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Ways and Means Draws Bead on Medicare Cuts, Chained CPI to Limit COLA for Social Security

HHS Secretary Sebelius in witness chair today on total budget for HHS, CMS with Social Security proposal the target this Thursday

April 12, 2013 – The Republican-led House Ways and Means Committee has grabbed the lead in questioning President Obama’s 2014 budget proposals for the Department of Health and Human Services, which includes the Centers for Medicare and Medicaid Services. HHS Secretary Kathleen Sebelius will testify there today and next Thursday the hearing topic will be on entitlement reform proposals, with emphasis on the controversial Chained Consumer Price Index, which will be used to lower cost-of-living adjustments for seniors and others in future years.

 

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Today’s hearing, which will focus on the total budget for HHS, was announced last week by committee chair Dave Camp (R-MI). The sole witness will be Sec. Sebelius.

The Hill, on its blog, says, “There's plenty in the department's budget request for lawmakers to ask Sebelius about. It seeks an additional $1.5 billion for the federal insurance exchange, and HHS officials have so far not answered when asked about the consequences of not receiving that money. The budget also proposes a handful of Medicare benefit cuts, such as charging wealthy seniors a higher premium.”

Congressman Sam Johnson (R-TX), chairman of the Subcommittee on Social Security, yesterday announced the first in a series of hearings on the President’s and other bipartisan entitlement reform proposals.

This hearing, according to the announcement, will focus on using the Chained Consumer Price Index to determine the Social Security cost-of-living adjustment. This proposal was included in the President’s Fiscal Year 2014 Budget, the report by the National Commission on Fiscal Responsibility and Reform, and the report of the Bipartisan Policy Center’s Debt Reduction Task Force. 

The hearing will be Thursday, April 18, 2013, in B-318 Rayburn House Office Building, beginning at 9:30 a.m.

Following is the background on the issue as presented by the subcommittee news release.

“Social Security beneficiaries receive an increase in their benefits, known as the cost-of- living adjustment (COLA), each year there is inflation.  Prior to 1972, Congress enacted increases in Social Security benefits on an ad hoc basis.  The Social Security Amendments of 1972 (P.L. 92-603) established an automatic process for determining whether a COLA would be provided beginning in 1975. 

“The Social Security COLA is based on the percentage change in a measure of inflation known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).  The percentage change is measured by comparing the highest third calendar quarter average CPI-W previously recorded to the average CPI-W for the third calendar quarter of the current year.

“The COLA becomes effective in December of the current year and is payable in January of the following year. If there is no percentage increase in the CPI-W between the measuring periods, no COLA is payable, as happened in 2009 and 2010.  In 1975, the CPI-W was the only inflation measure produced by the Bureau of Labor Statistics (BLS).  Since then, other indices have been developed by the BLS.

Key Links on President Obama’s Proposed 2014 Budget

Remarks by President Obama on 2014 budget proposal

Press briefing on The White House 2014 budget proposal

White House web page on the budget and budget presenation

The Budget at White House Office of Budget and Management

“In December 1996, a Senate-appointed commission to study the CPI, chaired by Michael J. Boskin, Ph.D. (the Boskin Commission) found that both the CPI-W and the later developed Consumer Price Index for All Urban Consumers (CPI-U) overstated inflation in a number of ways. 

“The BLS modified the indices to respond to a number of the Commission’s recommendations regarding how these two indices were measured, but did not address their inability to account for the fact that as prices change, consumers will adjust their spending habits across categories of goods (e.g., if the price of beef goes up, consumers might buy pork instead).

“In 2002, BLS introduced the Chained Consumer Price Index for All Urban Consumers (C-CPI-U), which accounts for consumer substitution between CPI item categories, as well.  According to the 2003 BLS report, Introducing the Chained Consumer Price Index, the C-CPI-U is “designed to be a closer approximation to a ‘cost of living’ index than existing BLS measures.”

“This index cannot be used to determine Federal program adjustments unless Congress passes, and the President signs, legislation permitting the change.”

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