Policymakers have proposed changing the way Social Security’s cost-of-living adjustment is calculated. They propose moving from the current calculation to a chained price index, which grows more slowly than the current method and would reduce spending on Social Security and other federally administered programs, like Supplemental Security Income and veterans pensions, according to the AARP Public Policy Institute in a recent issues paper.
The proposed changes would have a detrimental effect on the economic wellbeing of older and disabled Americans and their family members who receive the benefits from Social Security, the report contends.
As proposed, the small reductions to the annual COLA would accumulate over time so that the largest reduction in benefits would hit the oldest beneficiaries and the long-term disabled.
Gary Koenig and Mikki Waid, authors of the AARP report, found that a 92-year-old beneficiary who was on the program for 30 years would see an 8.4 percent cut in benefits. Disabled children could face even larger benefit cuts over their lifetime.
AARP asserts that these cuts would have a catastrophic impact on older Americans who are the least able to absorb cuts to their benefits because they rely on Social Security for their income and have higher out-of-pocket medical expenses. They also have a higher poverty rate than younger Americans.
It was recently announced that the COLA for 2013 will be 1.7 percent.
Those in favor of a chained COLA believe that the inflation measure used for the current COLA overstate inflation because it doesn’t fully account for the way that people substitute among different goods and services when prices change. They argue that future COLAs should be based on a more accurate measure of inflation, the chained price index.
Others believe the current method understates the experience of older Americans because it does not adequately reflect their expenditures on health care. These experts argue for a switch to an elderly index, saying a chained index would only exacerbate an already unfair situation.