A Second Look At Flat-Lined Social Security Benefits For Seniors

Before I decided to publicly reject the administration’s proposed $250 Social Security gift, I thought about potential cost-of-living increases that could disproportionately affect retirees. Turns out I gave up too soon.

I knew all too well that Medicare premiums deducted from Social Security retirement benefits can, over time, erode their value because health care costs are rising faster than the overall inflation rate.

But I read that nearly 90% of beneficiaries would be protected from a bigger premium bite next year. Of these, 70% are covered by a “hold harmless” provision, which says that beneficiaries already paying Part B premiums won’t get tapped for increases that would reduce their net benefits, unless they earn enough to subject them to income-adjusted premiums. The remaining 20% because state medical assistance agencies will pay the premiums.

What I’ve since learned is that there’s no “hold harmless” provision for Medicare Parts C and D — the optional alternative coverage offered by private insurance companies and the also-optional insurance coverage for prescription drugs. So some portion of that 70% may have less for other living expenses.

More importantly, I’ve found compelling evidence that the cost-of-living index used to determine the need for benefits adjustments — the Consumer Price Index for Urban Wage Earners and Clerical Workers — doesn’t accurately account for seniors’ rising living costs.

Higher health care costs are a major factor here. Others include higher housing costs and, to a lesser extent, fuel oil costs. We know this because the Bureau of Labor Statistics has been maintaining an “experimental” Consumer Price Index for Elderly Americans since 1982.

It’s found that, over a 25-year period, the CPI-E has risen somewhat faster than the CPI-W used to calculate benefits. The long-term differences translate into an average 3% difference a year. The difference doesn’t matter much in the first year, but it mounts up over time.

For example, according to a recent report by the Senior Citizen’s League, someone who received $816 in 2000 would have received $216 less in 2009 than what the CPI-E indicates would have been enough to maintain a steady state.

Now the CPI-E is only suggestive. As BLS explains, the sample used to construct it is small. And it’s not an altogether accurate reflection of either the demographics of Social Security retirement beneficiaries or their living costs.

It nevertheless suggests that cost-of-living adjustments in retirement benefits ought to be based on a more suitable index.

Congressman John Duncan, Jr. (D-TN) has introduced a bill — the CPI for Seniors Act — that would direct BLS to develop and publish a monthly index of changes in consumption expenditures that are typical for people aged 62 and older.

It’s got five cosponsors and probably not going anywhere fast. Because once you’ve got the index, you’ve got solid grounds for bigger annual increases — thus greater stress on the Social Security Trust Fund we’re supposed to be so worried about.

And you’d still need another index to account for Medicare and other expenditures that are singular or different for the over-full retirement age population.

None of this, to my mind, argues for the proposed $250 across-the-board consolation prize for no cost-of-living increase next year. Nor against my view that the $250 would be better spent as assistance to struggling TANF families.

But it does say that I shouldn’t have been so quick to dismiss the complaints about the unfairness of another year without a COLA.

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