THE BLOG
12/11/2012 12:07 pm ET Updated Feb 10, 2013

The Chained Consumer Price Index Would Hurt People With Disabilities

As Washington considers deals to avoid going over the fiscal cliff, there is one proposal that would hurt people with disabilities significantly. Billed as a mere technical change to the annual cost-of-living-adjustment, or COLA, for Social Security, Supplemental Security Income (SSI), and many safety net programs, the so called "chained CPI" would actually be a substantial benefit cut that would hurt many of our nation's most vulnerable people. That is why members of a coalition that I chair, the Consortium for Citizens with Disabilities, have joined with groups representing our nation's seniors, veterans, and low-income families to oppose a government-wide switch to the chained Consumer Price Index (CPI).

The CPI measures inflation and is used to adjust benefits for Social Security, SSI, veterans' disability compensation, and other programs. It is also used to adjust the federal poverty guidelines, which affects eligibility and benefits in over 30 essential programs including food stamps, Head Start and school meals. When inflation rises, using the CPI to provide a COLA protects the buying power of millions of people across the U.S. including over 56 million Social Security beneficiaries and 8 million SSI beneficiaries. While the CPI may seem like just another Washington, D.C. acronym, it translates into real money in the pockets of many vulnerable Americans.

The Bureau of Labor Statistics has several CPI measures for different purposes. The CPIs seek to calculate inflation as experienced by consumers in their day-to-day living expenses, looking at 8 different spending categories, including food, housing, apparel, transportation, medical care, education and communication, and other goods and services. Each CPI measures inflation slightly differently and can include a different mix of goods and services. Currently, the Social Security COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

The chained CPI has one important difference from the CPI-W: the substitution effect. The substitution effect says that if the price of a good or service goes up, people will substitute a cheaper product in its place. A common example is that if the price of beef goes up and the price of chicken does not (or goes up less), a person will buy more chicken and less beef. As a result, the person's day-to-day living expenses do not go up as much as might be predicted by the increase in the cost of beef. The current CPI-W already accounts for some types of substitution. The chained CPI tries to account for more. But for seniors, people with disabilities, and other low-income Americans, the chained CPI is likely less accurate than the current CPI-W and could cause real hardship.

The substitution effect may apply to higher income people, but common sense suggests it doesn't hold true for people of modest means like most Social Security and SSI beneficiaries. In fact, many seniors and people with disabilities spend more of their income on health care (where inflation is usually higher) and necessities (which are harder to substitute) than other Americans. A person relying on Social Security for the majority of income is likely already making very tough choices. If a person's budget requires forgoing shopping one week a month, a plan that expects that person to make easy substitutions doesn't make sense. For most Social Security and SSI beneficiaries, the choice is more likely taking half a pill when the doctor prescribed a whole pill each day because the co-payments are unaffordable.

Additionally, while cuts from the chained CPI start small, they get bigger every year. Remember how compound interest is supposed to make our 401(k)s grow into a secure retirement? The chained CPI is just like that, but in reverse. For a person receiving the average 2012 Social Security Disability Insurance benefit of about $1,100 per month, adopting the chained CPI would mean a benefit cut of about $347 per year (2.6 percent) after 10 years, $720 (5.4 percent) after 20 years, and $1,084 per year (8.13 percent) after 30 years.

This means a person would essentially lose a full month's worth of benefits after 30 years of the chained CPI. These modest Social Security benefits make up over 75 percent of total income for the vast majority of disabled worker beneficiaries. Similarly, for the lowest 20% of income earners receiving Social Security retirement, those benefits make up about 94 percent of family income.

Cuts from the chained CPI could force people into terrible life and death choices. Many seniors and people with disabilities already live on the edge of financial disaster, just barely able to make ends meet. Any cut to benefits will likely mean that a basic need like food, medicine, or shelter will go unmet.

Using the chained CPI to calculate the Social Security COLA would also result in a significant, two-part cut in SSI benefits. Unlike Social Security, where initial benefits are based on a worker's wage history, SSI initial payment levels are based on a federal benefit rate that is adjusted using the CPI-W. Using the chained CPI, SSI initial payment levels would grow at a lower rate, meaning that a person's benefits would be cut even prior to application - and then would be cut a second time through lower COLAs.

The chained CPI would also be a benefit cut for the Military Retirement and Veterans' Pension Benefit Programs, which by law receive a COLA based on the Social Security COLA, and for Veterans' Disability Compensation, which receives a COLA enacted each year by Congress that typically provides modification equal to the Social Security adjustment.

Finally, if applied government-wide, the chained CPI would limit access to over 30 vital programs that apply a COLA to their income eligibility thresholds, including Supplemental Nutrition Assistance Program (formerly known as food stamps), the Child Nutrition Programs, Head Start, and the Low-Income Home Energy Assistance Program.

Members of the Consortium for Citizens with Disabilities support thoughtful efforts to strengthen the Social Security system's long-term financing, but we don't believe changes should happen in the heated atmosphere of deficit reduction. The Social Security system provides vital security for people with disabilities, retirees, and their dependents and survivors. The potential impact of any changes on seniors and people with disabilities must be carefully considered. The chained CPI fails this test and should not be applied to Social Security, SSI and other programs that low-income Americans rely on.