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Social Security's Cost of Living Adjustment Is Inadequate. Democrats Have a Plan to Fix That.

After lifetimes of work, Americans have earned their Social Security. It is well past time they get a raise.

"Seniors, people with disabilities and all Social Security beneficiaries know that their costs have gone up more than 1.3 percent over the last year," writes Altman. "They know that their prescription drug prices have gone up more than 1.3 percent. They know their out of pocket costs for doctors’ visits have gone up more than 1.3 percent." (Photo: Win McNamee/Getty Images)

"Seniors, people with disabilities and all Social Security beneficiaries know that their costs have gone up more than 1.3 percent over the last year," writes Altman. "They know that their prescription drug prices have gone up more than 1.3 percent. They know their out of pocket costs for doctors’ visits have gone up more than 1.3 percent." (Photo: Win McNamee/Getty Images)

Social Security is the primary income of three out of five beneficiaries aged 55 and older. This vital institution is virtually the only income of a third of them. Our Social Security system lifts more than 21 million Americans—including over a million American children—out of poverty and lessens the depth of poverty of millions more.

As essential as Social Security is in good economic times, it is even more so during the current pandemic and resulting economic collapse. Seniors and people with disabilities are most at risk from COVID-19. Eight out of ten COVID deaths in the United States have been people aged 65 or older. That’s over 175,000 deaths with that number sure to grow. Nursing home residents account for 40% of all COVID deaths—87,500 and growing.

"The Chief Actuary of the Social Security Administration has just announced that the automatic adjustment for 2021 will be only 1.3 percent, or an average of $20 a month. That would be inadequate in normal times, but these times are not normal."

Because Social Security beneficiaries are so at risk, their modest benefits—which average less than $1,400 a month—are stretched even thinner in the pandemic. They must keep distance from others. To do so requires incurring costs for deliveries of medicine and food, as well as incurring medical costs for those who become sick.

One of Social Security’s most important features—not found in its private sector counterparts—is that all benefits are automatically adjusted every January to offset the effects of inflation. The Chief Actuary of the Social Security Administration has just announced that the automatic adjustment for 2021 will be only 1.3 percent, or an average of $20 a month. That would be inadequate in normal times, but these times are not normal.

Seniors, people with disabilities and all Social Security beneficiaries know that their costs have gone up more than 1.3 percent over the last year. They know that their prescription drug prices have gone up more than 1.3 percent. They know their out of pocket costs for doctors’ visits have gone up more than 1.3 percent. Indeed, the federal government’s Centers for Medicare and Medicaid Services project that national health expenditures will increase an average 5.4 percent every year between 2019 and 2028. 

Ask seniors whether their costs went up more than 1.3 percent and you will get a resounding yes. The problem is that Social Security undermeasures the inflation they experience. That is because the cost of living adjustment for Social Security is based on inflation experienced by workers, not by retirees and people with disabilities who are unable to work.

That index, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), was the only measure that the government produced in 1972, when Congress wisely decided to automatically adjust Social Security benefits every year to prevent their erosion. Because that measure was the only one available, that was the best Congress could do. It was better than nothing.

But workers and indeed the general public have significantly different spending patterns than Social Security beneficiaries and, therefore, experience significantly lower inflation. Seniors and people with disabilities spend more on health care and long-term care—where prices continue to rise faster. They spend less on clothing, recreation, and other items—where prices tend to rise more slowly—than younger, healthier Americans.

Many members of Congress recognized the obvious shortcomings of the CPI-W when applied to Social Security. In 1987, our policymakers instructed the Bureau of Labor Statistics (BLS) to produce an index measuring the cost of living of the elderly. In response, BLS developed the Consumer Price Index for the Elderly (CPI-E), but Congress has not yet applied it to Social Security. It’s long past time to fix that.

That is exactly what the Democrats propose to do if they win in November. CPI-E is part of Joe Biden’s plan to update and expand Social Security. It is included in the Social Security 2100 Act, authored by Representative John Larson (D-Conn.), Chairman of the Social Security Subcommittee. Larson’s legislation is cosponsored by about 90 percent of his fellow Democrats. Indeed, every major Democratic bill to expand Social Security proposes to update the cost of living adjustment.

In recognition of how modest Social Security’s benefits are by virtually any measure, Democrats will expand them if they win. To be clear, substituting the CPI-E for the current CPI-W is not a benefit increase, but an update. It is a better measure to ensure that benefits will not erode over time. It is designed to allow beneficiaries can tread water, instead of sinking, as they now are.

An accurate adjustment is essential for everyone, but it is particularly important for women and Hispanics. The erosion of benefits from inadequate adjustments compounds over time and those two groups, on average, have the longest life expectancies.

It should be a bipartisan effort, but so far only Democrats have embraced the update. No Republicans have either cosponsored one of the many pending bills or introduced their own. But if Democrats win, Republicans will have to decide whether to support the efforts to expand Social Security or stand in the way.

Congress should also adopt the CPI-E for other federal programs for seniors and people with disabilities. These include military retirement benefits, veterans’ compensation, civil service retirement benefits and the Supplemental Security Income benefits, which also still use the CPI-W.

I have written elsewhere that Donald Trump and his Republican enablers in Congress present a clear and present danger to Social Security. In contrast, Joe Biden and the Democratic Party are squarely in favor of expanding Social Security and updating it to employ the CPI-E. This is the right policy. It also, according to numerous polls, represents the will of the people.

After lifetimes of work, Americans have earned their Social Security. It is well past time they get a raise. Once Americans begin to receive their earned Social Security, they should be able to rely on the fact that those benefits will not erode as they age, but will maintain their purchasing power, even if they live to 100 or older. That is one concrete gain Americans will achieve if Democrats win this November.

Nancy J. Altman

Nancy J. Altman is president of Social Security Works and chair of the Strengthen Social Security coalition. She has a 40-year background in the areas of Social Security and private pensions. Her latest book is The Truth About Social Security. She is also the author of The Battle for Social Security and co-author of Social Security Works!

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