The Center for Retirement Research at Boston College has released a new Issue in Brief:
“No Social Security COLA Causes Medicare Flap”
by Alicia H. Munnell and Anqi Chen
The brief’s key findings are:
- In 2016, for only the third time in 40 years, Social Security beneficiaries are not expected to receive a cost-of-living adjustment (COLA).
- No COLA means that Medicare Part B premiums cannot increase for most beneficiaries, so a minority has to bear the full burden of rising costs.
- Beyond this immediate flap, a broader issue is that Medicare premium growth is not fully captured by the inflation measure used to set the COLA.
- As a result, when Medicare premiums rise rapidly, older Americans cannot maintain their non-Medicare spending.
- In short, even the Social Security COLA does not fully insulate older households from the erosive impact of inflation.
This brief is available here.
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1 comment:
Cost of Living Allowance (COLA) is based on the change in CPI. The CPI is a measure of inflation. There are many different sub categories of CPI, but all measure the change in the cost of a basket of goods.
What cpi won't do is increased the standard of living as new products come on the market.
Wage growth is generally greater than inflation. When it comes to healthcare, much of the cost is for doctors and nurses who expect wages to increase their standard of living. New procedures tend to start out more expensive. What this means is that a person who turned 60 ten years ago and is now drawing SS-OASI Benefits is set with the basket of goods found ten years ago. COLA is going to increase their benefit enough to purchase the goods and services found ten years ago. What it is not designed to do is maintain your standard of living with that of a growing economy.
If beneficiaries wanted a COLA that increased their standard of living with that of the economy, that requires a much higher payroll tax.
Again this just highlights the fallacy of both Social Security and Medicare as financially well designed programs. Poor planning, no design, little thought into methodology results in a terrible mess.
If an individual fails they hurt themselves and the problem ends with their death. With Both Social Security and Medicare, the individual takes from the pool available that they did not contribute to and consumes it all and then passes on the liability to future workers.
Each cohort should take no more out than what they collectively contributed.
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