Seniors spend money differently from the average person. Health care accounted for 13 percent of spending for those 65 or older at the time the Center for Retirement Research wrote its paper. It accounted for 5 percent of spending for the general population. Not only do the elderly spend more on health care, but those costs also grow faster than others. [...]The AARP, which has been at the forefront in trying to educate the public and policy makers about the problems a chained CPI would pose for seniors, writes about [pdf] an alternative CPI indexed specifically for the elderly, CPI-E. The government tested the measure from 1982 to 2010, and found it outpaced standard inflation by 0.27 percentage points annually. That's largely because of the out-sized portion of seniors' budget taken up by health care expenses, which consistently outpaces other areas. The AARP graphed out what a CPI-E versus the chained CPI (C-CPI-U) would look like for the average retirees years on Social Security:
More research also needs to be conducted on how—and whether—the low-income elderly substitute goods, according to the Center for Retirement Research. For low-income seniors, most of their spending goes to essential items such as food, housing, transportation and health care. Because they are already spending so little, they may not have as much room to maneuver around price hikes.
“With little ability to respond to price changes, the poor have no mechanism to offset the full brunt of a price increase,” the center wrote in its report.
It's the wrong policy for a population that is already feeling a major financial squeeze, and should not be a part of President Obama's budget plan, or a concession for that ever-elusive grand bargain with Republicans.