[Congressional Record Volume 150, Number 103 (Thursday, July 22, 2004)]
[Senate]
[Pages S8739-S8743]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DASCHLE (for himself, Mr. Reed, Mrs. Murray, Mr. Johnson, 
        Ms. Mikulski, Ms. Cantwell, Ms. Stabenow, and Mr. Leahy):
  S. 2754. A bill to amend the Social Security Act to protect social 
security cost-of-living adjustments (COLA); to the Committee on 
Finance.
  Mr. DASCHLE. Mr. President, 8 months ago, the Republican leadership 
pushed through Congress a lemon of a Medicare prescription drug bill 
that has been breaking down part by part since the day it was passed.
  First, we learned drug companies were raising the prices of many 
drugs, erasing what little discounts the administration's drug card 
program might have offered.
  Next, we learned the administration concealed its cost estimates, 
misled Congress, and threatened the Medicare actuary with termination 
for trying to respond to Congressional requests for information.
  Then, we heard that some seniors who enrolled in the program were 
going to see reductions in other benefits, such as food stamps.
  Later, days after the Drug Card program began, seniors from across 
the country began to report that it was too confusing and studies 
revealed there were lower prices available from major online 
pharmacies.
  Finally, we learned that the HHS website established to help seniors 
navigate their way through the labyrinth of the myriad cards was 
riddled with false information.
  The most recent discovery, however, is the most troubling of all, 
because what we're talking about is not policy breakdown, but policy 
sabotage.
  Let me explain: Every senior has his or her Medicare Part B premium 
withdrawn from their Social Security check. But when the increase in 
health care inflation began to outpace seniors' Social Security cost of 
living adjustments, Congress protected seniors by making it impossible 
for a senior's Medicare premiums to go up more than the value of his or 
her Social Security COLA. It's called the ``hold harmless'' protection, 
and it makes a simple promise to seniors: The cost of health care will 
not come at the expense of the cost of living.
  We have now learned that behind closed doors and in the dark of 
night, Republican leaders undermined this promise. Like Part B 
premiums, the new prescription drug premiums will come out of a 
senior's Social Security check. But unlike in traditional Medicare, the 
new drug bill does not protect seniors with a ``hold harmless'' 
provision.
  It was never mentioned in the debate and no one has stepped forward 
to take responsibility in the months since. But if we don't fix the 
problem, it will eventually result in the decimation of seniors' Social 
Security annual cost of living adjustment.
  Never have these protections been more important. In the past several 
years, the consumer price index, on

[[Page S8740]]

which Social Security COLAs are pegged, has remained very low. At the 
same time, the cost of health care has been skyrocketing by double-
digit percentages. In the 4 years of this administration, the 
cumulative increase in the Medicare monthly premiums will be at least 
$26, nearly twice as much as in the prior eight years under the Clinton 
administration. In addition, the Medicare Part B premium increase for 
2005 is projected to be $114, the largest ever.

