Many Seniors Will Receive Smaller Social Security Checks Next Year For The First Time

October 18, 2006 (Washington, DC) – Earlier today, the Social Security Administration announced that the Cost of Living Adjustment (COLA) for 2007 would be 3.3 percent. That increase means that the average senior with a benefit of $1,011 will see a bump of $33 per month beginning in January.

A majority of the 48 million Americans aged 65 and over who receive a Social Security check depend on it for at least 50 percent of their total income, and one in three beneficiaries rely on it for 90 percent or more of their total income. But because the Social Security COLA trails rising costs in everything from Medicare to energy costs, seniors will see their spending power diminish again next year, as it has for several straight years.

With home heating and energy prices soaring by double digits, gasoline prices still up close to 25 percent from two years ago and consumer interest rates rising, many seniors will find the 3.3 percent COLA inadequate to keep up with increasing costs. Medicare Part B premiums, which will rise 5.6 percent in 2007, will further eat away at their COLA, since it will increase at a rate 70 percent faster than the COLA next year. Medicare Part B covers doctors' visits, tests, and outpatient hospital care.

But for the first time in history, many seniors will actually see a reduction in their Social Security checks due to a little-known provision that was originally created to protect a person's Social Security benefits from being reduced due to increases in Medicare premiums.

Most seniors have Part B premiums deducted from their Social Security checks. If the Medicare premium increase to Part B is higher than the COLA increase, seniors are automatically protected by law from having their checks reduced. But that protection does not exist for Part D, which covers prescription drugs – and seniors who have their Part D premiums automatically deducted from their Social Security checks will find that any premium increases that are greater that the COLA will come directly out of their checks.

This will affect a significant number of seniors for the first time in 2007 since next year is the first opportunity for drug plans to increase their rates after the 2006 initial enrollment period.

"Our 1.2 million members, most of whom are lower income seniors, depend on their Social Security checks to make ends meet," said Ralph McCutchen, chairman of TREA Senior Citizens League. "We've already seen how the elderly suffer when the Social Security Cost of Living Adjustment fails to keep up with rising costs, but it's almost unimaginable to think what will happen to them when their Social Security checks start going down each month."

To help provide relief to seniors, TREA Senior Citizens League is lobbying for a change in the Consumer Price Index (CPI) used to determine the COLA. The government currently calculates the COLA based on one of the most slowly rising CPIs – the CPI for Urban Wage Earners and Clerical Workers (CPI-W). That CPI tracks the spending habits of clerical workers, salespersons, service workers, and laborers – typically younger workers who don't spend as high of a percentage on health expenditures as seniors. Nevertheless, seniors receive their annual Social Security COLAs based on the spending patterns of these younger workers.

However, the government does track the spending patterns of older Americans, and has done so since 1983 with the CPI for Elderly Consumers, or CPI-E. By tying the annual increase in Social Security checks for seniors to the CPI-E, seniors would see much needed relief in their monthly checks.

For example, a senior who retired with a benefit of $460 in 1984 would have received almost $9,500 more over the past 22 years with the CPI-E. Vermont Rep. Bernie Sanders has introduced "The Consumer Price Index for the Elderly Act," H.R. 3601, which currently has 108 co-sponsors in the House of Representatives.

"The CPI-E may sound like an obscure piece of legislation – but to our members, it can mean the difference between tens of thousands of dollars during their retirement years," said Shannon Benton, Executive Director of TREA Senior Citizens League. "More members of Congress are supporting this legislation each year for good reason, and we will keep fighting until it passes."