CBO Cuts Estimates of Social Security Spending

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CBO Cuts Estimates of Social Security Spending

Prescription drugs and health care costs are rising, but budget experts predict the Social Security Cost-of-Living Adjustments (COLAs) will continue to remain low. The Congressional Budget Office (CBO) recently projected the 2004 COLA will be 2.2%, but, the low estimates are not expected to hold true for health care spending. The growth of Medicare spending is expected to be almost three times higher than the estimated COLA — about 6% in 2003.

The low COLA estimates prompted the CBO to shave an additional $1 billion from 2004 Social Security spending in the January report — after lowering estimates for spending on COLAs for 2004 by $2.2 billion last August. Although energy prices, rents and health care costs are rising, inflation remains very low.

One reason for the low inflation rates are changes in the methodology the government uses to measure the Consumer Price Index (CPI). Under the new methodology. inflation appears to grow more slowly. This has resulted in cutting the rate of growth of COLAs and a cut in Social Security benefits because COLAs are indexed to the CPI. The minimal annual increase is playing a role in the creation of a rapidly growing gap between retirement benefits and affordable health care for millions of seniors.

Source: “The Budget and Economic Outlook: Fiscal Years 2004–2013,” The Congressional Budget Office, January 2003. “The Budget and Economic Outlook Update,” The Congressional Budget Office, August 2002.

For a related story see, “CBO Forecasts Lower Social Security COLAs, Higher Medicare Costs” at http://www.tscl.org/NewContent/101718.asp.

May 2003