  For seniors on a fixed income, every dollar counts. The hold harmless 
protection is the only thing standing in the way of lower and lower 
Social Security checks.
  But the Republican leadership chose not to protect seniors in this 
drug bill, despite the fact that the cost of pharmaceuticals is 
increasing even faster than the cost of health care overall. Medicare 
Part D premiums are expected to rise 7.5 percent per year. The result 
will be a steady erosion of Social Security checks, and real damage to 
seniors' ability to pay their bills and keep up with inflation.
  According to a new report by the Joint Economic Committee, one in 
four seniors will lose a quarter of their COLA just on Medicare premium 
increases by 2007. In 2014, nearly two in three seniors will see the 
same level of loss. And those most vulnerable will be the ones most 
severely harmed. For an elderly woman with a monthly benefit of $500, 
the increase in Medicare premiums will take an average of 60 percent of 
her COLA from 2007 to 2010, and an average of 66 percent from 2011 to 
2014.
  Let's not mince words. This is the worst kind of bait and switch. We 
cannot stand by and allow seniors to be cheated out of their cost of 
living increases in exchange for a confusing drug benefit that fails to 
bring down the cost of drugs.
  Today, I am introducing the Social Security COLA Protection Act of 
2004 to make sure that senior citizens continue to receive a COLA that 
helps them keep pace with inflation. This bill would restore seniors' 
protections and ensure that no more than 25 percent of their annual 
COLAs could be taken away by increases in Medicare premiums. The 
remaining 75 percent would be secure. For a senior citizen receiving a 
$600 monthly benefit, this bill would protect more than $2,200 over the 
next 10 years. That's money seniors will need to cover increases in 
clothing, food, housing and energy prices.
  We're not talking about adding an extra benefit to Social Security. 
We're talking about protecting seniors' existing benefit from a drug 
plan that appears now to be little more than a wolf in sheep's 
clothing.
  This wasn't the prescription drug bill seniors were promised. Upon 
the passage of this bill, President Bush said, ``Some older Americans 
spend much of their Social Security checks just on their medications.  
. . . Elderly Americans should not have to live with those kinds of 
fears and hard choices. This new law will ease the burden on seniors 
and will give them the extra help they need.''
  As we have seen so often, there has been a gap between what this 
administration promised, and what it delivered. In the guise of easing 
one burden on seniors, the administration has added yet another.
  I wish the White House and the Republican leadership in Congress had 
listened more closely to some of the voices of seniors during the 
debate last Fall. One man from Nashville, Tennessee looked at the 
details of this bill and asked, ``Do you think anybody in Washington 
has any idea what people on a limited income have to do to live?''
  If the authors of the prescription drug bill truly understood what 
seniors on fixed incomes must go through, they never would have passed 
it.
  Democrats are fighting to make things right again. We do understand 
the struggles of America's seniors and the burden drug costs put on 
their finances. Seniors were promised a real prescription drug benefit 
for Medicare. The Republicans' prescription drug bill has proven to be 
tragically inadequate. The COLA protection bill we are introducing 
today represents an important step in repairing the damage, and 
Democrats will keep fighting until seniors get the help they were 
promised and the benefit they deserve.
  I want to thank the Joint Economic Committee Democrats for their 
efforts to identify and highlight this problem. Senator Jack Reed is 
the senior Democratic Senator on the Committee, and the lead cosponsor 
of the COLA protection bill. Senator Patty Murray joined us in 
highlighting the problem yesterday. She is also a cosponsor, along with 
five other Senate Democrats.
  This is truly a bicameral effort. My South Dakota colleague, 
Stephanie Herseth, is sponsoring the House bill. This is the first bill 
she is introducing in Congress, and I am proud that she is helping lead 
this fight for seniors in South Dakota and across the country. Many 
other House Democrats are joining her in this effort.
  Senator Reed will be inserting the JEC report into the Record. I 
encourage my colleagues to read it. I ask unanimous consent to print in 
the Record a fact sheet on the bill that was prepared by Representative 
Pelosi's office, as well as a document prepared by the House Ways and 
Means Committee staff that provides several illustrative examples of 
how the bill would work, how much retirees would save if it becomes 
law, and what percentage of Medicare enrollees will benefit. I also ask 
unanimous consent that the text of the bill be printed in the Record.
  We will continue our effort to protect America's seniors and address 
the problems created by last year's prescription drug bill when 
Congress returns in the fall.
  There being no objection, the material was ordered printed in the 
Record, as follows:

                                S. 2754

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Social Security COLA 
     Protection Act of 2004''.

     SEC. 2. PROTECTION OF SOCIAL SECURITY COLA INCREASES AGAINST 
                   EXCESSIVE MEDICARE PREMIUM INCREASES.

