Flat Social Security checks spark debate

Paul Davidson | USA TODAY

Advocates for retirees cried foul after the government announced recently that Social Security recipients won't be getting a cost-of-living increase next year because of falling prices, arguing officials aren't considering their distinctive spending patterns.

AARP and the Senior Citizens League said the Social Security Administration (SSA) instead should base its ruling on a special consumer price index for retirees that showed more rapid inflation the past year. Senior citizens, for example, devote more of their budgets to food, housing and medical care. Such a change would require legislation from Congress.

But a study just out by the Center for Retirement Research at Boston College concludes that it's unclear whether switching to that index would benefit the nation's roughly 65 million Social Security recipients.

It's true that from the third quarter of 2014 to the third quarter of 2015, the CPI index for the elderly, or CPI-E, rose 0.6% while the CPI for Urban Wage Earners and Clerical Workers, or CPI-W, fell 0.4%. That drop led to SSA's determination that Social Security benefits would be unchanged in 2016.

The reason for the recent disparity is that gasoline prices, which have fallen sharply, make up a far bigger portion of the spending of younger households . Meanwhile, health care inflation accelerated. Seniors spend more than twice as much on medical care as the overall population.

A similar dynamic played out from 1982 to 2001 as rising medical costs largely caused the CPI-E to rise an average 0.4 percentage points a year faster than the CPI-W, according to the Center for Retirement Research.

Since 2001, however, the two indexes have yielded almost identical results, with cost-of-living increases averaging 2.2% a year using the CPI-E and 2.1% under the CPI-W, the study says. The center attributes the shift to rising gas prices during the period that hit younger Americans harder and moderating medical cost increases — a possible byproduct of the Affordable Care Act — that benefited seniors.

"If you're picking a lever you want to play with, this one (the CPI-E) doesn't seem like a powerful lever at this point," says center director and study co-author Alicia Munnell.

It might make sense to use an index like the CPI-E going forward, the study says, but only if it becomes clear that health care costs will rise briskly in coming years. The Centers for Medicare and Medicaid Services expects a gradual rise in health care inflation from 1.5% in 2014 to 3% by 2024.

Advocates for retirees still favor a switch to the CPI-E. "The price rollback in health care costs was unprecedented," says Mary Johnson, a policy consultant for the Senior Citizens League. "It's highly unlikely that's going to continue."

And Debra Whitman, AARP's chief public policy officer, says the CPI E "is a more accurate measure of spending for older Americans."