A cost-of-living adjustment (COLA) will increase Social Security benefits by 1.5 percent in January, resulting in an average monthly raise of $19 for millions of disabled and retired workers.
The adjustment, announced last week by the Social Security administration, is based on the consumer price index (CPI) for urban wage workers and clerical workers. The COLA announced in 2012 was a 1.7 percent raise, preceded by 3.6 percent in 2011. Negligible inflation meant no increases in the two years before that.
The government relies on the traditional CPI in a number of other ways, including indexing in the tax code and with pensions for federal workers and veterans’ benefits. Many economists and budget experts, however, say this CPI overstates inflation.
A reasonable alternative suggested this year by President Obama is “chained CPI,” which accounts for consumers substituting for products that become more expensive. Over time, switching to the chained CPI could produce substantial budgetary savings.
The Social Security news came on the heels of the government’s announcement that premiums for Medicare Part B would not increase in 2014. Part B covers services such as doctor visits, lab tests and surgeries. It is partly funded by premiums, but Medicare benefits are also heavily subsidized by general tax revenue.
The Center for Medicare and Medicaid Services says the premium freeze is due to reduced growth in health costs; savings from fighting fraud and abuse, and discounts from drug makers for premium and generic drugs.External links:Social Security Announces 1.5 Percent Benefit Increase for 2014Social Security Benefits Go Up By 1.5 Percent (AP)2014 Medicare Part B Premiums (Medicare.gov)‘Chained CPI’ Represents a Balanced Approach (Concord Coalition)