'... and the poor get poorer'

“Yore government is spending $1 million just to blow yore homes off the face of the earth, so show yore ap-pre-she-a-shun.”

- Sen. Jack S. Phogbound, “L’il Abner.”

"Seniors may perceive that they are being hurt because there is no COLA, but they are, in fact, not getting hurt. Cngress has to be able to tell people they are not getting everything they want."

- Andrew G. Biggs, a resident scholar at the American Enterprise Institute, a Washington think tank.

***

'Bout time the Associate Press got around to the story below. I read it on the Social Security and AARP sites months ago.

I even wrote a post about it on 4 May 2009, “Uppleasant surprise.”

The headline below is misleading: Social Security checks won't go up, but they won't SHRINK from no "cost of living adjustment" (COLA). They will stay the same.

For clarification, you will find mention in the AP article this term: “hold-harmless provision.” That simply means Medicare Part B premiums – which cover doctors, outpatient services and medical supplies - cannot go up if Social Security checks do not increase. The provision applies ONLY to persons who have their premiums deducted from their SS checks.

This then will hurt the poor.

According to AARP (LINK):

“About 7.5 million Medicare beneficiaries who don’t have their Part B premiums deducted from their Social Security checks are those whose premiums are paid for by their state Medicaid program. These low-income people are not affected—they still won’t pay the premiums themselves.

“BUT, the states would have to pick up the tab for the higher premiums. This could affect the NUMBER of people covered by Medicaid if state governments, already strapped by falling revenue, cut back on services, consumer advocates say.”

This will throw many more Americans onto the rolls of uninsured.

On a personal level, that means I might lose my Part B protection paid by the state of South Carolina. Concerned? Sure I am. I only qualified for this program two years ago and could not have had cataract surgery without it. I care about so many others who might be affected.

And, many sources are suggesting this is a prelude to cutting out the COLA permanently.

As my mother always said, "The rich get richer, and the poor get poorer."

THE AP ARTICLE:

Because this issue is important and is going to heat up in another month or so – when Social Security trustees officially announce there will be no COLA - I am posting the AP article (LINK), in accordance with my sidebars’s “Fair Use Notice.” I hope you will share the information in this post with older Americans and those who are disabled.

Social Security Payments to Shrink in 2010

By STEPHEN OHLEMACHER, The Associated Press
August 23, 2009

WASHINGTON (AP) - Millions of older people face shrinking Social Security checks next year, the first time in a generation that payments would not rise.

The trustees who oversee Social Security are projecting there won't be a cost of living adjustment (COLA) for the next two years. That hasn't happened since automatic increases were adopted in 1975.

By law, Social Security benefits cannot go down. Nevertheless, monthly payments would drop for millions of people in the Medicare prescription drug program because the premiums, which often are deducted from Social Security payments, are scheduled to go up slightly.

"I will promise you, they count on that COLA," said Barbara Kennelly, a former Democratic congresswoman from Connecticut who now heads the National Committee to Preserve Social Security and Medicare. "To some people, it might not be a big deal. But to seniors, especially with their health care costs, it is a big deal."

Cost of living adjustments are pegged to inflation, which has been negative this year, largely because energy prices are below 2008 levels.

Advocates say older people still face higher prices because they spend a disproportionate amount of their income on health care, where costs rise faster than inflation. Many also have suffered from declining home values and shrinking stock portfolios just as they are relying on those assets for income.

"For many elderly, they don't feel that inflation is low because their expenses are still going up," said David Certner, legislative policy director for AARP. "Anyone who has savings and investments has seen some serious losses."

About 50 million retired and disabled Americans receive Social Security benefits. The average monthly benefit for retirees is $1,153 this year. All beneficiaries received a 5.8 percent increase in January, the largest since 1982.

More than 32 million people are in the Medicare prescription drug program. Average monthly premiums are set to go from $28 this year to $30 next year, though they vary by plan. About 6 million people in the program have premiums deducted from their monthly Social Security payments, according to the Social Security Administration.

Millions of people with Medicare Part B coverage for doctors' visits also have their premiums deducted from Social Security payments. Part B premiums are expected to rise as well. But under the law, the increase cannot be larger than the increase in Social Security benefits for most recipients.

There is no such hold-harmless provision for drug premiums.
Kennelly's group wants Congress to increase Social Security benefits next year, even though the formula doesn't call for it. She would like to see either a 1 percent increase in monthly payments or a one-time payment of $150.
The cost of a one-time payment, a little less than $8 billion, could be covered by increasing the amount of income subjected to Social Security taxes, Kennelly said. Workers only pay Social Security taxes on the first $106,800 of income, a limit that rises each year with the average national wage.

But the limit only increases if monthly benefits increase.
Critics argue that Social Security recipients shouldn't get an increase when inflation is negative. They note that recipients got a big increase in January - after energy prices had started to fall. (BJ NOTE: See my question at the end of post.)

They also note that Social Security recipients received one-time $250 payments in the spring as part of the government's economic stimulus package.

"Seniors may perceive that they are being hurt because there is no COLA, but they are in fact not getting hurt," said Andrew G. Biggs, a resident scholar at the American Enterprise Institute, a Washington think tank. "Congress has to be able to tell people they are not getting everything they want."

Social Security is also facing long-term financial problems. The retirement program is projected to start paying out more money than it receives in 2016. Without changes, the retirement fund will be depleted in 2037, according to the Social Security trustees' annual report this year.

President Barack Obama has said he would like to tackle Social Security next year, after Congress finishes work on health care, climate change and new financial regulations.

Lawmakers are preoccupied by health care, making it difficult to address other tough issues. Advocates for older people hope their efforts will get a boost in October, when the Social Security Administration officially announces that there will not be an increase in benefits next year.

"I think a lot of seniors do not know what's coming down the pike, and I believe that when they hear that, they're going to be upset," said Sen. Bernie Sanders, an independent from Vermont who is working on a proposal for one-time payments for Social Security recipients.

"It is my view that seniors are going to need help this year, and it would not be acceptable for Congress to simply turn its back," he said.

***

OK, you economists, help me out here. Economics is not my long suit. It’s the only class in college I fell asleep in.

The COLA raise is based on the Consumer Price Index (CPI) and is traditionally announced early in the fourth quarter of the year.

I have read that COLA is based on the “core rate” of the CPI, which excludes “volatile items” – the price of food and energy – and I am attempting to determine if this is true.

Here’s my question: how can the COLA be determined in May of 2009 for the year 2010, and projected for the next two years on a Consumer Price Index that is only calculated from month to month? For example, how could Social Security trustees know in May whether gasoline prices would soar as they did last September? How can they know the CPI a full year ahead of time?

What is this, crystal ball economics?