 notched on July 3, 2008, according to Bloomberg data.
In this Wednesday, Nov. 25, 2015, photo, Cornelio Bonilla pumps gas at Best Food Mart gas station in Gainesville Ga. The price of oil continues to fall, extending a slide that has already gone further and lasted longer than most thought, and probing depths not seen since 2003. (AP Photo/Kevin Liles)
MILL VALLEY, CA - SEPTEMBER 14: A customer at an Arco gas station prepares to pump gas into his truck on September 14, 2015 in Mill Valley, California. The average price of a gallon of regular unleaded gasoline dropped 27 cents in the past three weeks to a national average of $2.44. (Photo by Justin Sullivan/Getty Images)
In this Thursday, July 16, 2015 photo, a customer re-fuels her car at a Costco in Robinson Township, Pa. (AP Photo/Gene J. Puskar)
WOODBRIDGE, NJ - AUGUST 25: A gas attendant at a 19 Petroleum gas station pumps gas on August 25, 2015 in Woodbridge, New Jersey. Some places in New Jersey are seeing prices under two dollars as the price of gasoline continues to fall. (Photo by Yvonne Hemsey/Getty Images)
Motorist purchase gas at a station that dropped the unleaded fuel price to $1.99 per gallon, Wednesday, Aug. 26, 2015, in San Antonio. The price of oil fell back below $39 a barrel after a U.S. government report showed an unexpected decline in demand for gasoline last week. (AP Photo/Eric Gay)
In this May 8, 2015 photo, vehicles drive past a gas station in Andover, Mass. Even after the typical springtime run-up, the average price for gallon of regular gasoline should top out around $2.60, experts say. (AP Photo/Elise Amendola)
A customer fuels his car at a Mobil gas station off Route 3 south, heading toward Cape Cod at the start of Mother's Day weekend, Friday, May 8, 2015, in Pembroke, Mass. With more money in their pockets thanks to lower gas prices and an improved job market, AAA expects more than 37 million Americans to travel for Memorial Day, the most since 2005. (AP Photo/Stephan Savoia)
In this May 6, 2015 photo, attendant James Lewis pumps gas at a station in Portland, Ore. Even after the typical springtime run-up, the average price for gallon of regular gasoline should top out around $2.60, experts say. (AP Photo/Don Ryan)
In this Monday, April 6, 2015 photo, cars pass by a gas station in Charlotte, N.C. Drivers will see the lowest summer gasoline prices in about 6 years, according to an Energy Department report released Tuesday. (AP Photo/Chuck Burton)
In this April 6, 2015 photo, Lucy Perez, of Charlotte, N.C., pumps gas at a station in Matthews, N.C. A slew of global economic and geopolitical factors are working to pummel the price of oil and set up U.S. drivers for very low gasoline prices later this year. (AP Photo/Chuck Burton)
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But as far as benefits are concerned, the lack of a COLA will affect more than 70 million people, over one-fifth of the nation's population. Almost 60 million retirees, disabled workers, spouses and children get Social Security benefits. The average monthly payment is $1,224.

It will also trigger a spike in Medicare deductibles and premiums, though dozens of advocacy groups are lobbying Congress to prevent that.

Most Social Security recipients have their Medicare Part B premiums for outpatient care deducted directly from their Social Security payments, and the annual cost-of-living increase is usually enough to cover any rise in premiums. When that doesn't happen, a long-standing federal "hold harmless" law protects the majority of beneficiaries from having their Social Security payments reduced.

But that leaves about 30 percent of Medicare beneficiaries on the hook for a premium increase that otherwise would be spread among all. Those who would pay the higher premiums include 2.8 million new beneficiaries, 1.6 million whose premiums aren't deducted from their Social Security payments, and 3.1 million people with higher incomes.

Their premiums could jump by about $54 a month, to $159. Those with higher incomes could get bigger increases.

States also would feel a budget impact because they pay part of the Medicare premium for about 10 million low-income beneficiaries.

Also, all Medicare beneficiaries will see their Part B annual deductible for outpatient care jump by $76, to an estimated $223. The deductible is the annual amount patients pay before Medicare kicks in.