       (a) Application to Part B Premiums.--Section 1839(f) of the 
     Social Security Act (42 U.S.C. 1395r(f)) is amended--
       (1) by striking ``(f) For any calendar year after 1988'' 
     and inserting ``(f)(1) For any calendar year after 1988 and 
     before 2005''; and
       (2) by adding at the end the following new paragraph:
       ``(2) For any calendar year (beginning with 2005), if an 
     individual is entitled to monthly benefits under section 202 
     or 223 or to a monthly annuity under section 3(a), 4(a), or 
     4(f) of the Railroad Retirement Act of 1974 for November and 
     December of the preceding year, if the monthly premium of the 
     individual under this section for December of the preceding 
     year and for January of the year involved is deducted from 
     those benefits under section 1840(a)(1) or section 
     1840(b)(1), and if the amount of the individual's premium is 
     not adjusted for January of the year involved under 
     subsection (i), the monthly premium otherwise determined 
     under this section for the individual for that year shall not 
     be increased pursuant to subsection (a)(3) to an amount that 
     exceeds 25 percent of the amount of the increase in such 
     monthly benefits for that individual attributable to section 
     215(i).''.
       (b) Application to Part D Premiums.--
       (1) In general.--Section 1860D-13(a)(1) of such Act (42 
     U.S.C. 1395ww-113(a)(1)) is amended--
       (A) in subparagraph (F), by striking ``(D) and (E),'' and 
     inserting ``(D), (E), and (F),'';
       (B) by redesignating subparagraph (F) as subparagraph (G); 
     and
       (C) by inserting after subparagraph (E) the following new 
     subparagraph:
       ``(F) Protection of social security cola increase.--For any 
     calendar year, if an individual is entitled to monthly 
     benefits under section 202 or 223 or to a monthly annuity 
     under section 3(a), 4(a), or 4(f) of the Railroad Retirement 
     Act of 1974 for November and December of the preceding year 
     and was enrolled under a PDP plan or MA-PD plan for such 
     months, the base beneficiary premium otherwise applied under 
     this paragraph for the individual for months in that year 
     shall be decreased by the amount (if any) by which the sum of 
     the amounts described in the following clauses (i) and (ii) 
     exceeds 25 percent of the amount of the increase in such 
     monthly benefits for that individual attributable to section 
     215(i):
       ``(i) Part d premium increase factor.--

       ``(I) In general.--Except as provided in this clause, the 
     amount of the increase (if any) in the adjusted national 
     average monthly bid amount (as determined under subparagraph 
     (B)(iii)) for a month in the year over such amount for a 
     month in the preceding year.
       ``(II) No application to full premium subsidy 
     individuals.--In the case of an individual enrolled for a 
     premium subsidy under section 1860D-14(a)(1), zero.
       ``(III) Special rule for partial premium subsidy 
     individuals.--In the case of an individual enrolled for a 
     premium subsidy under

[[Page S8741]]

     section 1860D-14(a)(2), a percent of the increase described 
     in subclause (I) equal to 100 percent minus the percent 
     applied based on the linear scale under such section.

       ``(ii) Part b premium increase factor.--If the individual 
     is enrolled for such months under part B--

       ``(I) In general.--Except as provided in subclause (II), 
     the amount of the annual increase in premium effective for 
     such year resulting from the application of section 
     1839(a)(3), as reduced (if any) under section 1839(f)(2).
       ``(II) No application to individuals participating in 
     medicare savings program.--In the case of an individual who 
     is enrolled for medical assistance under title XIX for 
     medicare cost-sharing described in section 1905(p)(3)(A)(ii), 
     zero.''.

