Feds Say Social Security Payments Will Remain Flat Next Year — the Third Time in 40 Years That's Happened

WASHINGTON (AP) -- There will be no benefit increase next year for millions of Social Security recipients, disabled veterans and federal retirees, the government said Thursday.

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

A woman walks past a sign for the Social Security Administration, Friday, July 29, 2011, in Los Angeles. (AP Photo/Matt Sayles)

And there's more bad news. The lack of a benefit increase means that many older people could face higher Medicare costs, an issue that has advocates lobbying Congress.

The main reason for no increase next year is low gas prices.

By law, the annual cost-of-living adjustment, or COLA, is based on a government measure of inflation. That gauge came out Thursday.

As of Wednesday, AAA said the average price of a gallon of regular gasoline was $2.30, about 90 cents less than it was a year ago.

"The big story has been the plunging gas prices," said Dean Baker, co-founder of the Center for Economic and Policy Research. "There's not a lot of inflation anywhere."

The announcement will affect benefits for more than 70 million people, more than one-fifth of the nation's population.

Almost 60 million retirees, disabled workers, spouses and children get Social Security benefits. The average monthly Social Security payment is $1,224.

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 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. Advocates for seniors said years of small increases or no increase are eroding the buying power of benefits, regardless of the official inflation numbers.

"You've got all kinds of people receiving COLA-adjusted retirement benefits. This is going to be another blow to their retirement income," said Mary Johnson of The Senior Citizens League. "It's a huge amount over a lifetime."

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; it could be more for those with higher incomes.

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

Both AARP and the National Active and Retired Federal Employees Association are urging Congress to protect all retirees from dramatic increases in Medicare costs.

"Ideally, all Medicare beneficiaries should be held-harmless in the face of no Social Security COLA adjustment," Nancy LeaMond, AARP's executive vice president said in a letter to lawmakers.

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 measures price changes for food, housing, clothing, transportation, energy, medical care, recreation and education.

The COLA 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, providing the last piece of the puzzle.