What Do You Estimate Next Year's COLA Will Be?
Q: The COLA we received this year is a sham. My meager increase was completely taken by rising Medicare premiums and heating bills over the winter. Now other costs, particularly food items, are really climbing. Is the prospect for a higher COLA any better for 2015?
A: Not much. In fact, the annual cost-of-living adjustment (COLA) could be lower. Earlier this year the Congressional Budget Office forecast that the Social Security COLA would be 1.6% in 2015, almost the same as the 1.5% COLA seniors received this year. But based on the growth in consumer prices over the past 12 months through May, TSCL estimates that the 2015 COLA could be as low as 1.3%. If so, that would be the lowest COLA ever paid. In 2010 and 2011, inflation was so low that no COLA was paid at all.
Over the past five years COLAs have hit record lows, averaging only 1.4% per year. But many prices experienced by seniors, particularly food and healthcare costs, are climbing. CNN Money recently reported that beef prices are at a record high and that the costs of other items, like eggs, fruits and vegetables, are surging. According to government price data, during the past five years while COLAs rose just a total of 6.8%, the cost of home heating oil rose from $2.88 a gallon in January of 2010 to $4.18 a gallon during this past January's polar blasts — an increase of 45%. The price of a pound of ground chuck rose from $2.83 in 2010 to $3.75 in recent weeks— an increase of 33%. And although the Medicare Part B premium has remained fairly stable in the past two years, private Medigap, Part D, and Medicare Advantage premiums and out-of-pocket costs have climbed.
Although the growth of Social Security benefits is at record lows, COLA cuts remain on the table as a key element of deficit reduction plans. A huge part of federal benefit programs, including military retirement and Medicare, are tied to inflation. Last year President Obama included a proposal in his annual budget to reduce COLAs by linking to the more slowly-growing “chained” consumer price index. Estimates for TSCL indicate that the proposal would cut benefits by about $30 per month per $1,000 in benefits by the end of the first ten years. In other words, a married couple that receives $2,500 per month in Social Security benefits would receive about $75 a month less by switching to the chained COLA.
TSCL believes that the COLA simply isn't a fair measure of rising senior costs —particularly of what seniors spend on healthcare. The index used to calculate the COLA, the Consumer Price Index for workers (CPI-W), only ranks medical services as 6 percent of a household budget in importance. Yet most seniors spend closer to 15 percent of their budgets on healthcare, and that grows with age as well as with the growth in costs.
TSCL believes seniors would receive a more fair COLA by using an index that better measures costs experienced by older consumers the Consumer Price Index for the Elderly (CPI-E).
Sources: "Beef Prices Hit Record High," Chris Isidore, CNNMoney.com, April 14, 2014. Average Price Data through March 2014, Bureau of Labor Statistics, April 30, 2014.