August 9, 2013
Honorable Dave Camp, Chairman
Ways and Means Committee
United States House of Representatives
Washington, DC 20515
Dear Chairman Camp:
On behalf of the millions of members and supporters of the National Committee to Preserve Social Security and Medicare, many of whom have contacted you directly, I am writing in response to your request for comments on the Ways and Means Committee’s draft legislation regarding Social Security and Medicare. We oppose this legislation because the “Chained” CPI is a benefit cut for current and future Social Security recipients, and because of our concerns about Medicare proposals that increase out-of-pocket costs for beneficiaries.
The National Committee opposes adoption of the “Chained” CPI for the purpose of determining annual cost-of-living adjustments (COLA) for Social Security benefits. We do not believe that it is an accurate measure of the inflation that confronts our nation’s seniors. There is a more accurate measure of inflation that is based on seniors’ unique spending patterns, and if the goal of Congress is to more accurately gauge inflation for Social Security purposes, it should adopt the consumer price index for the elderly, or CPI-E.
In our view, proposals to adopt the “Chained” CPI are nothing more than a benefit cut, plain and simple. Since 2000, when the “Chained” CPI was first published, it has produced estimates of inflation averaging about 0.3 percentage point lower than has been measured by the current CPI. While this difference might seem modest to some, its effect on seniors is anything but modest.
Estimates of the magnitude of the reduction, which are based on data provided by the Social Security Administration’s Chief Actuary, are that seniors will, on average, see their benefits reduced by about $130 per year (0.9 percent) for the typical 65-year old who reaches age 62 after the adoption of the “Chained” CPI. By the time that senior reaches 95, the annual benefit cut would be almost $1,400 per year, a 9.2 percent reduction from currently scheduled benefits.
Even more severe is the cumulative effect of the COLA cut over time. The average senior retiring at age 65 would see a cumulative benefit cut of about $4,600 at age 75. By age 85, the cumulative reduction would be about $14,000, and for those who live to age 95, the benefits lost to the “Chained” CPI would reach an astonishing $28,000.
Individuals who qualify for benefits at early ages, such as children, disabled military veterans and disabled workers, will also experience massive cuts to their benefits if the “Chained” CPI is adopted. The cumulative loss incurred by these beneficiaries has been estimated to run into the tens of thousands of dollars over their lifetimes.
We acknowledge that all of the proposals to adopt the “Chained” CPI include provisions that, over a course of many years, partially offset the loss of benefits incurred by Social Security beneficiaries as a result of its adoption. These “bump-ups” occur only after individuals have been on the benefit rolls for many years and still leave seniors with substantial lifetime reductions in benefits.
Is the “Chained” CPI More Accurate?
In contrast to the “Chained” CPI, the CPI-E is a measure of inflation that is based on the spending patterns of consumers age 62 and older. The Bureau of Labor Statistics (BLS) was required to establish the CPI-E in the 1987 amendments to the Older Americans Act of 1965. Since 1982, the earliest date for which inflation has been measured using the CPI-E, it has reflected a rate of inflation that is 0.3 percentage points higher than is measured using the other inflation indexes.
This higher rate is primarily attributable to the greater weight placed on health expenditures in this index, which reflect the continued rise in health care costs, and occurs at a faster rate than general inflation and other expenses. Seniors, of course, devote 20 to 40 percent of their income on health care out-of-pocket costs, which is a much higher share than is spent by younger people.
Because it is based on seniors’ specific spending patterns, we believe that the CPI-E is a far more accurate measure of inflation than the “Chained” CPI. If the goal of changing the measure of inflation is to move to a more accurate index of inflation, then we urge the Congress to adopt this measure rather than the “Chained” CPI, which in our view is nothing more than a massive benefit reduction for America’s seniors.
Medicare beneficiaries already have high out-of-pocket costs, and because over half of beneficiaries are living on incomes of $22,500 or less, they cannot afford to pay more. Premiums and cost sharing for Medicare Parts B and D already consume 26 percent of the average Social Security check. Many Medicare beneficiaries are paying for supplemental Medigap insurance to ensure some predictability of their health costs. And they are paying for services not covered by Medicare including most hearing aids, routine eye care and eye glasses, dental care and dentures, and foot care. Because of their lower average household budgets and higher average health care spending, families on Medicare spend 15 percent of their household budgets on health care, which is three times more than what non-Medicare households spend on health care.
