Call for COLA Recalculation

2015-11-20T16:00:00+00:00November 20th, 2015|Social Security Policy Papers|

No COLA in 2016

Seniors will see no cost-of-living adjustment (COLA) in their Social Security benefits for 2016.  Yet due to inflation, all seniors on Medicare will pay a 13.6 percent increase in the Part B deductible and 30 percent of beneficiaries will shoulder a 17 percent increase in their Part B premiums.  How can the cost of health care skyrocket for seniors, yet they receive no COLA?  This paper explains the call for changes in current law.

Background

The 2016 COLA represents the third time in the last six years that benefits have remained flat.  In the 40 years that the COLA has been available for Social Security beneficiaries, 2010, 2011 and 2016 are the only years the benefit has not been increased to preserve the purchasing power of seniors.

The Social Security Act provides for an automatic increase in Social Security and SSI benefits 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.  As determined by the Bureau of Labor Statistics (BLS), there was no increase in the CPI-W from the third quarter of 2014 to the third quarter of 2015.  Therefore, under existing law, there can be no COLA in 2016.

Most seniors would question the BLS’ analysis, particularly in previous no COLA years when many older Americans were forced to choose between paying for food, prescription medication and/or heating bills.   In 2015, BLS analysts attributed the stability in consumer prices to 30 percent decline in oil prices and the subsequent secondary impact this had on the price of some consumer products. 

Seniors’ Expenses Have Increased

When Congress in 1972 enacted the provision requiring Social Security benefits to be increased annually based on the amount the consumer price index increased from the previous year, there was only one CPI index available for use – the CPI-W.  The CPI-W reflects price increases for urban wage earners and clerical workers – about 31 percent of households nationally – based on a fixed market basket of goods and services. By definition, this population is employed, unlike most retired Social Security beneficiaries, and displays the consumer spending patterns of an employed demographic, like transportation costs for commuting to and from work. 

Unfortunately, the CPI-W does not consistently measure the unique spending patterns of the elderly.  As a result, seniors have lost long-term buying power.  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:

Medical Cost Increases Compared to Social Security Benefit Increases (2000 – 2015)

Category

Jan. 2000

Jan. 2015

Increase

Average Social Security Check

$844.50

$1,328.00

57%

Medicare Part B Premium

$45.50

 $104.90

130%

Medicare Part B Deductible

$100.00

 $147.00

47%

Dental (not covered by Medicare)

$377.40

 $691.12

83%

Sources: Annual Statistical Supplement, SSA website, Medicare Trustees Report, 2015, Senior Citizens League study “Social Security Benefits Lose 22% of Buying Power Since 2000”

Although the Medicare Prescription Drug program (Medicare Part D) was not available in January 2000 and therefore cannot be included for comparison purposes in the above chart, costs for this program have been rising since its implementation in 2006. For instance, the average deductible for Medicare Part D will rise by $40, from $320 in 2015 to $360 in 2016, a 12.4 percent increase for 2016, the same year seniors receive no increase in their Social Security benefit.

Another spending area where seniors and younger consumers differ involves food.  Many seniors are on restricted diets and do not have the luxury of substituting a less expensive item if their physician has instructed them to follow, for example, a gluten-free diet. The following chart provides more specifics for the last 15 years:

Food Cost Increases Compared to Social Security Benefit Increases (2000 – 2015)

Category

Jan. 2000

Jan. 2015

Increase

Average Social Security Check

$844.50

$1,328.00

57%

Eggs – one dozen

  $0.93

        $2.11

127%

Ground Chuck

  $1.90

        $4.38

130%

Oranges (1 pound)

  $0.61

         $1.20

96%

Sources: Annual Statistical Supplement, SSA website, Senior Citizens League study “Social Security Benefits Lose 22% of Buying Power Since 2000”

Although many seniors own their own homes and do not have the costs associated with rent or a mortgage, expenses related to maintaining a home have increased over the last 15 years as illustrated by the following:

Home Maintenance Cost Increases Compared to Social Security Benefit Increases (2000 – 2015)

Category

Jan. 2000

Jan. 2015

Increase

Average Social Security Check

$844.50

$1,328.00

57%

Homeowner’s Insurance (Annual)

$508.00

$1,135.90

123%

Real Estate Tax (Annual)

$690.00

$1,569.40

127%

Sources: Annual Statistical Supplement, SSA website, Senior Citizens League study “Social Security Benefits Lose 22% of Buying Power Since 2000”

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.

NATIONAL COMMITTEE POSITION

The National Committee believes a fully developed CPI-E represents the best hope for correcting problems with the CPI-W for America’s seniors.  Congress and the Administration should provide the BLS with the resources needed to perfect 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.

And to meet the immediate hardship that will result from no COLA in 2016, the National Committee strongly supports S. 2251, the Seniors and Veterans Emergency Benefits Act (SAVE Benefits Act), legislation introduced by Senator Elizabeth Warren (D-MA) that would offer Social Security beneficiaries and veterans a one-time emergency benefit payment equal to a 3.9 percent pay raise.  S. 2251 offsets the cost of the emergency benefit payment by closing the CEO “performance pay” corporate tax loophole. 

Government Relations and Policy, November 2015