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Senior CPI Would Mean Accurate and Fair Social Security COLAs for Retirees Social Security beneficiaries would receive higher Cost-of-Living-Adjustments (COLAs) that more accurately reflect rising costs of prescription drugs and health care under legislation introduced in the House by Representative Bernie Sanders (I-At Large VT). The bill would make an experimental Consumer Price Index (CPI), known as the CPI for Elderly Consumers (CPI-E), fully operational and use it to determine the Social Security COLA. In 1999 the COLA was a paltry 1.3%, tied for the lowest level since the automatic adjustment started, yet retirees saw the costs of their supplemental or "Medigap" premiums rise more than 8.5% and spending by those consumers on prescription drugs, which Medicare does not cover, rose an astounding 16%. In 2000, the COLA is 2.4% and double-digit increases are expected for both Medigap premiums and prescription drugs again this year. Currently, the average Social Security recipient spends about $2,150 annually in out-of-pocket medical costs, an average of 19% of their yearly income. Beneficiaries below the poverty level pay on average about 35% of their incomes on out-of-pocket medical costs. The COLA is currently indexed to the CPI-W, which tracks the changes in cost to a "market basket" of goods, such as groceries, that might be used by typical urban wage earners and clerical workers. This group of urban wage earners and clerical workers does not include individuals receiving pension incomes, such as Social Security, and generally consists of younger families. Younger, working consumers often have employer-provided health insurance and do not use prescription drugs as frequently as seniors do. The CPI-E gives greater "weight" or emphasis to health care and prescription drug costs. Over the past 16 years for which data is available, it was found that the prices of goods bought by seniors rose about 10.4 percentage points more than the prices of goods bought by younger workers. The CPI-E also found that medical costs rose 169.3% over the same period of time. In a study conducted by TREA Senior Citizens League (TSCL), it was found that over the 16 year period the retiree receiveing average benefits would have gotten approximately $5480 more in benefits using the CPI-E than they did using the current method of calculating the Social Security COLA. Compounding the problem, in recent years experts have claimed the CPI overstates the rate of inflation. In response, the Bureau of Labor Statistics (BLS) enacted a series of changes, referred to by the Social Security Administration as "improvements," which have slowed the rate of growth of the CPI. In July of 1999, the Congressional Budget Office stated that, "Because of changes that the BLS has made or plans to make in how it measures the CPI, the 2.7% inflation projected for 2000 is comparable to 3.4% inflation calculated on the basis of measurement techniques used before 1995. " In other words, the so called improvements lower the CPI and thus cut COLAs by about 0.7 percentage point by the year 2000. TSCL studies show that the average Social Security recipient will lose about $216 annually over the next five years due to these changes. TSCL members are urged to contact their Member of Congress to ask him or her to co-sponsor H.R. 1422 to establish the CPI-E to compute more fair COLAs. This article first appeared in Volume 4, Issue 8 of "The Social Security and Medicare Advisor" newsletter (July/August/1999). To receive future editions of "The Advisor" in its special, free e-mail version, please click here. | ||||||||
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