June 13, 2013
In 1987, while the Staff Director of the Senate Special Committee on Aging, I helped develop legislation to create a Consumer Price Index for the Elderly (CPI-E). The goal was to more accurately measure the prices and inflation seniors face, ultimately leading to more representative cost of living adjustments (COLAs) for America's retirees. Never in my wildest dreams could I have predicted that, 26 years later, our nation would still be without an accurate CPI formula for millions of seniors, and that the CPI-E would still be considered "experimental." Even in Washington, a quarter of a century should be enough for any experiment. It's long past time for Congress to provide the resources needed for the Bureau of Labor Statistics (BLS) to finish it's work on the CPI-E.
This is especially important now as many politicians in Washington hope to adopt a new formula called the chained CPI (C-CPI-U). Proponents of the C-CPI-U in the White House and Congress claim COLA accuracy is the goal, yet, they have also offered to "protect" millions of older beneficiaries, veterans, people with disabilities and low-income Americans from this change. You have to ask yourself, if this chained CPI really is more accurate, then why the need to offer an exemption to millions of people? The answer is simple. The chained CPI does not accurately measure these groups' expenses; in fact, it makes most of the same errors as the current formula and adds a few. Adoption of this new formula is really about cutting benefits and raising taxes on average Americans to reduce the deficit.
The current formula, the CPI-W, reflects the expenditures of about 31 percent of households nationally; specifically, wage and clerical households in urban areas. By definition, this population is employed, unlike most retired Social Security beneficiaries. 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.
For millions of seniors living on fixed incomes and the average $14,000-per-year Social Security benefit, it's frankly unimaginable that some in Washington believe those benefits are too generous. Our nation faces an impending retirement crisis yet rather than address that issue head-on, Washington is instead proposing cuts to the only guaranteed source of income for many retirees, Social Security. It simply makes no sense -- unless your true goal is austerity not accuracy.
Contrary to claims the current COLA is too generous, the Social Security COLA has averaged just over 2 percent over the past five years with 0 percent for two of those years, far below the largest spending increase seniors face, which is spending on health care. It's hard to imagine any one arguing with a straight face that a 0 percent COLA increase is too generous. But if the CPI-E determined the Social Security COLA, the expected average COLA would increase about 0.2 percentage points per year. In contrast, using the chained CPI would reduce expected average COLAs by 0.3 percentage points per year. That means a typical 65 year-old would see a decrease of about $130 in Social Security benefits using the chained CPI, three years after the C-CPI-U kicks in. At age 95, the same senior would face a 9.2 percent reduction--almost $1,400 per year. 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.
According to the BLS, it needs to conduct additional research on where elderly households are located, where the elderly actually shop, and what mix of products the elderly purchase. That research will cost money but the cost to develop the CPI-E is miniscule compared to how much seniors and their families will lose without adequate inflation protection. After nearly three decades, it's past time for Congress to provide the resources BLS needs to finish its work.
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