       (2) Application under medicare advantage program.--Section 
     1854(b)(2)(B) of such Act (42 U.S.C. 1395w-24(b)(2)(B)), as 
     in effect as of January 1, 2006, relating to MA monthly 
     prescription drug beneficiary premium, is amended by 
     inserting after ``as adjusted under section 1860D-
     13(a)(1)(B)'' the following: ``and section 1860D-
     13(a)(1)(F)''.
       (3) Payment from medicare prescription drug account.--
     Section 1860D-16(b) of such Act (42 U.S.C. 1395w-116(b)) is 
     amended--
       (A) in paragraph (1)--
       (i) by striking ``and'' at the end of subparagraph (C);
       (ii) by striking the period at the end of subparagraph (D) 
     and inserting ``; and''; and
       (iii) by adding at the end the following new subparagraph:
       ``(E) payment under paragraph (5) of premium reductions 
     effected under section 1860D-13(a)(1)(F).''; and
       (B) by adding at the end the following new paragraph:
       ``(5) Payment for cola protection premium reductions.--
       ``(A) In general.--In addition to payments provided under 
     section 1860D-15 to a PDP sponsor or an MA organization, in 
     the case of each part D eligible individual who is enrolled 
     in a prescription drug plan offered by such sponsor or an MA-
     PD plan offered by such organization and who has a premium 
     reduced under section 1860D-13(a)(1)(F), the Secretary shall 
     provide for payment to such sponsor or organization of an 
     amount equivalent to the amount of such premium reduction.
       ``(B) Application of provisions.--The provisions of 
     subsections (d) and (f) of section 1860D-15 (relating to 
     payment methods and disclosure of information) shall apply to 
     payment under subparagraph (A) in the same manner as they 
     apply to payments under such section.''.
       (c) Disregard of Premium Reductions in Determining 
     Dedicated Revenues Under MMA Cost Containment.--Section 
     801(c)(3)(D) of the Medicare Prescription Drug, Improvement, 
     and Modernization Act of 2003 (Public Law 108-173) is amended 
     by adding at the end the following: ``Such premiums shall 
     also be determined without regard to any reductions effected 
     under section 1839(f)(2) or 1860D-13(a)(1)(F) of such 
     title.''.
       (d) Effective Dates.--
       (1) Part b premium.--The amendments made by subsection (a) 
     apply to premiums for months beginning with January 2005.
       (2) Part d premium.--The amendments made by subsection (b) 
     apply to premiums for months beginning with January 2007.
       (3) MMA provision.--The amendment made by subsection (c) 
     shall take effect on the date of the enactment of this Act.

 Democrats Fight to Protect Social Security COLA: Report Shows GOP Rx 
              Drug Law Would Lead to Social Security Cuts

       Approximately 30 million middle income seniors are enrolled 
     in Social Security and Medicare, and rely on the annual 
     Social Security cost of living increases (COLAs) that help 
     them keep up with the rising cost of groceries, food and 
     housing. Yet medical inflation is rising rapidly, and 
     Medicare premium increases will soon consume the entire 
     Social Security COLA. If nothing is done, escalating drug 
     prices will lead to real cuts in the Social Security benefit 
     as a result of new Part D premium increases in 2007 and 
     beyond. Today, Democrats are unveiling a bill to limit how 
     much rising Medicare premiums can impact seniors' COLAs.
       Social Security COLAs are vital to seniors and the 
     disabled. Millions of Americans rely on their Social Security 
     check each month to make ends meet. Each fall, millions of 
     retirees wait anxiously to learn what the Social Security 
     COLA will be for the coming year--because each dollar is 
     needed to balance their budget.
       Republican Medicare bill will dramatically reduce Social 
     Security COLAs. Under the GOP Rx drug law, some seniors will 
     have an additional Medicare premium (``Part D'') deducted 
     from their Social Security check. With both the new Medicare 
     Part D premium (for prescription drugs) and the existing Part 
     B premiums (for physician and other outpatient care) deducted 
     from a retiree's Social Security check, Social Security COLAs 
     will be significantly eroded. According to a new report by 
     the Democratic staff of the Joint Economic Committee, when 
     the new drug benefit is in place in 2007 almost one-quarter 
     of Social Security beneficiaries will spend over 25 percent 
     of their COLA just on increases in Medicare premiums--and the 
     number will increase to 64 percent (22 million seniors and 
     people with disabilities) in 2014. For an elderly woman with 
     a monthly benefit of $500, the increase in Medicare premiums 
     will absorb almost 60 percent of the COLA from 2007-2010, and 
     69 percent from 2011-2014.
       Making a bad problem worse. The goal of the Social Security 
     COLA is to maintain the purchasing power of the benefit check 
     in the face of rising prices. But that objective is 
     undermined if Medicare premiums, which are typically deducted 
     from Social Security checks, increase rapidly. Medical 
     inflation and increased utilization of outpatient services is 
     already increasing Part B premiums, but current law ensures 
     at least that total Social Security benefits do not go down. 
     By refusing to extend this same protection to the new Part D 
     premiums, and refusing to control drug prices, Republicans 
     have made a difficult situation even worse. While the Social 
     Security COLA only increases at the rate of inflation, the 
     premiums beneficiaries face under Part D will increase by the 
     rate of increase in drug prices. According to CBO 
     projections, Part D premiums will increase by an average of 
     7.5 percent a year from 2006 to 2014--a far greater rate of 
     increase than that expected for Part B or the Social Security 
     COLA.
       Current protection needs improvement. The 2004 Medicare 
     Trustees Report projects that monthly Part B premiums will 
     rise by a record $11.50 for 2005--a one-year increase of more 
     than 17 percent. Given the increased pressures to increase 
     physician payments and the trend of shifting more services to 
     outpatient settings, which increase Part B premiums--and the 
     new costs of Part D--it is important to act now to protect a 
     portion of the COLA for seniors' basic needs.
       Democrats' bill will protect Social Security. Democrats' 
     ``Social Security COLA Protection Act of 2004'' would ensure 
     that no more than 25 percent of a beneficiary's annual COLA 
     could be taken away by increases in Medicare premiums. Doing 
     so would guarantee that seniors and the disabled retain at 
     least 75 percent of the COLA to cover price increases in 
     other goods and services, such as food, clothing, housing and 
     energy costs. In 2007, the legislation would help over 14 
     million Social Security recipients. By 2014, it will help 
     more than two-thirds of seniors and people with disabilities, 
     approximately 23 million Americans.
                                  ____


