Hawaii’s elderly may be victims of the upcoming congressional budget deal, according to an analysis done by the American Association of Retired People (AARP).

The study says that Hawaii recipients of Social Security will receive $480 million less than expected over the next 10 years if Congress passes a proposal changing how the program calculates cost of living adjustments (COLA). Nationally, seniors could lose $112 billion.

That’s as much as $48 million less per year for Hawaii’s 177,767 kupuna receiving Social Security benefits, or $2,700 less per person over 10 years if the program doesn’t keep up with the rising cost of living. Each senior currently receives an average of $13,900 per year.

“The individual impact is very sobering,” said Bruce Bottorff, the AARP’s associate state director. “Beyond that the impact on the economy would be troubling as well.”

Congress is under pressure to reach a budget deal before the end of the year to avoid the impending fiscal cliff, or the expiration of the Bush tax cuts and other measures in the Budget Control Act of 2011. But proposals to cut the deficit are facing pushback from advocacy organizations like the AARP that are concerned about the impacts of certain government spending cuts.

In addition to future cuts in Social Security, the AARP analysis found that 26,893 seniors in Hawaii may lose Medicare eligibility if a proposal to increase the age minimum from 65 to 67 passes. The study said that these seniors will be forced to pay about $2,200 more per year for private health insurance.

Economic Impact: Dire or No Big Deal?

Eugene Tian, the chief state economist at the Department of Business, Economic Development & Tourism, said that if the AARP’s analysis is correct, Hawaii’s economy will pay the price.

“Consumer spending will likely decrease by about $48 million per year,” he said, referring to the potential $480 million decrease in future Social Security benefits.

Tian said the possible cuts represent about 0.1 percent of Hawaii’s GDP. That figure may sound small, but Tian said it still matters.

“It is a big number,” Tian said. “It will slow our economic growth.”

Tian said that the provision to increase the age for Medicare recipients could add to this. If seniors have to pay more for health insurance, they will spend less in other areas.

“[While the] private insurance market will see an increase in business, there will be a reduction elsewhere,” Tian said.

Carl Bonham, executive director of the University of Hawaii Economic Research Organization, was more optimistic.

He said $480 million “is not a small amount of money. But it’s also not an enormous amount of money.”

Cutting government spending in general hurts the economy, Bonham said. But in proportion to Hawaii’s economy, $480 million isn’t that much.

“A $500 million reduction in total income out of a $60 billion economy is less than one percent,” Bonham said. “Because not all seniors who receive Social Security benefits are going to reduce their spending, it’s not likely to be enough to have a major implication for Hawaii’s economy.”

But Bottorff said the potential decrease matters, both for Hawaii seniors and local businesses.

“If you take $480 million out of the pockets of seniors that will have a direct impact on businesses,” Bottorff said. “It means less money in the pockets of seniors to pay for things such as prescription drugs, food, gas and utilities.”

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