12/20/2012 12:54 pm ET Updated Feb 19, 2013

The Terrible Timing of "Chained Cola":: Benefits Decline as Cash Needs Increase, Especially for Widows

Chained COLA (cost-of-living adjustments) would purposely reduce Social Security benefits every year. As time goes on, the reductions -- initially small -- accumulate, constantly reducing the purchasing power of Social Security benefits. Proponents seek to justify this by claiming that consumers substitute lower-cost goods for comparable higher-priced ones.

A common example is substituting apples for oranges or the other way around. All too often, both would be unaffordable to people heavily dependent on Social Security as tens of millions are. Further, lower cost substitutions often will not be available. This problem is captured in the classical formulation that "The poor pay more." One reason is that low- and modest-income areas frequently do not offer the choices available in more affluent neighborhoods. Lower-income people typically lack the mobility that often determines their choices as consumers. In addition, the COLA now in use for Social Security is based on the entire working population whose average age is lower than that of Social Security recipients. In consequence, current COLA already understates the typically larger medical care costs the elderly incur.

Beyond that, chained COLA's timing is all wrong. As we age, our ability to provide services for ourselves declines. As a result we must purchase many such services or do without. For example, we must pay others to mow the lawn, shovel the snow, and perform home repairs. No longer able to drive or afford a car, many of us must pay others to do our grocery shopping, to get to and from doctor appointments. We've all seen cabs at markets, clinics and hospitals delivering or picking up elderly people. As we get older, meeting many basic needs cause us additional expense.

A COLA that lags farther and farther behind prices is especially hard on widows. Not only do they lose the company and help of their partner, they lose his income. Married couples share their incomes. While two cannot live as cheaply as one, they do usually share rent or mortgage payments and the cost of household necessities like heating, cooling, electricity, maintenance and repairs. Modest though they are, economies of scale available to couples disappear with the death of a husband. So also might his pension if he has one. The same happens to widowers, of course, but there are fewer of them because, on average, women live longer. If there aren't grandparents available, they're really stuck

While Social Security provides a survivor's benefit, it is not a full substitute for the lost partner's income. The costs a widow or widower must bear do not decrease by half. Necessities don't shrink as one ages, they usually increase - especially the costs of medical care, medications and health supplies. That argues for giving Medicare the authority to bargain over prescription drugs rather than reducing cash benefits.

Widowhood usually marks a new period of financial stress and demotion. It's an especially bad time to shrink COLA as well. As time goes on, with chained COLA, it would get worse.