Obama Drops Chained CPI From Budget...Another Election Year Maneuver

Last year, in Obama's rejected budget submission, was something called "chained CPI". It was the  proposed method by which annual cost of living adjustments (COLA) would be calculated for Social Security beneficiaries.  Without getting into a lot of technical economics related to how cost of living increases were previously calculated using CPI-W versus how they would be calculated under Obama's proposed chained CPI, the bottom line is that chained CPI would greatly slow the amount of any benefit increases; thus saving the Federal government billions of dollars over time and, similarly, costing seniors billions in buying power.

For years our elderly have been losing ground against rising inflation and chained CPI would only further worsen that condition.  This as evidenced by the following chart:

Click to zoom

The bar labelled "Elderly" reflects the fact that seniors saw their expenses go up by more than 39% from 1999 to 2013.  Yet, the Social Security Administration only adjusted benefits by a little more than 37%, which was the same as the cost of living calculation for all "Urban Workers" (also known as CPI-W). But, if chained CPI had been applied during that same period, those cost of living adjustments would have only been a little better than a 33% increase; leaving seniors with a 6 percentage point shortfall against expenses. Or, in other words, a 15% loss in buying power.

With as many as 22% of seniors living solely on their Social Security checks and many of them already in poverty and having to make serious choices between food and heat or medications, chained CPI would only have made a bad situation worse.  Add to this the expected inflation associated with raising the minimum wage by another $40 and, this could have been a humanitarian disaster in the making. 

For months,  Democrats were fearing that this could be a losing issue for them in the fall elections.  So,  for now, they're breathing a sigh of relief because Obama has yanked that idea from his current budget submission.  Whether it is just another one of his politically motivated delays prior to the 2014 elections or a complete dropping of this horrible idea is anyone's guess. But, I do know this, it's a little hard to argue that America needs to address income inequality and poverty when Obama, himself, was busily trying to create both with his chained CPI proposal.

If the President wants to save Medicare and lower costs, he should start by addressing the estimated $17 to $57 billion in fraud each year; and, not shove all too many seniors deeper into poverty.

Note: The 2nd column on the chart, Urban Consumers, is what is referred to as the CPI-U.  That's the overall number that the government publishes when it releases CPI data.

References:

Why 'Chained CPI' Rattles the Elderly (and Soon to Be): http://www.businessweek.com/articles/2013-04-10/why-chained-cpi-rattles-the-elderly-and-soon-to-be

CNN: February 20, 2014: Obama drops controversial Social Security proposal: http://money.cnn.com/2014/02/20/news/economy/obama-social-security-chained-cpi/

Medicare FAQs: Fraud: http://www.medicarenewsgroup.com/news/medicare-faqs/individual-faq?faqId=6a130489-e387-476d-a358-c77cfba68367