                   How the COLA Protection Bill Works

       Example 1. Widow with $500 in monthly Social Security 
     benefits in 2004
       Her annual Social Security benefit is $6,000, and the COLA 
     will increase her income by $162 in 2005 (a 2.7 percent 
     increase).
       However, Medicare Part B premiums are projected to rise by 
     at least $114 that year. Without the bill's protection, a 
     premium increase of $114 will eat up 70 percent of her COLA.
       With the bill's protection, only 25 percent of her COLA 
     will be absorbed by Medicare premium increases, leaving 75 
     percent ($122 per year) to cover other increases in her cost 
     of living. The bill preserves an additional $74 of COLA to be 
     used for other expenses.
       By 2009, the bill will save $197 of her COLA. In 2014, $545 
     of her COLA will be protected. Over 10 years, the projected 
     total savings for this beneficiary will reach $2,615.
       Example 2. Retired couple with $1,100 in combined monthly 
     Social Security benefits in 2004.
       Their annual benefits are $13,200: $8,400 for the husband 
     and $4,800 for the wife. A 2.7 percent COLA would increase 
     their income by $356 in 2005.
       However, the Medicare Part B premiums paid by this couple 
     are projected to rise by at least $228 in 2005. Without the 
     bill's protection, a premium increase of $228 will eat up 64 
     percent of their combined COLA.
       With the bill's protection, only 25 percent of their COLAs 
     will be absorbed by Medicare premium increases, leaving 75 
     percent ($267 per year) to cover other increases in their 
     cost of living. The bill preserves an additional $139 of COLA 
     to be used for other expenses.
       By 2009, the bill will protect $358 of their COLA. In 2014, 
     $1,016 of their COLA will be protected. Over 10 years, the 
     projected total savings for this couple will reach $4,829.
       How much would others save?

------------------------------------------------------------------------
                                                  Savings      Average
             Annual benefit amount                over 10       annual
                                                   years      savings\1\
------------------------------------------------------------------------
$7,200 ($600 per month).......................       $2,213         $221
$9,000 ($750 per month).......................        1,611          161
$9,600 ($800 per month).......................        1,410         140
------------------------------------------------------------------------
\1\ The particular amount in each year could differ from this average
  because each year, the amount of protection provided by the bill would
  depend on the interaction between the Medicare premium increase and
  that individual's COLA increase. If the premium increase is large
  while the COLA is small, savings would be larger. If the premium
  increase is modest while the COLA is large, then savings would be
  smaller.

