Maria Gamez’s monthly Social Security check went up one dollar this year.

“Luckily, I haven’t gotten really sick,” she said, “if I have a headache I take a Tylenol,
you know?”

She relies on Social Security and a pension to fund her rent in Jamaica, Queens, buy a jacket for the winter, and pay for her Tylenol, and her food, of which she’s started to cut back. Rarely does she buy meat anymore.

“Once in a blue moon,” she said.

That’s because the costs of being old, and sick, rise faster than what Social Security pays out. A mismatch between senior spending and the way cost-of-living adjustments are decided means the rise in benefits is lagging, for two related reasons. Medical care prices grow faster than general inflation in the economy, and seniors spend a higher percentage of their income on medical care than a younger person does. Over time, the benefits gap has widened.

“If you’re spending more on healthcare and the cost of healthcare is growing faster, then you’re essentially experiencing a very different inflation number than the general population,” said Cristina Martin Firvida, director of financial security at the AARP.

Medical care prices since the 1980’s soared above general inflation, and widened even further above CPI-W, the inflation measure social security is tied to. CPI-W, officially known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, is an index based on healthy, working people, and it grows slightly slower than general inflation.

CPI-W currently trends higher than medical care inflation, but the medical care index is resilient. It’s never fallen below zero. When inflation began to wane in the 1980’s, medical costs kept growing. From June 1981 until October 1996, medical care inflation grew faster than CPI-W, almost seven times so in December 1986. Heart transplants were just beginning to take off, among other technological increases.

Drug prices are an obvious suspect for toxic inflation numbers. But it’s not the notoriously pricey brand names that drive the healthcare measure. The index assumes that buyers choose generic or cheaper brand drugs, said Firvida, which are then weighed with other medical costs like heating pads, home health aides, contact lenses and adult day cares. Prescription drugs make up 15.5 percent of the medical index, because the Department of Labor, which measures inflation, decided these drugs are about a 6th of the average person’s medical expenses each month.

The CPI-W assumes that all medical care costs makeup about 7.5 percent of a worker’s monthly spending. Senior advocates at the National Committee to Preserve Social Security & Medicare say the number for older Americans is closer to a quarter of their budget.

“Since seniors spend a disproportionate share of their income on healthcare, they’re feeling it the most, and that’s why we need a better measurement of inflation for them,” said Dan Adcock, legislative director of the National Committee to Preserve Social Security & Medicare.

This year’s cost-of-living adjustments were the highest they’ve been since 2012, at two percent. But the increase was eaten up by concurrent rises in Medicare costs. The average COLA was $27, but Medicare Part B premiums rose $25 for seven out of ten Medicare recipients last year. Because increases had been so low in the past couple years, 0.3 percent in 2017 and zero in 2016, increasing Medicare premiums were embargoed until COLAs could pay for them.

Hence, Maria Gamez’s raise from $987 to $988. She’s actually less reliant on Social Security than the average beneficiary, bringing in $700 from a pension in addition to her monthly check. Yet, three years into retirement, she’s searching for a part time job.

“I can hardly breathe with this paycheck,” she said, “maybe I should apply to Dollar Tree, or the 99-cent store. Everything helps.”

She retired from Flushing Hospital in 2014, where she worked as a translator and assistant, making sure the doctors washed their hands and put on clean gloves before surgeries.

“At least I get my little pension,” she said, “some of the guys that I talk to, they can barely pay for food. This poor guy from Ecuador, he was almost crying.”

Most weekdays she’s at Sunnyside Community Services, a senior center in New York, and pays two dollars for lunch there. It’s a space to eat cheap and sit with friends, who rarely talk about money, said Gamez. So, advocates do a lot of the talking. Many pieces of legislation have been introduced to tackle the inflation mismatch. But chances of moving to increase entitlements in the 115th Congress are slim, as COLA-boosting bills are backed primarily by Democrats.

Advocates fear COLAs might actually fall in the coming years. President Trump’s tax bill implemented a lower inflation measure, known as the chained CPI, to determine inflation adjustments of taxable money. More income falls into higher tax brackets because of it. The chained CPI lowers inflation rates by substituting, for example, beef prices for chicken prices where beef prices are going up, which proponents say accounts for rational consumer behavior. President Obama proposed tying COLAs to the chained CPI in his 2013 budget, but dropped it before signing the deal.

“Now that the chained CPI has this ‘good housekeeping’ seal of approval, at least in terms of the tax code, that precedent will be used as a way to sell it to apply to the social security program,” said Adcock.

Either healthcare costs have to fall, or Social Security has to rise, said Adcock. About 40 percent of Social Security beneficiaries rely on the program for 90 percent of their costs. Both numbers rise as healthcare prices climb.

Left Knee MRI by Becky Stern, used under the CC BY-SA 2.0 license

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