Social Security recipients normally receive an upward annual cost-of-living adjustment. Since 1975, except for 2010 and 2011, inflation has triggered an annual adjustment, even if modest.
But not for the upcoming 2016. Inflation, as calculated for Social Security’s cost-of-living measurement, is unusually low.
The culprit? Energy costs. Gasoline and natural-gas prices have dropped significantly.
The large increase in oil and natural-gas production in the United States, which has brought joy to automobile owners gassing up every two weeks or so, continues to have a multitude of ripple effects across the economy.
So much production has occurred particularly in North Dakota and in Pennsylvania that jobs in the energy patch have been curtailed, not only by the largest production companies, but by the many mid-sized firms that support exploration and drilling. Bank loans are in doubt, and there has been an occasional bankruptcy. Refineries may be running near capacity and highly profitable, but the other sectors of the industry have retreated significantly.
States and local governments that enjoyed healthy tax revenues from energy production, are beginning to see shortfalls in their budgets. (La Plata County, because of the every-two-year appraisal schedule, will see a decrease in a couple of years.) Because of strong energy production in the aggregate nationwide, prices are down and less gas and oil are flowing.
And while drivers have recently been leaving gas stations with 15 or 20 dollars in their pocket in addition to a full tank, large pickup and SUV sales continue strong, and the move toward the purchase of more fuel-efficient cars, which are more plentiful, has slowed. No wonder.
Internationally, countries heavily dependent on energy exports, such as Russia, are seeing such large reductions in government revenues as to be worrisome for its leaders. Reduced government spending can lead to political instability.
Now comes low energy prices’ effect on Social Security, and by extension, Medicare.
While health-care costs are climbing – some might say soaring – most Social Security recipients are protected against an increase in Medicare premiums by a provision that limits Medicare increases to no more than the increases in Social Security payments. No Social Security increase thus means no Medicare premium increase.
But the check on an increase applies to only about 70 percent of Medicare participants; the remaining 30 percent will be hit hard. Those new to Medicare and those with a high income and no Social Security will see significant increases. Premiums for the supplemental Part B plan will also see an increase in deductibles as another way to address costs. But especially hard hit will be the states, which are responsible for at least a portion of Medicare or Medicaid premiums for those with low incomes.
While Medicare has reserves for such a situation, and other temporary adjustments downward could be made by Congress, the current general inaction by that body does not bode well. It is not unreasonable to believe that nothing will be done to avoid heavy premium increases on the 30 percent.
All this brought by lower energy prices. For those seniors still driving, enjoy saving money at the pump. Those in the 30 percent who don’t drive, and especially the states, will be paying a lot more for Medicare premiums without the savings at the pump.
