In the next few weeks, Social Security trustees should make official what retirees have seen coming for some time: Starting in 2010, the annual cost of living adjustment (COLA) for Social Security will go on hold first the first time since 1975.

To put that in perspective: Anyone turning 65 next year would've been just 30 in '75, the year cost of living adjustments started. And while federal officials argue that a COLA is hardly needed next year, given the lack of inflation in our recession, others wonder if it overlooks a key fact: Health care expenses and doctor co-pays continue to far outpace inflationary pressures for seniors.

With all the debate and drama surrounding President Obama's health insurance overhaul, the COLA freeze could, at least in the short term, have a profound affect on seniors and their bottom line -- even though it has gotten far less press compared to the rancorous health care town hall meetings.


"This is almost a perfect storm, although for our members, there's nothing perfect about it," says Cristina Martin Firvida, Director of Economic Security for AARP, a nonprofit, nonpartisan membership organization for people age 50 and over. Currently, AARP claims more than 40 million members. "What's hard for them to understand is how this can happen when they've seen a big hit because of the way the economy has affected their investments."

That is: Seniors have seen their nest eggs shrink -- or vanish -- like all of us. Yet with COLA suspended for the first time in its history, retirees can expect no help to offset any lost investment funds. What's more, plans call for no COLA for three years total, due to the complex structure of the formula that determines it. (To read WalletPop writer Tom Barlow's commentary on the issue, click here.)

Yet seniors saw one consolation prize from the COLA fallout this week: The House of Represetatives voted 406-18 Thursday to freeze Medicare Part B premiums in 2010, in direct response to the COLA issue. The bill now moves to the Senate, where it is expected to pass by a similar landslide margin.

News of freezing the COLA comes as a stunner for seniors because just last year, in October 2008, they received a 5.8% COLA, the highest adjustment since 1982. The federal government based that number on its Consumer Price Index (CPI), and the increase proved a boost to seniors in 2009. The average retired worker receiving $1,090 jumped to $1,153, government figures show.

With CPI falling 2.3% in the last year, the government maintains that seniors have actually seen the purchasing power of their checks rise, even if the numbers will remain flat. But separate from the CPI, health care costs rose, and AARP cites the volatile categories of doctor co-pays and prescription drugs (along with utility bills) as 30% of senior spending.

""No matter how much deflation there may have been [in the last year], that sure didn't translate into lower health care costs for anyone, especially for our members," Firvida says. "Seniors spend proportionally more on health care than any age group. Even with Medicare, they have co-pays and there are lots of ways for these medical costs to rise. In fact, they've continued to rise, even through this poor economy. Those costs are not going down."

There is some good news in all this, though: Medicare Part B premiums will not jump in 2010. The Wall Street Journal reports that a "hold harmless" law prohibits these premiums from rising in any year without a Social Security COLA -- thus leaving the vast majority of seniors exempt from higher premiums next year.

In lieu of any COLA, AARP would like to see Congress enact a one-time supplemt of $250 in 2010, similar to what seniors received this year. "We think there's some equity to letting seniors have another one-time payment of $250, to keep them on par with America's workers and the relief that they've received," Firvida says.

Meanwhile, AARP and a growing number of lawmakers on Capitol Hill believe a new formula is needed to calculate COLA, based not on the standard CPI, but one that better reflects the way seniors live and spend. Known as the "experimental CPI," or CPIE, this index gives more weight to volatile health care and energy costs.

"It tries to more accurately reflect what dollars are used for when you're retired," Firvida says. "It's not ready to be used in replace of the consumer price index, but it is something we want to encourage lawmakers to think about going forward. What retirees do with their money is different than what you and I do with money."

Will retirees cry out with the same force that citizens hit the town hall talks on health care? That remains to be seen. But expect members of Congress to get an earful from their retired constituents, Firvida says.

"Probably you'll see more [legislators] coming forward saying that they'll want to address this issue. I'm confident that will happen."