How Social Security’s COLA Politics Lead to Bad Policy | Economics21:
"How COLAs work:
The annual Social Security COLA is calculated by comparing the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in the third quarter of the most recent year to its level in the third quarter of the previous year. CPI-W is just one of multiple measures of general price inflation maintained by the Bureau of Labor Statistics (BLS).
Most economists believe it is less accurate than other measures including the Chained Consumer Price Index for All Urban Consumers (C-CPI-U).
It just so happened that Social Security COLAs were first established in law before the other more refined measures were developed.
Other quirks of law surround Social Security COLAs.
One is that when there is no COLA, neither is there an increase in the amount of wages subject to the Social Security payroll tax – even though normally those automatic annual tax base increases are computed differently than the COLA or CPI.
Another provision of law (the so-called “hold harmless” provision) prevents most beneficiaries’ monthly Social Security benefit checks, net of Medicare Part B premiums, from declining.
This means that whenever there is a zero COLA year, roughly 70% of seniors do not face a Medicare premium increase even though their benefit costs have likely gone up.
Under law the resulting revenue loss to Medicare is supposed to be made up by higher premiums from high-income seniors and on behalf of low-income seniors (whose premiums are paid for them under Medicaid by the states).
This in turn can mean huge premium increases for a minority of seniors on opposite ends of the income spectrum, as would otherwise have happened this year.
These various provisions do not add up to a coherent policy, but rather embody a patchwork of responses to the perceived policy and political challenges that accompany zero COLA years.
Zero COLAs are usually more good than bad for seniors, Part 1:.."
No comments:
Post a Comment