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Social Security COLA Fails to Keep Pace With Costs of Being Older

Today’s announcement that there will be a tiny .3%  Social Security cost-of-living adjustment (COLA) increase next year means that 40 million seniors who rely on their Social Security to get by will once again find their expenses outpacing their Social Security benefit.  This continues the trend of historically low cost-of-living adjustments for seniors. Over the past eight years, the current COLA formula has led to average increases of just over 1%, with three of those years seeing no increase at all.  For the average senior, the 2017 COLA will mean an extra $4.00 per month which would barely cover the average cost of one Lipitor pill, a prescription drug frequently prescribed to seniors.  

“No one can say with a straight face that providing the average senior with an additional four dollars a month will come even close to covering the true cost of living that retirees face.  The average senior spends more than $5,000 a year on healthcare costs alone.  A $4 Social Security COLA doesn’t even make a dent in covering rising costs for seniors.  

I’ve asked seniors at town hall meetings around the country how many of them think the COLA represents their true cost of living -- laughter is always the response. We should move to a COLA formula that takes a more accurate measure of seniors’ expenses, which is a CPI for the elderly.  The CPI-E has been in the experimental phase since 1982.  It’s time to finish the job by fully funding the development of a more accurate COLA formula.”...Max Richtman, NCPSSM President/CEO

While the Affordable Care Act has slowed the growth of Medicare costs, Part B premiums continue to rise much faster than the COLA.  Final Medicare premiums won’t be announced until later this fall; however, the majority of beneficiaries (70%) are protected from steep premium hikes due to “hold harmless” provisions in the law which protects Social Security benefits from being reduced if the COLA is not large enough to cover the increase in the Part B premium.

 

The 30% of beneficiaries not eligible for the hold harmless provision include; new enrollees during the year, enrollees who do not receive a Social Security benefit check, enrollees with high incomes who are subject to the income-related premium adjustment, and dual Medicare-Medicaid beneficiaries, whose full premiums are paid by state Medicaid programs. They could face much higher premium costs. 

Congressional action mitigated the Part B premium hike last year for these beneficiaries.  The National Committee will, once again, work with key Members of Congress and the Administration to ensure these seniors aren’t hit with a significant premium increase next year.

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Why the Social Security COLA matters

There’s no more closely watched Washington announcement for seniors than word of what the next year’s Cost of Living Adjustment will be for Social Security beneficiaries.  While the final decision isn’t announced until October of each year, the annual Social Security Trustees Report usually provides a sneak peak a few months early, as it did last week.

News that seniors should prepare for no increase (or a very small increase) for the second year in a row and the fourth time since 2010 has many understandably worried.  Contrary to conservative /fiscal hawk mythology, which dominates so much of the political discourse in Washington these days, American Social Security beneficiaries aren’t living high on the hog.  In fact, Americans know first-hand that the average $1,300 monthly Social Security retirement benefit isn’t too generous.  They know that this year’s zero cost of living allowance isn’t too generous.  They see a growing amount of their Social Security check going to pay for rising healthcare costs and skyrocketing drug prices.  It’s no wonder the annual COLA announcement adds to their frustration. 

But here’s the thing…Congress didn’t vote or even “decide” to give you a tiny or zero COLA next year.  That number is cooked into the law.  The only way to change the COLA is to convince your Members of Congress to support a new formula that actually measures the cost of living American seniors face.  

This is how current law works: 

“If there is an increase in inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was made to the third quarter of the current year. “ …NCPSSM, “Call for COLA Recalculation,” June 2015 

That means the Social Security COLA is based on the costs of goods and services purchased by wage earners, not retirees.  That’s a real problem since the purchases made by retirees are vastly different than younger Americans still in the workforce. 

