October 13, 2023.
80 Percent of Retirees Want Better Inflation Protection —
Medicare Part B Premium Increase Proves Us Wrong, And We’re Relieved!
The 3.2% Social Security cost of living adjustment (COLA) is well above the 2.6% average over the past two decades. Still, according to a new survey by The Senior Citizens League (TSCL), 80 percent of retirees think Congress should beef up inflation protection by providing a COLA that more closely reflects inflation experienced by older adults. Some senior advocates, including The Senior Citizens League, have proposed using a “senior’ CPI to determine the annual COLA.
“If that were the law today, the COLA in 2024 would be almost a percentage point higher —4%, versus the 3.2% just announced by the Social Security Administration,” says Mary Johnson, a Social Security policy analyst for The Senior Citizens League. Johnson bases that estimate on the rate of increase in the Consumer Price Index for the Elderly (CPI-E); the most recent data was released yesterday.
Since 1975, the Social Security COLA has been calculated annually using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Still, oddly enough, that index does not survey the costs of retired households over the age of 62. Today, there are other consumer price indexes to choose from that better reflect inflation experienced by older Americans. Launched in 1983, the CPI-E surveys the cost changes of households aged 62 and older.
Failing to adequately protect Social Security benefits from the effects of inflation can lead to a loss of buying power in benefits over time and lower growth in Social Security benefit income over the course of a retirement. Older and disabled Social Security recipients spend their money differently than younger working adults. Retirees tend to spend a bigger share of their incomes on housing and medical costs — two spending categories which tend to rise more quickly than overall inflation. Meanwhile, younger working adults tend to spend more on commuting costs and energy while spending considerably less on healthcare than older adults. According to annual research by The Senior Citizens League, Social Security benefits have lost about 36% of buying power since 2000.
The CPI-E tends to rise more quickly than the CPI-W in most years, but there are notable exceptions, such as in 2021 and 2022, when gasoline prices soared. The Social Security 2100 Act, legislation introduced in the House by Representative John Larson (CT-1), would change how the COLA is determined by requiring the higher of the CPI-W or the CPI-E to be used in calculating the COLA.
A new analysis by Mary Johnson comparing the two indexes with the proposal to use the higher of the two indicates that using this approach would provide greater inflation protection and higher benefit growth over time. When COLA increases under current law are compared with COLAs calculated using the higher of the CPI-W or the CPI-E over the past ten years, the analysis found that an average Social Security benefit of $1,294 in 2014 would grow to $1,692.20 in 2024 using the CPI-W. Using the higher of the two benefits, the $1,294 benefit in 2014 would be significantly higher —$1,749.8 in 2024 or $57.60 more per month more, than under current law. In addition, the analysis found that this calculation method would have provided an additional $3,787.80 more in Social Security income from 2014 through the end of 2024. The table illustrates how monthly benefits compare by estimating what the COLA would have been using the CPI-E.
How Much More Would Social Security Recipients Receive If Paid the Higher of the CPI-W or CPI-E?
|Year||Monthly Benefit||COLA CPI-W Method||Monthly Benefit||COLA CPI-E Method||Monthly Benefit||COLA using Higer Methodology|
*Source: The Senior Citizens League
CPI-W: Consumer Price Index for Urban Wage Earners and Clerical Workers
CPI-E: Consumer Price Index for The Elderly
We are relieved to learn that the Medicare Part B increase in 2024 won’t be as high as we initially feared. The Centers for Medicare and Medicaid Services announced that the standard Part B premium paid by most beneficiaries will rise $9.80 per month from $164.90 in 2023 to $174.70 in 2024. That aligns with the amount estimated by the Medicare Trustees earlier in the year. In September, The Senior Citizens League forecast that the Medicare Part B increase might rise as much as $5 per month higher than the Trustees estimated after CMS approved a pricey new Alzheimer’s drug, Leqembi.
We are only too happy that CMS proved us wrong on this one, and we hope any questions raised by our forecast may have played a small role in this unexpectedly early announcement of the Part B premiums and deductibles.