Legislative Update: May 2011

Legislative Update: May 2011

By Mike Watson, TSCL Legislative Assistant

Over the past several months many different plans and ideas have surfaced to reduce the federal deficit, including what the government spends on Social Security and Medicare.  Two of the ideas— cutting the Social Security cost-of-living-adjustment (COLA) by using a different measure of inflation, and increasing the portion of Medicare Part B premiums that seniors must pay — when taken together, could really squeeze many seniors’ wallets.

The Social Security COLA increases Social Security benefits annually to help keep pace with inflation, as measured by the Consumer Price Index for Urban Wage Earners (CPI-W).  One of the options to reform Social Security that’s advocated by several prominent groups and commissions is the adoption of the so-called “chained” CPI to calculate COLAs.  They argue that the “chained” CPI provides a better measure of the cost of living.  The “chained” CPI is different from the CPI-W because, in short, it assumes that as the price of apples increases, people start buying oranges or pears instead. Thus it doesn’t show the actual price increase of apples or specific items from one month to the next at all.

The Senior Citizens League (TSCL) feels that this approach exacerbates the problem of providing an adequate COLA.  Seniors don’t always have alternate spending options, particularly on items like brand name drugs, or needed home repairs.  Typically, using the “chained” CPI would yield a COLA of about .3 percentage points less than the current COLA.  According to an analysis by TSCL policy analyst, Mary Johnson, a “chained” CPI would reduce lifetime Social Security benefits by as much as 10% for seniors who lived into their 90’s.

Another idea would increase the portion of the Medicare Part B premiums that seniors must pay.  Currently, most beneficiaries with incomes under $85,000 pay 25% of the base Part B premium and the federal government pays 75%.  This proposal would make seniors responsible for 35% of the base Part B premium.  The actuaries of the Medicare program already estimate that Medicare Part B premiums will continue to take an ever-increasing chunk of Social Security benefits in the future.

To analyze the impact these two proposals would have on seniors, past Medicare premiums and Social Security COLAs were studied by TSCL.  The analysis examined a person who retired in 1996, with an average Social Security benefit of $708.70, and paid Medicare Part B premiums from 1996 through 2011.  It compared what those individuals would have received in benefits had the government used the “chained” CPI and if they had been required to pay 35% of the Part B premium, against the current law COLA and Part B premiums.

The analysis found that a Social Security recipient would receive approximately $77 less a month in 2011 and about $8,546 less over the 16-year period, if the higher Medicare premiums had been in place and if the “chained” CPI had been used to calculate COLAs. For 2011, this senior would pay about $38 more each month for Part B premiums and receive about $38 less in monthly Social Security payments.

The study shows the harsh double whammy impact of these two provisions on the buying power of seniors’ Social Security benefits.  TSCL’s studies have already shown that Social Security benefits are not keeping up with the rising costs of items that seniors spend their money on.  TSCL opposes these sorts of benefit cuts and will continue to urge Congress to keep senior citizens in mind as Social Security reform and deficit reduction measures are considered.