Fiscal Cliff Negotiations Propose Changes to Disability Benefits

In the coming weeks, policy makers will discuss tax increases and spending cuts in an attempt to reduce the national budget deficit. The latest proposal contains controversial elements that would ultimately change the way Social Security benefits are calculated.

In 1975, the Social Security program implemented cost of living adjustments (COLA) based on inflation. Until now, inflation has been determined using the Consumer Price Index—a measure of the average change in goods and services over time. Cost of living adjustments increase Social Security benefits to prevent inflation from eroding their value or purchasing power.

The current plan on the negotiating table will change how inflation is calculated. NPR economic correspondent, John Ydstie, explains, “The basic argument is that the current annual inflation adjustment for Social Security overstates the true impact of inflation. So, people are actually getting a bigger adjustment than they should."

The proposed fix—a Chained Consumer Price Index. The chained CPI assumes that when the price of a product increases, consumers are likely to purchase a cheaper alternative. Using a chained CPI will reduce yearly COLAs by .3 percentage points. Although NPR reports that a chained CPI would reduce the national budget deficit by about $200 million over ten years, it would cut into an essential lifeline for the nation’s elderly and disabled.

The Arc, a non-profit organization that advocates for people with intellectual and developmental disabilities, puts the chained CPI into perspective:

“For the average Social Security Disability Insurance (SSDI) beneficiary, the chained CPI would mean a benefit cut of about $347 per year after 10 years, $720 per year after 20 years, and $1,084 per year after 30 years. After 30 years, the cut is roughly 1 months’ worth of benefits for the average SSDI beneficiary. For SSI, the chained CPI not only lowers the annual COLA but also reduces the initial SSI benefit, which is calculated using a federal benefit rate that adjusts annually for inflation.”

Perhaps the most troubling issue with the chained CPI is that it fails to account for the rising costs of medical expenses. The 2010 Health Care Costs and Utilization report states that healthcare spending between 2009 and 2010 rose at double the inflation rate. While Medicare covers some of these costs, AARP reports that the most recent comprehensive data shows that Medicare beneficiaries spent a median of $3,138 a year of their own money on healthcare. Ten percent of beneficiaries—more than 4 million people—spent more than $7,861 a year. The oldest and poorest beneficiaries spent about one-quarter of their incomes on health care.

Given that healthcare costs are increasing and disabled individuals spend a large portion of their income on medical expenses, it is unreasonable to implement a policy that doesn’t account for these discrepancies.

Conclusions

While implementing the chained CPI will certainly help avert the impending “Fiscal Cliff,” this policy will affect the most vulnerable—the oldest, the poorest, and those who have been disabled the longest. The chained CPI will reduce the disability benefits that beneficiaries need to survive. Because disability benefits make up a good portion of recipients’ income, it is evident that the chained CPI will seriously affect many beneficiaries’ standard of living.

Sources