The un-COLA

Thanks. Great article.

To answer your question, yes, I still favor CPI-E – at least until there is a solution to the funding/sustainability challenge.

However, like Mr. Quinn, my 40+ years of front line experience in corporate employee benefits, working with tens of thousands of workers and over ten thousand retired workers, confirms that retirees think the Social Security COLA does not keep up with inflation. I agree that most retirees have post-retirement incomes that don’t keep up with inflation.

But, those I interact with don’t think it is so much the difference between E or W. That’s kind of a policy wonk issue. In fact, most retirees, frankly most Americans don’t know that the CPI is not a measure of inflation, but a measure of price changes for a specified, arbitrary market basket of goods.

Instead, my experience is in three parts:

• First, whether the individual gets a monthly benefit from a pension plan, by purchasing an individual annuity, or by a scheduled withdrawal from a 401(k) or IRA, most of those income streams make no provision for inflation – so, the Social Security COLA only applies to a portion of many retirees income,
• Second, whether it was calculated as W or E, it is based on PAST price changes – so the COLA is backfill, and
• Third, as you state “Medical inflation has slowed in the last 20 years, and the pandemic lowered medical inflation still further. As people avoided routine visits to the doctor, medical costs actually declined 0.4% in 2020.” I believe that. However, starting with the Medicare Catastrophic Coverage Act of 1988 and the adoption of RBRVS and DRGs, as well as balance billing limits and the new Rx coverage from Medicare Modernization Act of 2003, adjusted by Health Reform in 2010, we have consistently conditioned retirees, set expectations, that they would have only minimal out of pocket expenses. In fact, both the point of enrollment (contributions for Part D and Part B) as well as the point of purchase (copayments, deductibles, etc.) cost sharing has averaged less than 4% per year for almost four decades (1983 to 2021)! It wasn’t magic. Limiting prices and balance billing effectively shifted costs to those not covered by Medicare, Medicaid or the Veterans Administration. And, Build Back Better doubles down and further raises retiree expectations (ignoring the funding deficit, lack of sustainability) with new Rx out of pocket expense limits as well as “negotiation” for certain Rx.

America has reduced the percentage of age 65+ Americans living in poverty from 30+% to less than 10%. The reductions started long before we got the Johnson Administration war on poverty. Remember, the poverty measure is an income measure. If you adjust for wealth, the percentage of older Americans living in poverty may be even less.

See: https://www.cnbc.com/select/average-net-worth-by-age/

So, I’m not too supportive of any change that could increase benefits (a “better” COLA or a guaranteed minimum increase) – where the cost is shouldered by workers, generations too young to vote, and generations yet unborn.