Yet Another Reason Why Deflation Is Bad

It's simple, really. Medicare and Social Security cost-of-living adjustments (COLAs) are pegged to inflation. Inflation has been negative this year thanks to the real estate collapse and financial crisis, ergo those COLAs are zero, and Medicare premiums are rising.

By law, Social Security benefits cannot go down. Nevertheless, monthly payments would drop for millions of people the Medicare prescription drug program because the premiums, which often are deducted from Social Security payments, are scheduled to go up slightly.

"I will promise you, they count on that COLA," said Barbara Kennelly, a former Democratic congresswoman from Connecticut who now heads the National Committee to Preserve Social Security and Medicare. "To some people, it might not be a big deal. But to seniors, especially with their health care costs, it is a big deal."

Cost of living adjustments are pegged to inflation, which has been negative this year, largely because energy prices are below 2008 levels.

Advocates say older people still face higher prices because they spend a disproportionate amount of their income on health care, where costs rise faster than inflation. Many also have suffered from declining home values and shrinking stock portfolios just as they are relying on those assets for income.

"For many elderly, they don't feel that inflation is low because their expenses are still going up," said David Certner, legislative policy director for AARP. "Anyone who has savings and investments has seen some serious losses."

In a very real way, the long-term losers in the financial crisis are America's seniors, who have fixed incomes based on long-term investments and rapidly rising health-care costs.

Yet this is the group most opposed to health care reforms that would lower their premiums and the cost of care. Seems to me that Obama has an opportunity here to make his case.