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. They can blame low gas prices. By law, the annual cost-of-living adjustment, or COLA, is based on a government measure of inflation, which is being dragged down by lower prices at the pump. The government is scheduled to announce the COLA—or lack of one—on Thursday, when it releases the Consumer Price Index for September. Inflation has been so low this year that economists say there is little chance the September numbers will produce a benefit increase for next year. Prices actually have dropped from a year ago, according to the inflation measure used for the COLA. "It's a very high probability that it will be zero," says an economist. "Other prices—other than energy—would have to jump. It would have to be a very sizable increase that would be visible, and I don't think that's happened."
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, increases have averaged 4% a year. Only twice before, in 2010 and 2011, have there been no increases. COLA affects 70 million Americans. Medicare beneficiaries are also on the hook for a premium increase, including 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; more for those with higher incomes. All beneficiaries would see their Part B annual deductible for outpatient care jump by $76, to an estimated $223. The numbers for July and August show that, overall, consumer prices have fallen since last year. Fuel prices are down by 23% from a year ago, but prices for other goods and services, such as health care and housing, are up. "They have a formula that they use that doesn't reflect the actual cost of living," complains one retiree. "Just because the price of gas is going down, that doesn't mean anything." (Read more COLA stories.)