AARP’s Non-Response to Blahous COLA Op-Ed

The AARP responded to Chuck Blahous's recent Washington Post op-ed through a letter to the editor, reprinted below. Following, I'll make a few comments.

A Hit in Seniors' Pocketbooks

Wednesday, September 2, 2009

Chuck Blahous's framing of the COLA conversation was a few ticks off the mark ["What Drop in Benefits?," op-ed, Aug. 24]. It is not a flap or a controversy. It is simply an unprecedented event in the history of Social Security cost-of-living adjustments.

The fact is that 2010 will mark the first year since COLA increases became indexed in 1975 that there will be no increase. For millions of older Americans, this means that Social Security checks will be smaller for the first time, since Medicare Part D premium increases are not "held harmless" and will be deducted from the checks. That amounts to bad news in the mail every month.

What's more, health-care costs -- not just insurance premiums but also co-pays and prescription drug costs -- continue to outpace inflation, rising at a clip of 8 percent a year. Fully 30 percent of the average Medicare beneficiary's income goes to health care. This plus a lighter Social Security check will undoubtedly squeeze older Americans.

The bigger picture is that retirees who worked and saved a lifetime are staring at a triple setback: asset losses, diminished home values and rising health-care costs. This is why AARP has reached out to Congress to explore possible solutions to the economic hardship seniors face.

DAVID CERTNER

Legal Counsel & Legislative Policy Director

AARP

Washington

Several thoughts:

First, as AARP is surely aware, the average increase in Medicare Part D premiums will be only $2 per month. Second, while health care costs have continued to rise, other prices fell. Even using the CPI-E, which attempts to better track purchases made by the elderly, there would have been no COLA next year. Third, I'm not sure of the source of the claim that Medicare beneficiaries spend 30 percent of their incomes on health care, but in the CPI-E only around 11 percent of spending is dedicated to medical care. There may be an explanation for the discrepancy that I'm not aware of. And fourth, while many retirees did lose money on their investments, asset ownership tends to be highly concentrated at the top of the income scale. Low earners own few stocks and bonds and so were largely unaffected by the decline in stock prices.

In short, AARP's response was largely non-responsive to Blahous's points: Did prices fall? Yes. Would a zero COLA imply a real increase in the buying power of Social Security benefits? Yes. Would the Medicare Part B hold-harmless provision benefit most retirees? Yes. The scale of these points far outweighs those that AARP makes in response.