A congressional "supercommittee" tasked to slow the nation's rising debt appears to have reached consensus on dampening future cost-of-living adjustments (COLAs) for federal entitlement programs, including military retirement, through use of a "chain-weighted" Consumer Price Index.
If that CPI were already in use, military retirees, disabled veterans and Social Security recipients would get a 3.4 percent COLA in January rather than the planned 3.6 percent hike, government price data show.
Democrats and Republicans on the powerful 12-member Joint Select Committee on Debt Reduction offered separate partisan packages last week toward trimming at least $1.2 trillion off projected budget deficits over the next decade. Republican members predictably stuck to their pledge not to accept new tax hikes, which Democrats demanded for "balance" of sacrifice.
A feature said to be in both packages is adoption of the chain-weighted, or "chain" CPI, for adjusting federal entitlements, a move estimated to save $200 billion over 10 years. Many economists say the chain CPI is a more accurate index of inflation because it addresses "substitution bias" found in traditional consumer price indices run by the Bureau of Labor Statistics.
Many entitlements now are adjusted based on the CPI for Urban Wage Earners and Clerical Workers, or CPI-W. It tracks prices for a market basket of goods and services, which are weighted based on spending patterns of mostly blue-collar workers in America. Every two years BLS conducts a new survey to readjust how goods and services are weighted in the basket.
What CPI-W doesn't do is change the mix of goods and services surveyed to reflect changes in spending behavior. For example, as the price of beef rises, consumers buy less beef and more chicken. Because CPI-W doesn't take account of that, critics contend, it exaggerates inflation.
The chain CPI reflects not only changes in prices but in spending behavior, from more expensive items to less expensive substitutes. But critics of this index argue it ignores the fact that consumers might prefer beef to chicken, so that over time, the chain CPI will leave consumers feeling worse off because of what they can afford.
Recent debt-reduction reports, including the National Commission on Fiscal Responsibility and Reform last December, have recommended adopting the chain CPI for Urban Consumers (C-CPI-U). Since 2002, when BLS first established this index, it has measured inflation rising at a slower pace, almost three-tenths of a percentage point a year lower than the CPI-W.
Testifying Nov. 1 before the super committee, the co-chairs of the fiscal reform commission again endorsed shifting to the chain CPI.
"If we could do it government-wide, it would save billions," said Alan Simpson, a Republican and former senator from Wyoming. No criticism was offered.
Erskine Bowles, Simpson's partner on the commission, included the chain CPI feature in a $3.9 billion possible debt-reduction deal he outlined for supercommittee members, contending most elements were agreed to previously by Democrats and Republicans. Bowles indicated the chain CPI was a feature he knows both sides of the supercommittee support.
TARGETING 'PRIME' RETIREES: Sen. John McCain, R-Ariz., has advised the supercommittee to consider ending access to TRICARE Prime, the military's popular managed care option, for working-age retirees and their families, to avoid spending cuts that would directly impact readiness.
Unless at least seven of 12 supercommittee members agree on a $1.5 billion, 10-year package to attack the national debt, the Budget Control Act signed in August will require automatic federal program cuts of $1.2 trillion, with roughly $450 billion from defense programs.
The cuts would be in addition to nearly $500 billion in defense spending curbs over 10 years already ordered by President Barack Obama as part of an earlier deficit-reduction agreement.
Uniformed leaders of the Army, Navy, Air Force and Marine Corps testified Tuesday to the devastating impact these automatic cuts, called sequestration, would have on force levels and weapons modernization programs if the supercommittee can't reach a deal by its Nov. 23 deadline.
Pulling the TRICARE Prime idea from a recent Congressional Budget Office report, McCain said forcing retirees under 65 to use TRICARE Standard, the fee-for-service option, or health insurance from civilian employers, or space-available care at base clinics or hospitals, could save DoD medical accounts up to $111 billion over the next decade.
McCain, ranking Republican on the Senate Armed Services Committee, was once a champion for expanded TRICARE benefits to retirees. He was not available for an interview, but a staff member explained the senator feels eliminating retiree TRICARE Prime is more acceptable than alternatives to cut equipment, training or key weapon programs needed by the current force.
"Faced with the possibility of sequester and its potential for an enormously harmful impact on national security," he said, McCain wants the supercommittee to consider carefully options "that would not impose drastic negative impacts on the Defense Department, or the currently serving force and their families, while sustaining the TRICARE benefit."
As reported here two weeks ago, McCain also has embraced President Obama's proposal to set a $200-a-year enrollment fee for TRICARE for Life, the prized supplement to Medicare for military beneficiaries age 65 and older.
Retirees under 65 are another 40 percent of the TRICARE-eligible population. TRICARE Standard users face higher out-of-pockets costs, with annual deductibles and cost-sharing requirements, but they can choose their own care providers. Beneficiary costs can't exceed an annual catastrophic cap. But CBO suggests raising that cap of $3,000 a year per family to $7,500.
CBO said 71 percent of working-age military retirees currently use some form of TRICARE. That number would fall to 35 percent if access to Prime were denied. Most of these beneficiaries would elect to use civilian employer health insurance, thus reversing a trend over the last few decades of military retirees leaving employer insurance plans to use TRICARE.
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