Federal Employees News Digest

Experts say tiny 2017 COLA shows system fails to calculate real-world needs

As retired and disabled federal employees absorbed the disappointing news about next year’s cost-of-living increase, critics took aim at every aspect of the increase—from its meager size to its effect on Medicare beneficiaries to the method used to calculate it.

Under the COLA—which is based on the increase in the cost of goods and services as measured using the Labor Department’s Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)—the Social Security Administration will increase payments to retirees a mere 0.3 percent in 2017. The COLA applies to Social Security retirement payments, Supplemental Security Income payments, and federal civilian and military retirement annuities.

The announcement of the almost nonexistent increase brought loud criticism from unions and other advocates for older Americans.

“The COLA, just announced, is based on a pattern of buying of urban wage-earners and clerical workers, really younger adults, and just does not represent the needs and buying behaviors of older adults,” Mary Johnson, a policy analyst with the nonprofit Senior Citizens League, told FEND. “It’s not tracking the costs of older people, retirees, and disabled people, who have to spend more on health care and housing costs than younger workers.”

“Because there has been a disproportionate rise in health care costs and housing costs, those spiking costs have been affecting older people very much—even though the CPI the government uses is showing 0.3 percent, the actual experience of older people is very different,” Johnson said. “It doesn’t take into account things like Medicare premiums—crucial for older Americans—which have gone up significantly—for some I’ve interviewed, they’ve gone up 36 percent in 2016.”

National Active and Retired Federal Employees Association President Richard Thissen also blasted the size of the COLA.

“Not only is the COLA increase unrealistically low and not reflective of the expenses faced by seniors,” Thissen said, “[but] hundreds of thousands of federal retirees enrolled in Medicare will see a significant decrease in their annuities for the second straight year, due to the so-called ‘hold harmless’ provision of Social Security law. NARFE is continuing to seek congressional action to fix this unfair disparity.”

Under the hold harmless provision cited by Thissen, the dollar increase in Medicare Part B premiums is limited to the dollar increase in an individual’s Social Security benefit.

This year, the low COLA means that about 70 percent of Medicare beneficiaries will be held harmless—with their Part B premiums increasing only in proportion to the increase in their Social Security checks. The base premium for those beneficiaries currently is $104.90 per month, NARFE said.

However, the other 30 percent of Part B beneficiaries will see a significant increase in their premiums. This includes about 1.6 million Civil Service Retirement System retirees who do not receive Social Security benefits, and those enrolling in Medicare for the first time in 2017.

“When it was announced in 2015 that there would be no COLA in 2016, Congress acted swiftly to limit the projected increase from 52 percent to 15 percent for those not held harmless,” Thissen said. “While this agreement wasn’t perfect, it provided some relief to federal retirees. NARFE implores the White House and Congress to once again prevent this unfair and disproportionate Medicare premium increase for federal retirees and millions of others. Both the administration and Congress have the authority to keep the increase from going fully into effect, and I urge them to do so quickly.”

Survey results

TSCL’s Johnson pointed out in her interview with FEND that it is not just government figures that reveal a growing gap between sharp growth in real costs to seniors versus nonexistent to small COLAs—her organization offers an annual, scientific survey which reveals a bad and growing problem.

“Now, to demonstrate the disconnect between real cost rise and the government COLA, our survey from this year was of around 1,200 respondents, people 62 or older, 94 percent of whom reported their monthly expenses rose more than $39, yet they received no COLA at all in the current year,” Johnson told FEND.

“Social Security’s purpose is to keep older people out of poverty, and it is one of the few forms of retirement incomes that has a cost-of-living adjustment,” Johnson concluded. “But that COLA is not working, because it is not tied to the market basket of necessary purchases of the people it is supposed to serve.”

“Why is that? Because when the COLA became automatic in the 1970s, the so-called ‘CPI-W’ was the only index around,” Johnson explained. “Even though new and more accurate CPIs exist for older people—the CPI-E—it is not tied to the Social Security COLA.”

“Now, however, there is serious discussion of making the COLA more accurate,” Johnson said. “It will be a big fight—the dialogue has been shifted, however, and this debate is now underway.”

Another expert shared similar criticism of this year’s COLA—and of the pattern of lowballing the real cost of living to older Americans.

“The question about the inflation adjustment is this: Is it a fair adjustment, given the real-world price increases that we actually see, that affect people?—the answer is no,” Laurence Kotlikoff, an economist at Boston University and expert on Social Security, told FEND.

“One gauge I use is the cost of an ice cream cone, and ice cream cone prices are going up, in my observation, in the double digits each year,” he said. “This is true of many real-world items, and at the very least we should be focusing on a CPI that more fairly speaks for older people, and use that real CPI change. That would mean looking at the growth in co-pays for health insurance and drug benefits, right? This announced COLA just doesn’t do that.”


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Edward A. Zurndorfer Certified Financial Planner
Mike Causey Columnist
Tom Fox VP for Leadership and Innovation, Partnership for Public Service
Mathew B. Tully Legal Analyst

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