Social Security payments will increase by 3.6 percent next year, the government announced last week. This is the first cost of living adjustment (COLA) for the program in three years. It will boost a typical retiree's payments by roughly $500 during 2012. Given price increases and tough economic times for many seniors, you'd think the extra money would be welcome.
Many experts and seniors' organizations, however, responded to the increase as if they'd been slapped in the face. We were told that the gains might be wiped out by increases in Medicare premiums. We were told that the formula used to calculate cost-of-living increases for Social Security was badly flawed and unfair to seniors. Efforts to find a satisfied senior advocate were fruitless:
"The compromised increase in Social Security benefits for retirees jeopardizes their financial security and underscores the instability of the benefit program," said the Insured Retirement Institute, a trade group of companies that sell annuities and other retirement products.
"[The] COLA announcement lets them know there's some relief around the corner," said the National Committee to Preserve Social Security and Medicare. "It may be cold comfort, however, once they see just how high next year's Medicare premiums will go. While healthcare costs continue to erode seniors' ability to keep up with inflation, Congress has yet to adopt a COLA formula that reflects the spending habits of seniors. ... At the same time, the Congressional Super Committee is reportedly considering another formula that would make a flawed formula even worse as COLAs for beneficiaries would continue to fall even further behind the true costs of living they face each and every day."
Even AARP, which seems engineered to be uplifting and happy for seniors, spent much of its statement lamenting the stresses on senior programs and echoed concerns that there is pressure in Congress to take a flawed index for calculating the Social Security COLA and make it much worse.
"It would be hard to overstate the financial peace of mind Social Security provides for 55 million Americans," the AARP statement said. "It is the principal source of family income for nearly half of older Americans, who have incomes of roughly $20,000, and keeps nearly one-third of them out of poverty. Unfortunately," it continued, "the increase announced today will not completely ease their burden. Medicare premiums are also expected to rise for many. And with the decline in housing values, deep losses to retirement and savings accounts and skyrocketing health and prescription drug costs, millions of older Americans continue to struggle to make ends meet."
Why the long faces? Well, ever since senior entitlement programs came under scrutiny by budget cutters, it has become bad form to acknowledge that seniors are getting a good deal from Social Security, Medicare, or much of anything. In the public sector, good deals these days equate to overspending and government waste, and are seen as vulnerable. In the private sector, bad news sells annuities and other retirement security products. Good news? Not so much.
There is a particularly harsh form of hardball being played in Washington these days. Give an inch, and you've just blinked your way to losing. So, even normally reasonable advocates are forced to take a hard line that effectively precludes compromise. Polls take our pulse on what seems like an hourly basis. And they find that we are unhappy and that we think things are going in the wrong direction. I get it. This has been an awful recession, and it's far from over. Home mortgages and housing values are a continuing disaster. Incomes and standards of living are down. Retirements are being deferred by those lucky enough to find or keep jobs.
But let's be honest here. The 2012 increase in Social Security payments is, if viewed objectively, much more of a good thing than a bad thing.
Yes, the inflation index used to set the Social Security COLA may be flawed, and doesn't accurately measure the market basket of things that older consumers buy, particularly when it comes to healthcare. But indexes are necessarily flawed in describing averages that don't apply to most individuals. Also, the COLA's weakness hasn't always worked against seniors.
In 2008, oil and gasoline prices exploded and triggered a hefty 5.8 percent Social Security COLA for 2009 payments. Later in 2008, energy prices receded but the COLA was still there. And in 2009 and 2010, inflation was low by anyone's measure, and there was no COLA. Meanwhile, of course, that 5.8 percent hike in benefits wasn't reversed, and seniors even got a one-time payment of $250 in 2009 to help compensate for the lack of a COLA.
It's also true that premiums for Part B of Medicare, which covers physician and other out-patient expenses, will rise in 2012. It's also true that the increase is linked to the COLA. But the groups lamenting this hike have largely failed to note that roughly 75 percent of all Medicare beneficiaries have seen no increase in these premiums in 2010 and 2011. That's because the program has a "hold harmless" provision that prevents premiums for existing beneficiaries from rising if there is no increase in Social Security benefits.
Now that there is a 3.6 percent increase in benefits, it's hardly unreasonable for Medicare Part B premiums to increase as well next year. Yet this cup is definitely described as being at least half empty.
It's also true that healthcare expenses hit seniors particularly hard. First, any inflation is hard for folks on fixed incomes. More importantly, most people use more and more healthcare as they get older. At the same time, health reform is providing Medicare beneficiaries with a growing menu of free wellness and preventive care services and growing subsidies for drug prices. Changes to Medicare Advantage and prescription drug programs will cause 2012 premiums to be lower than in 2011.
Life is hardly perfect for older Americans, but Social Security and Medicare have performed well during the past few years. Just ask unemployed Americans how their incomes and healthcare benefits have held up during this same period. Seniors, by contrast, have maintained the nation's lowest poverty rate among any age group. Of course, that index is also criticized as not being fairly designed.