       What fraction of those who pay Medicare premiums would 
     benefit from the bill?
       2005: 90 percent (This is a year when many beneficiaries 
     will need protection to prevent their COLA from being 
     swallowed by Medicare premium increases, because the premium 
     increase is projected to be the largest ever); 2007: 47 
     percent; 2009: 64 percent; 2011: 68 percent; 2014: 67 
     percent.
                                   Ways and Means Democratic Staff
                                            July 20, 2004, 10 a.m.

                   Joint Economic Committee Democrats

           Representative Pete Stark (D-CA)--Senior Democrat

      Rising Medicare Premiums Undermine the Social Security COLA


              new medicare law could cut benefits for some

                   (Economic Policy Brief--July 2004)

       Unlike most private pensions and other forms of retirement 
     annuity income, Social

[[Page S8742]]

     Security, benefits include an annual cost-of-living 
     adjustment (COLA) that is designed to prevent an erosion of 
     benefits due to inflation. Unfortunately, rising health care 
     costs and last year's Medicare law threaten this valuable 
     cost-of-living protection.


                               background

       In 1975 Congress replaced ad hoc increases in Social 
     Security benefits with an automatic COLA based on the 
     previous year's change in the consumer price index (CPI). The 
     CPI is an index of prices paid by the typical consumer for a 
     representative bundle of goods and services. The goal of the 
     COLA is to ensure that Social Security benefits keep pace 
     with increases in the price of food, clothing, and other 
     necessities--including medical care--so that seniors and 
     other beneficiaries can maintain a stable quality-of-life.
       Participants in Medicare Part B, which covers doctors' 
     services, pay a monthly premium that is deducted from their 
     Social Security check. So too will most participants in 
     Medicare Part D, the new prescription drug program. The size 
     of the premiums is based on projected costs for those 
     respective programs. During periods of rapidly rising health 
     care costs, increases in Medicare premiums can represent a 
     significant fraction of the overall Social Security COLA for 
     many Social Security beneficiaries. With the latest 
     Medicare changes, some may even see their benefits cut as 
     their premium increases outpace their COLAs.
       Current law puts a limit on the extent to which growth in 
     Medicare Part B premiums can erode the purchasing power of an 
     individual's Social Security benefit. The ``hold harmless'' 
     provision guarantees that the increase in a person's Part B 
     premium will not be larger than that person's COLA. This 
     ensures that the dollar amount of the benefit received after 
     deducting the Part B premium will never be reduced, but it 
     does not guarantee that the purchasing power of that benefit 
     will not fall. In fact, the entire COLA could be consumed. 
     The latest Medicare legislation does not apply even this 
     ``hold harmless'' protection to the Part D prescription drug 
     premium. Thus, seniors are exposed to the possibility that 
     large increases in medical costs, especially unchecked 
     prescription drug costs, could eat up a large piece of their 
     Social Security COLA and even cut their Social Security 
     benefit.


   recent experience with colas and medicare part b premium increases

       During the past three years, rapidly rising health 
     expenditures have been accompanied by large increases in 
     Medicare premiums. Based on current projections, the 
     cumulative increase in the monthly Part B Medicare premium 
     during the four years of the Bush Administration will be at 
     least $26, nearly twice as much as the total increase of 
     $13.40 over the entire eight years of the Clinton 
     Administration. At the same time that Medicare premiums have 
     been rising rapidly, inflation has been very low. As a 
     result, Social Security COLAs have been relatively modest, 
     and many beneficiaries have seen a substantial portion of 
     their COLA consumed by the increases in Medicare premiums.
       In 2004, for example, Social Security beneficiaries 
     received a COLA of 2.1 percent ($2.10 for each $100 of 
     monthly benefit). At the same time, the monthly premium for 
     Medicare Part B increased from $58.70 to $66.60, an increase 
     of $7.90 or 13.5 percent. Table 1 shows what part of the COLA 
     was consumed by the increase in the Part B premium for 
     individuals receiving different levels of monthly benefit.

