If I am reading national polls correctly, the majority of Americans claim they want smaller government and decreased federal spending. But if the emails I get are any indication of what people actually think, then what they are really saying is this: βI want less government spending for all those other people, but more for myself!β
My email inbox has been deluged with gripes and rants about the recently announced 0.3 percent cost-of-living increase in Social Security benefits scheduled for next year. Here is a typical reaction: βHow can our government be so #&!? cheap? All my bills go way up, and they are only going to give me a lousy extra five bucks a month! I worked all my life, and I deserve more from the feds now that I am retired!β
Over the many years I have been writing this column, I have probably explained the politics and policies associated with Social Securityβs annual cost-of-living adjustment a hundred times. So I am not going to go for 101. But I will make two points quickly.
By law, the annual COLA is based on the increase in the Consumer Price Index as measured by the Department of Labor. That index shows that the rate of inflation has been at some of its lowest levels in decades. That, of course, is normally good news. I clearly remember the late 1970s and early 1980s when inflation was running in the double digits. Nobody thought those were good times, although Social Security beneficiaries were getting COLA increases in the 14 percent range back then. By the way, I also clearly remember senior citizens at the time complaining that the double-digit increases they were getting were not high enough.
And here is an interesting sidelight to the COLA history story. Back in 1972, when automatic annual cost-of-living increases were first introduced, the law said that a COLA would only be granted in any given year if inflation, again as measured by the CPI, was 3 percent or more for the prior year. Back then, inflation was always running at way more than 3 percent per year, so no one gave that provision much thought.
But then in the mid-1980s, the government finally got a handle on inflation, and the numbers started going down. In 1986, the CPI measured inflation at 1.3 percent. Because that was under the 3 percent cut-off point, no Social Security increase was scheduled. Well, you can guess what happened. Social Security beneficiaries went into an uproar. They demanded some form of compensation from their government leaders. Politicians panicked. And sure enough, the requirement that the CPI go up by at least 3 percent was immediately rescinded and seniors got their 1.3 percent COLA increase.
The second point I will make is that despite the fact that so many seniors never seem to be happy with whatever cost-of-living adjustment they get, many economists agree that the CPI measurement actually overstates inflation for senior citizens. That is why one of the commonly suggested long-range reform proposals for Social Security is a reduction in the annual COLA amount.
Seniorsβ ire over this issue is compounded by a totally separate issue. And that is the Medicare Part B premium, which is usually deducted from a Social Security recipientβs monthly benefit check. That leads to a whole other story about our expectations from the government when it comes to spending for senior citizens.
Part B of Medicare provides coverage for doctor visits, lab tests and most other health-care costs not associated with a hospital stay (which is covered under the free Part A program). Ever since the Medicare program was enacted in the 1960s, the law has said that Part B monthly premiums be set at a rate that would cover 25 percent of the costs of running that program. The bulk of Medicare Part B costs (75 percent) come out of the general funds of the Treasury. So right up front, senior citizens must realize they are getting a heavily subsidized deal from Uncle Sam when it comes to Medicare.
Still, as health-care costs rise, the Medicare Part B premium also has to go up to keep pace with the 25 percent cost requirement. Normally, the increase in the Part B premium is essentially masked by the corresponding, if not greater, increase in a Social Security COLA. But because weβve had a string of years with low or no Social Security COLAs, we began to run into scenarios, beginning several years ago, where Social Security checks would actually have gone down for millions of people.
So once again, senior citizens went ballistic and demanded action from their government. And once again, politicians panicked. And several years ago, they passed the complicated βhold harmlessβ provision of the Social Security Act. In a nutshell, that law essentially says that, at least for most seniors (about 70 percent), their Social Security checks cannot decrease. In other words, they will be βheld harmlessβ from one year to the next β meaning for those seniors already getting Social Security benefits, their Medicare premium cannot go up.
That premium is currently $104.90 per month for many older Social Security beneficiaries who met the βhold harmlessβ provisions in previous years. Some newer Medicare beneficiaries are paying $121.80 per month because they were not βheld harmlessβ last year. So for most of those folks, their Part B premiums will stay at those levels because they can be βheld harmlessβ again this year. (That is why millions of seniors are scrambling to file for benefits before the end of 2016, so that they can be βheld harmlessβ and not get hit with higher Medicare premiums in 2017.)
What about the people not βheld harmless?β Who are that other 30 percent? They are mostly wealthy senior citizens who already pay higher Part B costs. They would normally have to absorb even higher premiums to meet the 25 percent rule.
But last year, Congress buckled under to pressure from even these mostly wealthier seniors and essentially floated a loan to Medicare to keep Part B costs from rising. So even the rich didnβt pay the higher premiums. Expect the same this year.
And that takes me back to the point I made at the beginning of this column. People claim to want smaller government and less federal spending. So why is it that every time the government tries to do that, people scream and cry and demand more spending from their elected officials?