Your proposed changes to Medicare, which are included in the President’s Fiscal Year 2014 budget and various other deficit reduction plans, would save money for the federal government by shifting costs to Medicare beneficiaries. Proposals that would increase costs for future beneficiaries include a $25 increase in the Part B deductible in 2017, 2019, and 2021 for new beneficiaries; and a home health copayment for new beneficiaries beginning in 2017. Supporters of proposals that shift costs to beneficiaries believe people will make wiser choices about using health care services, or will seek more high-value services, if they have to pay more of the cost. We oppose these proposals and agree with research which shows that these additional costs could lead many seniors to forego necessary care which, in turn, could lead to more serious health conditions and higher costs. In addition, once a person seeks care, it is physicians and other health care providers who make the decisions about the care, tests and other services they receive.
The National Committee is also opposed to further increasing income-related premiums under Medicare Parts B and D. Medicare beneficiaries with annual incomes over $85,000 for individuals and $170,000 for couples are already paying higher income-related premiums. Your proposal to increase the amount of income-related premiums, beginning in 2017, and to maintain the income thresholds associated with income-related premiums until 25 percent of beneficiaries under Parts B and D are subject to these premiums, means that many middle-income Americans would be required to pay higher premiums. Additional means testing would undermine the social insurance nature of Medicare and ultimately raise costs for middle and lower-income seniors who depend on it. If mean-testing results in Medicare becoming increasingly unfair to higher-income beneficiaries – who already pay more during their working years because there is no cap on the payroll tax for Medicare – they may opt out and purchase their own policy on the private market. The departure of higher-income beneficiaries, who tend to be younger and healthier, would increase overall costs for older and sicker beneficiaries remaining in Medicare and reduce public support for the program.
Medicare does face a challenge because of the growing number of beneficiaries due to baby boomers reaching age 65. However, Medicare’s costs per capita are growing more slowly than private sector costs due to changes in the Affordable Care Act. And it is important to remember that saying Medicare will be insolvent in 2026 — as was reported by the Medicare Trustees this year – does not mean the program will be bankrupt. It means that the Part A Hospital Trust Fund will be able to pay only 87 percent of benefits. As it has done throughout the years, Congress can be expected to close the shortfall by increasing revenues for Part A or enacting changes that reduce costs. Medicare Parts B and D that cover physician visits, outpatient costs and prescription drugs do not face insolvency because they are financed by mandatory general revenue spending and beneficiary premiums, and cuts to these programs do nothing to improve the solvency of Part A.
The National Committee believes we can strengthen Medicare’s financing and improve the quality of care provided without adversely affecting beneficiaries. Building on the reforms in the Affordable Care Act (ACA) that contain costs and promote access to high-quality care will go a long way toward strengthening the Medicare program, both because of the changes they make to Medicare and their impact on health care system-wide. This includes coordinated care (Accountable Care Organizations, bundled payments, medical homes) and reduced hospital-acquired infections and readmissions. The law also strengthens Medicare’s financing by enhancing efforts to combat waste, fraud and abuse; reducing the rate of increase in provider payments and reducing overpayment to Medicare Advantage plans. Medicare’s financing could be further strengthened by requiring drug rebates for low-income Medicare beneficiaries and allowing the federal government to negotiate prescription drug prices.
The Ways and Means Committee will play a crucial role in deciding whether Social Security and Medicare benefit cuts will be included in a budget deal this fall, or to pay for a permanent replacement of the Sustainable Growth Rate formula or another “doc fix” to prevent a large reduction in Medicare’s reimbursements to physicians. As you work on legislation, I hope you will carefully consider our concerns about the impact of many of these proposals on beneficiaries, and consider some of our suggestions cited above.
President and CEO
cc: Honorable Sander Levin, Ranking Member
Ways and Means Committee