TABLE 1.--IMPACT OF MEDICARE PREMIUM INCREASES ON SOCIAL SECURITY COLAS,
                                  2004
------------------------------------------------------------------------
                                                             Fraction of
                                               COLA after        COLA
                                2004 Social     deducting    absorbed by
    Monthly Social Security       Security     increase in     Medicare
   benefit in 2004 (dollars)        COLA        medicare       premium
                                 (dollars)      premiums      increases
                                                (dollars)     (percent)
------------------------------------------------------------------------
384...........................         7.90            0.00          100
500...........................        10.28            2.38           77
750...........................        15.43            7.53           51
1,000.........................        20.57           12.67           38
1,250.........................        25.71           17.81           31
1,500.........................        30.85           22.95          26
------------------------------------------------------------------------
Source: JEC Democratic staff, based on Congresssional Budget Office
  projections.

       Individuals with 2004 monthly Social Security benefits of 
     less than $384 received a COLA in 2004 that was less than the 
     increase in Medicare premiums. Because of the ``hold 
     harmless'' provision, their premium increase was limited to 
     the amount of their COLA. Still, for these individuals (an 
     estimated 1.4 million people), their entire Social Security 
     COLA was wiped out, leaving them nothing to pay for increases 
     in all other goods and services they consume.
       Individuals with a monthly benefit of $1,000 (roughly the 
     average benefit of retired men) had to devote nearly 40 
     percent of their COLA to the increase in their Medicare 
     premium. Those with a monthly benefit of $750 (roughly the 
     average benefit of retired women) needed half their COLA to 
     cover the increase in Medicare premiums. And those with a 
     monthly benefit of $500 (roughly the average benefit of wives 
     of retired workers) needed more than three-quarters of their 
     COLA to pay for the increase in their Medicare premium.


            The Impact of Part D Prescription Drug Premiums

       Current forecasts indicate that the Medicare Part B premium 
     increase in 2005 will be the largest dollar amount ever.\1\ 
     As a result, seniors can expect another year like 2004, when 
     increases in Medicare premiums will absorb a large percentage 
     of their COLA. CBO's current projections call for the rate of 
     increase in Medicare premiums to abate after 2005, but those 
     projections do not reflect possible legislative changes that 
     would increase physician payments, resulting in higher 
     premiums. Furthermore, beginning in 2006, seniors 
     participating in the Part D prescription drug program will 
     have an additional Medicare premium for that program deducted 
     from their Social Security check.
       Using CBO's projections of the Social Security COLA and 
     Medicare premium costs, the Joint Economic Committee 
     Democratic staff has estimated the portion of the COLA that 
     will be absorbed by increases in Medicare premiums incoming 
     years. For a person with a monthly benefit of $500 (in 2004 
     dollars), the annual increase in combined Part B and Part D 
     premiums will absorb almost three-fifths of the annual COLA, 
     on average, during the 2007-2010 period. Medicare premiums 
     will absorb over two-thirds of the COLA in the 2011-2014 
     period. Increases in Medicare premiums will absorb a lesser 
     but still significant fraction of the COLA for individuals 
     with larger monthly benefits (Table 2). Because there is no 
     ``hold harmless'' protection, up to 2 percent of 
     beneficiaries could experience benefit cuts.

    TABLE 2.--AVERAGE IMPACT OF MEDICARE PREMIUM INCREASES ON SOCIAL
                 SECURITY COLAS, 2007-2010 AND 2011-2014
------------------------------------------------------------------------
                                             Average fraction of COLA
                                            absorbed by Medicare Part B
 Monthly Social Security benefit  (2004    and Part D premium increases
                dollars)                             (percent)
                                         -------------------------------
                                             2007-2010       2011-2014
------------------------------------------------------------------------
500.....................................              59              69
1,000...................................              24              34
1,500...................................              16             23
------------------------------------------------------------------------
Source: JEC Democratic staff, based on Congressional Budget Office
  projections.

