Social Security COLA complainers should settle down
Let the whining begin.
Seniors learned this morning that they won’t receive a Social Security cost-of-living adjustment (COLA) in 2011.
Seniors vote, and with the mid-term elections approaching fast, many will be furious with Washington, President Obama and other villains real and imagined. The whining was in high gear even before the official COLA news came this morning, with media cranking out stories bemoaning the second straight year without a benefit increase as an injustice to seniors and terrible news for the economy.
Sorry, but it just ain’t so. Social Security is a critical program that keeps millions of seniors out of poverty every year; its benefits should be protected from deficit cutters and beefed up in the years ahead. But there’s nothing inequitable about Social Security payments staying flat next year. That’s because seniors are still enjoying a huge 2009 Social Security raise that was based on an economic fluke.
Social Security has had an automatic annual COLA feature since 1975, which is determined by the third quarter Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). In the third quarter of 2008 — just before the economy crashed — the CPI-W spiked temporarily, the result of a big increase in energy prices.
The result was a whopping 5.8 percent boost in Social Security benefits for 2009 — a raise that was especially generous considering the near-absence of inflation in the post-crash economy. Seniors on Social Security or disability benefits also received a one-time payment of $250 under the 2009 stimulus.
Social Security payments can’t fall under federal law, so benefits were held level in 2010, and will continue that way until the CPI numbers exceed the 2008 CPI-W index level. Today’s final third quarter CPI report determines that payments will stay steady again in 2011.
“Although some beneficiaries feel they are being treated unfairly, that’s not correct,” says Alicia Munnell (pictured right), director of the Center for Retirement Research at Boston College and one of the nation’s top experts on Social Security. “The cost of living, as measured by the CPI, is still lower than it was in the third quarter of 2008. In fact, most beneficiaries come out a little bit ahead because the real value of their benefits increased for a while.”
Could seniors use a raise? Sure.
But the U.S. Census Bureau reported recently that seniors are doing better — on a relative basis — than any other age group in the country. The poverty rate for Americans over 65 actually fell last year (from 9.7 percent to 8.9 percent), while it rose sharply for the population as a whole to 14.3 percent. That’s the highest rate since 1994. Forty-four million Americans were below the official poverty line, and one out of every five children was considered poor.
COLA complainers argue that the CPI-W doesn’t reflect price hikes that impact seniors disproportionately, mainly healthcare. Fair enough, but seniors are protected under the Social Security Act from increases in one of their most significant healthcare expenditures — the Medicare Part B premium (which covers doctors and other medical providers). That law prohibits an increase in the Part B premiums in years where the Social Security COLA is too small to cover it; the only exceptions are high-earning seniors with modified adjusted gross income over $85,000 (single), or $170,000 (married couples).
About three-quarters of seniors are covered by this hold-harmless provision, according to the Kaiser Family Foundation — although that number may drop a bit due to a change in the income-threshold rules in the Affordable Care Act. The threshold number had been adjusted annually for inflation, but will now be frozen through 2019.
This year’s COLA whining will help stoke the brewing political debate about Social Security’s future, including phony claims that Social Security selfishly robs future generations to pay today’s seniors and tomorrow’s boomer oldsters. Seniors and their advocates can help calm down the inter-generational tension by looking at their flat Social Security payments in the context of our broader economic hardships.
Photo: Alicia Munnell, director of the Center for Retirement Research at Boston College, in an undated handout.