Social Security Recipients Will Receive No Cost Of Living Increase In 2016

Transcript

STEVE INSKEEP, HOST:

The government says Social Security beneficiaries will not be getting a cost of living increase in 2016. In essence, the government says people don't need that since the cost of living for the elderly has not gone up. To find out more, we turn, as we often do, to David Wessel. He is director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street Journal. David, good morning.

DAVID WESSEL: Good morning, Steve.

INSKEEP: OK, so, like, someone over 65 right now may be - many people across America - screaming at the radio, what do you mean the cost of living has not gone on up? That's what the question will be. So what does the government mean that the cost of living really hasn't gone up for seniors?

WESSEL: Well, since the mid-1970s, Social Security benefits have been adjusted automatically for inflation every January based on the September reading of what's called the Consumer Price Index for Urban Wage Earners and Clerical Workers. And the Bureau of Labor Statistics says that the prices of that basket of goods and services in September 2015 actually were a hair lower - about half a percent lower - than they were a year earlier.

Basically, energy prices fell a lot. So did airfares and clothing, according to the BLS, and those decreases offset increases in food prices, housing costs and medical care. Now, I know a lot of consumers don't believe this, but when the government goes out and checks prices across the country, the ones that are going down offset the ones that are going up. And that means no cost of living adjustment for about 70 million people - retirees, disabled workers, disabled veterans and federal retirees. This happened also in 2010 and 2011.

INSKEEP: I suppose we're more likely to notice the prices that go up than the offsetting ones that go down. But let me ask, David - is the mix of goods and services consumed by senior citizens a little different? And is it possible to see if their costs have also not gone up along with the broader population?

WESSEL: It is. So Congress, because they've heard these cries from people, told the Bureau of Labor Statistics to calculate a special price index that's designed to capture the goods and services purchased by Americans who are over age 62. This is an experimental index. It's not used for anything. And what it does is it puts a heavier weight on health care and housing and a lighter weight on things like tuition and transportation and entertainment. So while the index that's used to adjust Social Security benefits fell a little bit over the last year, this one - this experimental one - rose, but only by about half a percent - not very much. And if you look over the last 10 years, these two measures actually go about the same, so the BLS says, if you use an elderly-tailored CPI, it doesn't make much difference.

INSKEEP: Seniors have to spend a lot on health care, of course, even with Medicare - have to spend a lot. Is the cost for seniors of health care not rising as much as it used to be?

WESSEL: Yes, the cost of health care has slowed a little bit over the past (unintelligible), and that's part of what's going on here. Now, a lot of seniors are mostly on Medicare. And this has gotten really complicated because the law says that Medicare beneficiaries - or 70 percent of Medicare beneficiaries - don't have to pay more for Medicare if there's no cost of living increase. But premiums can raise for the other 30 percent - higher income beneficiaries, state governments that buy Medicare for the poor. So we have this situation where their premiums are going to go up a lot - 50 percent - unless Congress does something to intervene, which it's talking about doing.

INSKEEP: Now, let's talk about this question of what consumers really believe. You've flicked at that a little bit. You've said Congress has been so sensitive to this, they've gone out and ordered extra studies. Are consumers just determined to believe, regardless of what the surveys may say, that prices are going up? That's what people always feel.

WESSEL: Yeah, I think so. I mean, part of this is technical. The CPI's an average, and nobody's average. Someone who drives a lot is going to feel gas prices more. Some of it has to do with the way the government adjusts for improvements in quality. So if you buy a better flat-screen TV for the same price that you bought on 12 years ago, but it's so much better, that can be a decrease in price. So the CPI says the price of TVs adjusted for quality is half what it was five years ago. But I think, also, people tend to look - don't remember everything they buy, and they focus on the things that went up or down a lot. And the government tries to even all that out.

INSKEEP: OK, David. Thanks very much, as always.

WESSEL: You're welcome.

INSKEEP: More free information - the price has not changed. David is director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street Journal. Transcript provided by NPR, Copyright NPR.