       Although the rising cost of Medicare Part B and Part D 
     premiums can absorb a very large fraction of the annual 
     Social Security COLA for those with modest benefit checks, 
     the problem is not confined to them. CBO estimates that in 
     2007, the first year that increases in Part D premiums will 
     have an impact, 6.9 million people, or nearly 25 percent of 
     those who have Medicare premiums withheld from their Social 
     Security benefit will see at least one-quarter of their 
     COLA absorbed by increases in combined Part B and Part D 
     premiums. By 2014, 64 percent of beneficiaries, or 22.2 
     million people, will lose at least 25 percent of their 
     COLA to increases in their Medicare premium.


                               Conclusion

       For Social Security beneficiaries, the annual COLA is an 
     important protection against rising prices eroding the real 
     purchasing power of their benefit. In the past three years, 
     however, rapidly rising health care costs have undermined 
     this protection by driving up Medicare Part B premiums, which 
     are automatically deducted from participants' monthly Social 
     Security check.For many participants, the increase in 
     Medicare premiums has absorbed a large fraction of their 
     annual COLA, leaving little to deal with the rising costs of 
     all the other goods and services the COLA is meant to cover. 
     That problem will be aggravated when the new premiums for 
     Part D prescription drug coverage take effect, unless 
     policymakers take action to address this gutting of Social 
     Security COLA protection.


                                Endnote

       1. If past practice is followed, the Social Security COLA 
     percentage increase and the increase for Medicare premiums 
     will be announced in mid-October. Me calculations used in 
     this paper assume an increase in the 2005 monthly Part B 
     premium of $9.50. That is higher than the current CBO 
     baseline estimate of $8.70, but the JEC Democratic staff 
     believes that CBO's estimate will increase when it updates 
     its baseline in August. The Medicare actuaries are currently 
     predicting an even higher increase of $11.50 in the monthly 
     premium.

  Mr. REED. Mr. President, I rise to join with the distinguished 
Democratic Leader and Senator Murray in introducing the ``Social 
Security COLA Protection Act of 2004.'' I would also ask unanimous 
consent to submit for the Record the report by the Joint Economic 
Committee Democratic staff entitled, ``Rising Medicare Premiums 
Undermine the Social Security COLA.''
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. REED. Thank you. Mr. President, Social Security is the bedrock of 
this country's social safety net and our most effective antipoverty 
program for seniors and the disabled. A valuable feature of Social 
Security is the annual cost of living adjustment, or COLA, which was 
enacted to ensure that the

[[Page S8743]]

real purchasing power of beneficiaries' checks would be preserved, and 
not eaten away by inflation. I would also point out that such COLA 
protection is missing from most private pensions.
  Sadly, what the JEC Democrats' report has revealed is that large 
increases in health care costs and the poor design of the new Medicare 
prescription drug plan have created a situation in which rising 
Medicare premiums are undermining the Social Security COLA. The problem 
is already serious, and we have not even begun to experience the impact 
of the prescription drug premium of the new Medicare Part D program 
that will take effect in 2006.
  The study shows, for example, that in the years 2011-2014, a person 
with a monthly Social Security benefit of $500 (in today's dollars) 
would see 69 percent of her COLA consumed by increases in Medicare Part 
B and Part D premiums. That leaves far too little of the COLA to cover 
increases in prices of other necessities such as food, energy, and 
other medical expenses. Even people with larger monthly benefits would 
see their COLAs substantially eroded by the increases in Medicare 
premiums.
  Finally, the study shows that by 2014, if there is no legislation to 
address this problem, 64 percent of beneficiaries who have their 
Medicare premiums deducted from their Social Security checks will lose 
at least 25 percent of their Social Security COLA to increases in those 
premiums.
  The JEC Democratic staff study makes a compelling case that we have a 
serious problem on our hands. That is why I am happy to cosponsor ``The 
Social Security COLA Protection Act of 2004.'' This legislation will 
preserve the essential safety net Social Security provides seniors, by 
making sure that at least 75 percent of their Social Security COLA is 
protected from increases in Medicare premiums and available to offset 
increasing cost of other goods and services seniors need in order to 
maintain an adequate quality-of-life.
                                 ______