April 9, 2013 / 6:19 PM / 4 years ago

COLUMN-Obama's fix would trim Social Security checks

By Mark Miller

CHICAGO, April 9 (Reuters) - Leah Witherspoon lives on $1,684 a month from Social Security, which is just a little more than the average Social Security retirement benefit this year of $1,261.

The 66-year-old Dallas widow, a former school cafeteria supervisor, is a typical Social Security beneficiary in another way: Her benefits provide just enough to get by. But that could change under an expected proposal this week from President Obama aimed at slowing benefits growth.

Rent, utilities and transportation costs consume more than 60 percent of Witherspoon’s monthly check. She suffers from multiple chronic health conditions, and last year was taking Lyrica - an expensive brand name drug used to control diabetic neuropathic pain (she’s since been moved to a less-expensive generic medication). It was during those months that her out-of-pocket monthly health spending soared to $600. That left her with a cushion of just $30.

Notice anything missing from that list of non-discretionary expenses? Food, perhaps?

”That just comes when I have something left,“ she says. ”I haven’t starved, but I eat a lot of canned goods, and things that are cheap. And I have friends who will feed me every now and then and take me out to eat. We’ll go to those all-you-can-eat buffets, where you can get three meals out of the leftovers.

Witherspoon’s canned food strategy is a variation on what economists call substitution - the practice of shifting to a less-expensive good or service when something becomes too expensive. It is the core idea behind a proposal President Obama will make this week as part of his annual federal budget proposal for changing the way the government measures annual cost-of-living increases, which would slow benefit growth for seniors.

RUNNING THE NUMBERS

Currently, Social Security awards an annual Cost Of Living Adjustment tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W. The index measures the cost of a general market basket of goods and services.

Obama is calling for adoption of the “chained CPI,” which takes into account changes in consumer buying behavior when prices rise - namely, that they buy cheaper goods. Advocates of the chained CPI often describe it as a minor technical fix aimed at making COLAs more accurate.

The Social Security Administration estimates the chained CPI measure would reduce COLAs by three-tenths of a percent annually. The Social Security trustees currently project a 2.1 percent COLA for 2014; if the chained CPI were in place, for a senior getting a check equivalent to Witherspoon‘s, it would cut a $35 monthly increase that year to $30.

While that may not sound like a big change, it’s meaningful considering the squeeze healthcare places on a budget like Witherspoon’s - and it doesn’t take into account that these costs are rising much more quickly than general inflation. It’s really just a way of cutting benefits.

The chained CPI proposal also raises a core question about our values: Is this really how we want seniors to live?

Aside from substitutions like canned food, seniors living on modest fixed incomes have limited substitution choices for non-discretionary costs. Witherspoon can’t shift to a less-expensive electric utility. Sometimes she can shift to a less-expensive medication, sometimes not.

The crunch on her budget is sending Witherspoon, with her diabetes, high blood pressure and kidney problems, to pound the pavement looking for part-time work as a receptionist or in a call center. “I’d like to find something where I don’t have to walk too much,” she says. “My knees are bad from pounding the pavement all those years in the cafeteria.”

So far she hasn’t had any luck, but she’s also active as a volunteer, serving as chair of the Dallas chapter of the Texas Alliance for Retired Americans, an advocacy group.

The chained CPI’s effects would be cumulative for Witherspoon and other seniors like her, since each year’s COLA would be calculated off a lower benefit amount as the years roll on. It’s an especially important consideration for women, who tend to outlive men. The National Women’s Law Center calculates that a senior with a benefit of $1,400 per month ($16,800 annually) would lose a cumulative $8,100 in benefits by age 80, $19,256 at age 90 and $24,976 at age 95.

One-third of today’s seniors rely on Social Security for 90 percent or more of their income, according to the National Academy of Social Insurance; two- thirds count on it for more than half of their income.

Witherspoon was entitled to a small pension from her 21 years working as a cafeteria supervisor for the Dallas Independent School District, but opted instead for her late husband’s larger Social Security survivor benefit (by law, most public sector workers with pensions cannot simultaneously draw pensions and Social Security).

The Obama chained CPI proposal is expected to include buffers for very low income seniors, and the very old - protections that are not likely to shield average seniors like Witherspoon.

Here’s a far better idea: construct a new inflation measure that accurately measures the cost pressures faced by the elderly. Perhaps the economists could start by counting the cans in Witherspoon’s kitchen cabinet.

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