As the Coronavirus pandemic has continued to ravage the U.S. economy many analysts predicted seniors would not get a Social Security increase going into 2021. However, these analysts were incorrect and seniors can expect a small 1.3% cost of living adjustment or COLA. The small increase will result in about $20 per month for most seniors before factoring in Medicare Part B premium increases. Seniors have been losing buying power for years because of rising healthcare costs.
This dynamic has already been happening for years. Healthcare costs have increased by an average of 2.928% annually over the past 10 years (this percentage includes projections for the remainder of 2020). If, as seems likely, this holds true for 2021, it means the coming year’s COLA will amount to less than half the increase seniors will face on their healthcare bills alone. In fact, Social Security beneficiaries have lost a whopping 30% of their buying power since the year 2000, with much of that directly tied to healthcare costs.
What’s worse is that senior healthcare costs aren’t factored into COLA calculations. COLAs are instead determined based on annual third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). When the costs of common goods and services rise, benefits get a boost. Unfortunately, the CPI-W doesn’t measure senior-specific expenses at all.
Fuel costs, for example, significantly impact the CPI-W — but seniors generally don’t spend much money on fuel. Many don’t work and therefore don’t drive daily. Even among seniors who spend more time in their cars, fuel costs tend to pale in comparison to what they’re forced to spend year after year just to keep up with their health.
The fact that seniors on Social Security will lose buying power in 2021 isn’t just a function of the meager COLA. Rather, it’s a symptom of a poor system for calculating COLAs in the first place. Senior advocates have long recommended switching over to the Consumer Price Index for the Elderly (CPI-E) to determine COLAs — a more targeted index that can properly account for healthcare inflation. For that to happen, lawmakers need to agree to change the law. Many have expressed reluctance to do so.
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