“The primary source of the difference in spending patterns is medical expenses, which for most years have increased at a higher rate of inflation.  Seniors spend three times more than younger consumers on health care, including prescription drugs, medical co-pays and deductibles and non-covered expenses.  In fact, older Americans spend 23 percent of their average Social Security check for Parts B and D cost-sharing in addition to paying for health services not covered by Medicare. The following chart illustrates a sample of the increases in health care expenses compared to the increases in Social Security benefits:”

 

 

This is why we have long advocated for the adoption of a cost of living formula for the elderly that measures the expenses retirees actually face.

As early as the 1980’s, Congress recognized the problems with using the CPI-W as the basis for preserving the spending power of Social Security benefits, and in 1987 directed the Bureau of Labor Statistics (BLS) to begin work on an index focused on the elderly.  As a result, the BLS created the Experimental CPI for Americans 62 Years of Age and Older (CPI-E) and calculated estimates of the index dating back to December 1982.  The CPI-E continues to be classified as experimental because its sample size is smaller than the CPI-W, and is therefore subject to a greater sampling error.

The National Committee believes a fully developed CPI-E represents the best hope for correcting problems with the CPI-W for America’s seniors.  But Congress must provide the BLS with the funding needed to finish work on the CPI-E and make it the standard for calculating COLA adjustments for Social Security, Veterans, and Federal Civilian and Military retirement benefits. 

America’s seniors worked hard for their earned benefits and they deserve to have their standard of living and purchasing power preserved through an accurate COLA calculation.

 

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It’s Definitely Not the Kind of Greeting Card Beneficiaries Want This Holiday Season

Each year the Social Security Administration reviews beneficiaries’ benefits and sends out millions of notices to ensure you know what to expect in next year’s Social Security check.  Unfortunately, as was announced last month, there will be NO cost of living increase in 2016.

We review Social Security benefits each year to make sure they keep up with the cost of living. The law does not permit an increase in benefits when there is no increase in the cost of living. So your benefit will stay the same in 2016. There was no increase in the cost of living during the past year based on the Consumer Price Index (CPI) published by the Department of Labor. The CPI is the Federal government's official measure used to calculate cost of living increases.”...Social Security Administration 2016 Benefit mailing

Since 2009, Social Security beneficiaries have seen a 0% COLA increase three times (2009, 2010, 2016) with an average of just 1.2% increase over those years, confirming yet again, that the current Social Security COLA formula isn’t accurately measuring seniors’ expenses.  Seniors across this nation understand how important having an accurate measure of the increase in their real costs is to their day-to-day survival.  While there has been a lot of talk in Washington about the need to find a more accurate COLA formula; unfortunately, that attention has largely focused on ways to cut the COLA even further.  Leaving many Americans to wonder what’s less than zero?  If accurate inflation protection for seniors is truly our goal, Congress needs to adopt a fully developed CPI for the elderly (CPI-E).

Research has shown that spending patterns differ between the elderly and the general population, especially on health care.  Seniors 65 and older spend more than twice as much on health care, and those 75 and older spend nearly three times more than younger consumers.  Not only do health care expenditures steadily increase with age but health care costs consistently rise much faster than general inflation.  The current price index (CPI-W) does not take these critical differences in the elderly population into consideration.  The chained CPI doubles-down on that flaw.  Even worse, the proposed chained CPI will cut COLAs immediately for current and future retirees, veterans, the poor and people with disabilities.

GOP Presidential candidates Republican Congressional leaders continue to support adoption of the so-called “Chained” CPI because they claim the current COLA formula is too generous and should be reduced.  Reduced?!? 

Senator Elizabeth Warren has proposed legislation to address the immediate need by providing a $580 Social Security boost.  NCPSSM supports Warren’s efforts and will continue to fight for a fully developed cost of living formula geared to America’s elderly. 

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$580 Social Security Boost for Seniors?

Senator Elizabeth Warren (D-MA) has introduced legislation, cosponsored by a host of Democratic Senators and supported by us here at the National Committee, to send every senior citizen and disabled veteran in America a check for $580.  The “SAVE Benefits Act” follows the announcement last month that beneficiaries would not receive any COLA increase next year. 

