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A small proposed change is creating some big complaints as the White House and Congress toy with the idea of changing how cost-of-living adjustments are calculated as a money-saving maneuver.
Sixteen military and veterans' organizations, including Veterans of Foreign Wars, Iraq and Afghanistan Veterans of America and the National Military Family Association, have lined up against a change that would reduce the annual COLA by 0.3 to 0.5 percentage points a year.
This change would save about $208 billion over 10 years — a sizeable chunk of the goal of achieving $1.2 trillion in deficit reduction. The plan assumes that consumers facing higher prices on goods and services may simply decide not to spend any money, or substitute lower-cost products or services.
Under the new formula, known as the "chained Consumer Price Index," what would have been a 2 percent COLA, for example, would be as low as 1.5 percent.
No decision has been made about adopting the revised formula, but the change being considered during budget negotiations would apply to most federal entitlement programs, including 3.2 million veterans receiving disability compensation, 2.3 million military retirees and 9 million veterans receiving Social Security.
In a letter to congressional leaders, the 16 organizations say the change will have a big effect on veterans and retirees, with a bigger impact on those who receive benefits for the longest period — because they were disabled at a young age, live a long life, or both.
For a veteran with a service-connected disability rated at 100 percent who started receiving disability pay at age 30, benefits would be reduced by $1,425 a year at age 45 under the revised COLA formula, $2,341 a year at age 55 and $3,231 a year at age 65, the letter says.
A veteran receiving Social Security who retires at age 65 would receive a benefit that is $600 less a year at age 75, $1,000 less a year at age 85 and $1,400 less a year at age 95, according to the letter.
The letter does not calculate the effect on military retired pay, but when the idea was proposed two years ago, it was estimated to reduce the lifetime value of military retired pay by about 6 percent. An E-7 retiring this year with 20 years of service would, over 40 years, receive $109,335 less in retired pay. An O-5 retiring this year with 20 years of service would receive $207,991 less over 40 years.
In their joint letter, the military and veterans' groups say the current COLA formula already understates costs facing retirees and the disabled because it does not take into account the possibility that they are paying more for health care than younger, healthier people.
"Although veterans who have service-connected disabilities and those receiving pension benefits are eligible for VA health care, they may still be impacted by rising out-of-pocket health care costs. Adopting the chained CPI would make the situation worse," the letter says.
"We agree that political leaders need to restore fiscal discipline, but we believe it should be done with great care and without reneging on this country's promises to veterans, including the promises of Social Security and VA disability compensation and pension benefits — all of which are modest in size," the letter says.
"Many veterans who rely on these programs live on fixed incomes and very tight budgets. For them, every dollar of hard-earned benefits counts in meeting basic expenses, attaining quality of life, and building a better future for themselves and those who depend on them. For many of them, reducing the annual COLA would mean real sacrifice."
The letter was signed by the Air Force Women Officers Associated, American Military Retirees Association, American Military Society, Association of the United States Navy, Blinded Veterans Association, Gold Star Wives, Iraq and Afghanistan Veterans of America, Jewish War Veterans, Military Officers Association of America, National Association for Uniformed Services, National Guard Association of the United States, National Military Family Association, Paralyzed Veterans of America, Veterans for Common Sense, VetsFirst, and Vietnam Veterans of America.