For the past two years, federal retirees have cautiously watched the cost-of-living-adjustment rates to see whether their rise, or lack thereof, would mean a staggering price tag for Medicare benefits.
But a new bill from Rep. John Garamendi, D-Calif., aims to end the near-annual cliffhanger by shifting the COLA from one Consumer Price Index and onto another.
Garamendi introduced HR 1251 — or the CPI-E Act of 2017 — on Feb. 28 with the goal of changing the formula used to calculate the COLA rates from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the CPI for the elderly, or CPI-E.
The COLA determines how much select retirees — including many former federal employees — will be able to offset the rise in their Medicare premiums.
COLA increases are determined, in part, by the CPI-W, which determines the price of goods and services by urban wage earners and clerical workers. The COLA level increases if the third quarter CPI-W numbers are more than the previous year's numbers. If the CPI-W remains at or below the previous year, the COLA benefit remains the same.
But in the past two years, the COLA has been lukewarm at best. In 2015, the COLA came in low, but retirees were spared a potential 50 percent hike by the Boehner budget deal, which capped Medicare Part B premiums and extended a no-COLA protection through 2017.
But in 2016, the premium protections were circumvented by a small COLA increase that resulted in a 42 percent spike in Medicare premiums.
As a result, for beneficiaries who are receiving Social Security benefits, there’s a provision called "hold harmless" that allows them to cap their premium increase. The hold harmless provision lets these beneficiaries deduct increased health care costs directly from Social Security, allowing the remaining premium to stay lower.
The remaining 30 percent of Medicare Part B beneficiaries not covered by hold harmless — an estimated 16 million retirees — have to pick up the slack, meaning their premiums would rise.
Garamendi’s bill would move the COLA formula to the CPI-E index, which measures the cost of goods and services for "households whose reference person or spouse is 62 years of age or older."
From 1982 to 2011, the CPI-E has outpaced the CPI-W 3.1 percent to 2.9 percent, mostly, the Bureau of Labor Statistics said, because of higher inflation costs for older Americans, especially when it comes to medical and housing spending.
Garamendi said that shifting COLA calculations to the CPI-E better reflects the spending habits of the people affected by increases than those covered in the CPI-W.
"Our senior and disabled citizens rely on Social Security benefits for a large portion of their income, and it’s about time for Social Security benefits to reflect their lifestyles," said Garamendi in a statement.
"Using a Consumer Price Index that actually reflects how retirees spend their money — especially in health care — is a no-brainer that will increase benefits and make Social Security work better for the people it serves."
The bill has the support of the National Active and Retired Federal Employees Association, which has continued to lobby for hold harmless provision reform.