Covering the Chained CPI

Let me count the ways it can be done

There are five ways to cover the Chained CPI, a proposed new method for determining the cost-of-living (COLA) adjustments that Social Security beneficiaries and others will be eligible to receive:

(1) You can avoid covering the issue at all because it’s too complicated and too esoteric—the approach taken by many of the country’s news outlets.

(2) You can offer a Q and A that skims the surface and piles on the numbers, like The Washington Post did. “What’s all this talk about cuts in Social Security benefits,” the Post asks, and then answers its own question with this:

A different formula would reduce the annual increase in benefits by, on average, about three-tenths of a percentage point, saving an estimated $112 billion over 10 years. The effect of the cut would grow over time—-someone retiring at 65 could expect 3.7 percent less in benefits at 75 than under the current law, 6.5 percent less at 85 and 9.2 percent less at 95.

The Post did say that experts believe the current formula “overstates inflation” and that “Social Security boosters worry about the impact on older recipients. But switching to the new formula “holds appeal for liberals because it would bring in $87 billion in revenue over 10 years by revising income tax brackets.”

(3) You can report what the local politicians are saying about the need to cut COLA benefits—but not many political types are stepping out on this one. Or you can report what the politicos say they are doing to protect older people from cuts, like The Providence Journal did. Its Washington reporter listened in on a conference call with Sen. Sheldon Whitehouse, who, the story reported, “was among the activists getting attention for their sharp opposition to the idea of a deficit deal based partly on cuts in such huge and costly entitlement programs.” Whitehouse said that support from the Democrats (for not cutting entitlements) “couldn’t be taken for granted if Mr. Obama ‘capitulated’ to demands for savings from entitlements.” The reporter went on to frame the story as a “coming election” piece between Whitehouse and his Republican challenger Barry Hinckley.

(4) You can bring the human angle into it by interviewing an older person who is having a tough time making ends meet, like The Palm Beach Post’s brief account of Sandra Robinson, a sixty-three-year-old disabled person getting Social Security benefits. Robinson, readers learn, no longer stands in grocery store aisles comparing the prices of beef and pork. You can balance this kind of story by calling on an academic like the director of the University of Central Florida’s Institute for Economic Competitiveness. He said that Obama was right to want to change the COLA formula, and argued that current calculations essentially gave seniors a raise: “What we’re trying to do with these cost-of-living increases is not increase their standard of living, but keep them from losing their standard of living.”

(5) You can write an explainer or even a column that gets into details, laying out what’s at stake for seniors in terms of dollars and cents—moving beyond percentages that don’t mean much to most people. That’s what Los Angeles Times columnist Michael Hiltzik did; his piece showed what the controversy over the Chained CPI is all about. Hiltzik explained some of the history of the newfangled formula, noting that the Bureau of Labor Statistics (BLS) created it about ten years ago to account for ways people purchase goods and services when they get too expensive. They buy less, or find a cheaper brand, or buy something different, or don’t buy it at all. Economists argue that the current COLA formula ignores this substitution effect and overstates the real cost of living because it will include products in its market basket that consumers have thrown out of theirs, Hiltzik explained.

In recent testimony presented to the House Ways and Means Committee, economist Sylvester Schieber, who once held a high position at the Social Security Administration, explained it this way: “If the price of a Mercedes goes up…maybe you don’t buy the Mercedes, you switch and you buy an Audi or something.” Hiltzik wrote that may be how it works for Schieber, now an exec retired from the consulting firm Watson Wyatt Worldwide Towers Watson, and others like him, but that’s not how it works for many seniors. He pointed out that Schieber was either wrong or “at least wildly misleading,” because goods such as new cars were already factored into the current formula and have been since 1999.

“A more accurate example,” Hiltzik reported, “might be that if the price of gas or medical care goes up, you cut back on food.” That point was driven home in the same Ways and Means hearing in testimony from Joan Entmacher, vice president of the National Women’s Law Center, who told the story of Jeannette O’Linger, an eighty-four-year-old widow in Oregon. O’Linger worked until she was seventy-three, but has no pension and lives on a monthly Social Security check of around $1600. Here’s how she makes do: “I can’t afford meat anymore, but every once in awhile if I see a great bargain, I’ll splurge on a small piece of meat. There’s a special discount cheese that I like. I make very thin slices….” Entmacher told the Committee this shows “that for some things, you just can’t substitute—like dental care you can’t afford. You just do without.”

Hiltzik translated what the proposed change means for seniors. For the average retiree reaching age eighty-five, the change would result in an annual benefit cut of nearly $1000; for a retiree who reaches age ninety-five, the cut is about $1400—hardly trivial when you consider that income declines as people age. The nonpartisan National Academy of Social Insurance estimates that the total cut in Social Security benefits would total some $112 billion over the next ten years. “As pensions are eroded by inflation, employment options end, and savings are depleted, even a minor erosion in the real value of benefits is a public policy concern,” the Academy pointed out.

Hiltzik argued that the proposal to change the COLA formula is not about making the adjustments more “accurate.” “The goal,” he wrote, “is to cut benefits and thereby cut government costs.” What’s more, he reported, the BLS has developed an experimental index recognizing that seniors are a special case, so this method over-weights medical care as a factor in seniors’ spending. The cost of medical care has risen nearly twice the rate of overall inflation in the last two decades. The press has not discussed the experimental index. But, gosh, that could provide a sixth way of covering the COLA dilemma, and maybe begin to change the national dialogue a bit. How refreshing!

For more from Trudy Lieberman on Social Security and entitlement reform, click here.

Correction: This article originally reported that Sylvester Schieber was a current exec at the consulting firm Watson Wyatt Worldwide. In fact, Schieber has been retired for the firm for several years. Furthermore, Watson Wyatt Worldwide merged with a company named Towers Perrin on January 1, 2010. The firm is now called Towers Watson. CJR regrets the errors.

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman. Tags: , , , , ,