Senate Democrats, led by Sen. Ron Wyden of Oregon, have introduced legislation that would freeze Medicare's Part B premium and deductible for 2016, but its prospects are uncertain.

The White House, meanwhile, has said administration officials are exploring options to mitigate the increase in Medicare costs.

"The COLA announcement not only fails to reflect the actual health care and other expenditures of Social Security beneficiaries, but will actually contribute to a large increase in out-of-pocket health care costs for millions of Medicare enrollees," Nancy LeaMond, AARP's executive vice president, said in a letter to lawmakers.

The COLA also affects benefits for about 4 million disabled veterans, 2.5 million federal retirees and their survivors, and more than 8 million people who get Supplemental Security Income, the disability program for the poor. Many people who get SSI also receive Social Security.

Congress enacted automatic cost-of-living increases for Social Security beneficiaries in 1975, when inflation was high and there was a lot of pressure to regularly raise benefits. Since then, increases have averaged 4 percent a year.

But in the past decade, the COLA has been that big only once.

The cost-of-living adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, a broad measure of consumer prices generated by the Bureau of Labor Statistics.

It is calculated by comparing consumer prices in July, August and September each year with prices in the same three months from the previous year. If prices go up, benefits go up. If prices drop or stay flat, benefits stay the same.

The CPI-W numbers for September were released Thursday. The numbers show that gasoline prices are down by 30 percent from last year. Airfares have fallen by 5.9 percent and clothing prices are down by 1.3 percent.

But other prices are up. For example, medical care has risen by 2.4 percent, housing costs climbed by 3.2 percent and food prices were 1.6 percent higher.

Advocates say the government's measure of inflation does not accurately reflect price increases in the goods and services that older people use.

"The CPI-W reflects the purchasing patterns of workers, many of whom are younger and healthier than most Social Security recipients," LeaMond said in her letter.

RELATED: Learn more about Carol and Glen Mead, who are struggling to make ends meet on Social Security

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Social security raise on hold
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Government: No benefit hike for Social Security next year
In this Friday, Oct. 9, 2015, photo, Carol Mead poses for a portrait at her home, in Montrose, Pa. Mead, 67, is retired and her husband, 70, must work at a local rock quarry to close the gap from her Social Security. For just the third time in 40 years, millions of Social Security recipients, disabled veterans and federal retirees can expect no increase in benefits next year, unwelcome news for more than one-fifth of the nation's population. (AP Photo/Brett Carlsen)
In this Friday, Oct. 9, 2015, photo, Carol Mead decorates her home for Halloween, in Montrose, Pa. Mead, 67, is retired and her husband, 70, must work at a local rock quarry to close the gap from her Social Security. (AP Photo/Brett Carlsen)
In this Friday, Oct. 9, 2015, photo, Glen Mead operates a line drill machine at a rock quarry, in Montrose, Pa. Mead spent his life working as a dairy farmer and at age 60, began working with Rock Ridge Stone in Montrose, to make ends meet. (AP Photo/Brett Carlsen)
In this Friday, Oct. 9, 2015, photo, Glen Mead poses for a portrait at a rock quarry operated by Rock Ridge Stone, in Montrose, Pa. Mead spent his life working as a dairy farmer and at age 60, now 70, began working with the company to make ends meet. For just the third time in 40 years, millions of Social Security recipients, disabled veterans and federal retirees can expect no increase in benefits next year, unwelcome news for more than one-fifth of the nation's population. (AP Photo/Brett Carlsen)
In this Friday, Oct. 9, 2015, photo, Glen Mead operates a line drill machine at a rock quarry, in Montrose, Pa. Mead spent his life working as a dairy farmer and at age 60, began working with Rock Ridge Stone in Montrose, to make ends meet. For just the third time in 40 years, millions of Social Security recipients, disabled veterans and federal retirees can expect no increase in benefits next year, unwelcome news for more than one-fifth of the nation's population. (AP Photo/Brett Carlsen)
Graphic shows annual Social Security cost-of-living adjustments (AP Photo)
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