Congressman Donald Norcross (D-NJ) has announced that he is re-introducing the Seniors’ Security Act (H.R. 4076) to help seniors who are struggling to pay their medical bills.
The new bill would change two current requirements. According to the Congressman’s press release, the plan would create a “circuit breaker” of sorts, so seniors never pay more than 30 percent of their COLA into Medicare premiums.
The Act also recalculates cost-of-living adjustments (COLAs) so future changes would be based on the price of goods and services seniors actually buy, a formula known as Consumer Price Index for the Elderly (CPI-E).
“This cost-of-living increase [the 2% COLA for 2018] is good news for seniors, but not good enough as seniors continue to struggle with rising health care costs,” said Congressman Norcross. “Our seniors worked hard all their lives and paid into the system – they’ve earned the right to true peace of mind. Let’s make sensible changes so seniors can get a higher COLA and keep more of it.”
Changing Medicare Funding
The Social Security Act title XVIII (Medicare) would be amended to prohibit any increases in Medicare Part B premiums for calendar years beginning with 2018 to the extent they would exceed 30% of the difference between the amount of benefits payable to an individual for that December and the amount of benefits payable for that November (both amounts determined before the deduction of a premium). This change shall allow premium increases of up to 30% of that difference.
The current law requires that Medicare Trustees assure that income from the Medicare Part B premium and the Part D premium, and the corresponding transfers from general revenues for each part, are sufficient to cover the following year’s estimated expenditures.
Transfers from the general fund finance about 75% of Medicare Part B and Part D costs and are central to the automatic financial balance of the fund’s two accounts. Premiums make up the other 25%.
It is not clear how the Medicare Trustees would be able to fund Medicare Part B and Part D if 25% of the total cost of both plans in a year that would require a premium increase that exceeded 30% of that year’s seniors’ COLA.
It is also unclear whether the Act would include individuals whose premiums are not deducted from their Social Security checks. This includes not only many Federal civilian retirees and people who have newly turned age 65, but also people whose Medicare is paid for by the states because they are designated as low-income beneficiaries.
Changing the COLA Formula
Earlier this year, Congressman John Garamendi (D-Modesto, CA) introduced a similar bill, the CPI-E Act of 2017. The bill would require the Cost of Living Adjustment (COLA) methodology to use CPI-E as opposed to the currently used CPI-W when calculating changes in retiree benefits for both Social Security recipients and annuities provided under the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS).
“The fact that we do not do this already is shocking. Instead, cost-of-living adjustments, or COLAs, for seniors collecting Social Security and those retired from the military or federal service, are based on the costs experienced by, quote: urban wage earners and clerical workers. They are not based on the costs that they – as elderly individuals – experience. And that doesn’t make a lot of sense,” stated Richard Thissen, president of the National Active and Retired Federal Employees Association (NARFE).
Retirees began receiving automatic annual COLAs in 1975. When Congress first approved automatic cost-of-living adjustments as part of the 1972 Social Security Amendments, the only Consumer Price Index available was the index now designated as CPI-W. Before that, benefits were increased only when Congress enacted special legislation.
The automatic COLA was instituted because some people felt Congress was too generous in approving Social Security benefit increases, while others felt that the benefit increases did not keep up with inflation.
Since the 1970s, the Bureau of Labor Statistics, which produces the Consumer Price Index, has expanded the number of CPIs and developed an experimental inflation measure designated as the Experimental Price Index for the Elderly (CPI-E).
The CPI-W measures changes in prices for a market basket of goods and services purchased by a household where more than one-half of the household’s income must come from clerical or wage occupations. The CPI-W population represents about 28 percent of the total U.S. population.
Presently, the experimental CPI-E is calculated using urban households that include a reference person or spouse who was at least 62 years of age. This represents approximately 19 percent of the current CPI sample.
BLS has found that in four of the seven major expenditure groups measured by CPI older households are allocating a larger portion of their total expenditures to categories that are increasing most rapidly, including medical care costs.
The experimental CPI-E does not attempt to capture senior discounts and other offers that reduce the retail price paid by seniors for some goods and services.
Changing to CPI-E comes with costs
There would be a cost of several million dollars if the CPI-E was to be used to calculate changes in retiree benefits. The index sample would have to be expanded to make it statistically defendable, and BLS would also need to put greater resources into collecting information on senior discounts that may affect final pricing of goods and services.
Presumably, Congressman Norcross anticipates increasing BLS’s budget to allow it make the CPI-E statistically reliable.
After seeing earlier attempts at changing the COLA fail, readers are right to be skeptical whether any such change could be approved by Congress this year.