Senator Warren describes her legislation this way:

“Although the cost of core goods and services is projected to rise next year, millions of Americans will see no increase in the benefits they rely on to make ends meet. Meanwhile, CEO compensation for the top 350 firms increased by 3.9 percent last year. The Seniors and Veterans Emergency Benefits Act (SAVE Benefits Act) would give about 70 million seniors, veterans, people with disabilities, and others an emergency payment equal to 3.9 percent of the average annual Social Security benefit, about $581 - the same percentage raise as the top CEOs.

A $581 increase could cover almost three months of groceries for seniors or a year's worth of out-of-pocket costs on critical prescription drugs for the average Medicare beneficiary. The bill would lift more than 1 million Americans out of poverty. The cost of this emergency payment would be covered by closing a tax loophole allowing corporations to write off executive bonuses as a business expense for "performance pay." The substantial additional revenue saved by closing the CEO compensation loophole would be used to bolster and extend the life of the Social Security and Disability trust funds.”

For seniors who continue to see their costs increase, particularly their healthcare, news that there would be no COLA increase in 2016 makes no sense.  It highlights the need to adopt a more accurate measure of seniors’ true expenses through the adoption of a CPI for the elderly (CPI-E).

“The current Social Security COLA formula isn’t accurately measuring seniors’ expenses.  Seniors across this nation understand how important having an accurate measure of the increase in their real costs is to their day-to-day survival.  While there has been a lot of talk in Washington about the need to find a more accurate COLA formula; unfortunately, that attention has largely focused on ways to cut the COLA even further.  Leaving many Americans to wonder what’s less than zero?  If accurate inflation protection for seniors is truly our goal, Congress needs to adopt a fully developed CPI for the elderly (CPI-E). Until then, we urge Congress to act quickly to mitigate the devastating Medicare hikes headed for millions of Americans who can’t afford them.” ...Max Richtman, NCPSSM President/CEO

Senator Warren talked about why seniors need this legislation on “All In” with Chris Hayes.

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A $19 COLA Hike Too Generous?!?

Only in Washington would you see folks who actually believe that  today's announcement of a 1.5% COLA hike (three out of five years it's been less than 2%) is too generous. This tiny COLA increase means that millions of seniors who rely on their Social Security for the basics like fuel, groceries and medical bills will once again find their expenses outpacing their Social Security benefit.  For the average senior, this COLA will mean about a $19 monthly increase, which incredibly some in Washington consider too generous.   

“Seniors know all to well, their living costs often outpace the COLA increase and a 1.5% increase is anything but too generous.  Proponents of a stingier COLA formula claim the Chained CPI is more accurate; however, in truth it is a benefit cut for millions of current and future retirees, veterans, people with disabilities and their families. Replacing the current COLA formula with the chained CPI will mean the typical 65 year-old, who filed for benefits at 62, would lose about $130 per year in benefits. By the time that senior reaches 95, the annual benefit cut will be almost $1,400, which is a 9.2 percent cut. 

Given that the average senior currently receives just over $14,000 a year in Social Security, it’s hard to imagine how anyone can argue the COLA should be cut.. Yet this is exactly what has been proposed by the White House and in budget negotiations on Capitol Hill.  The American people don’t support cutting Social Security to balance the budget and this annual COLA announcement should remind Washington why adopting the chained CPI is not only bad policy, it’s also bad politics.”...Max Richtman, NCPSSM President/CEO

There is a better way as our President/CEO, Max Richtman, has reported:

The BLS acknowledges the current CPI-W does not "produce official estimates for the rate of inflation experienced by subgroups of the population, such as the elderly or the poor. This is why we need a true elderly index like the CPI-E and not a formula change that will cut benefits and drive more seniors into poverty. A provision in Senator Bernie Sanders's bill to reauthorize the Older Americans Act (S. 1028) would require the BLS improve the CPI-E and should be adopted by this Congress without any further delay. 

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