Changes in Social Security Benefits, 2018

Social Security Administration Office of Inspector General SealIn October, the Social Security Administration announced a 2% cost-of-living adjustment, or “COLA,” for Social Security payments in 2018. This increase will raise the average Social Security benefit by a little over $27 per month or about $329 a year. There had been no change in 2016 benefits and only a 0.3% increase in 2017. This is the largest cost-of-living adjustment in the past 5 years, but many senior advocates have pointed out that this COLA, like others in the past, will not cover the increasing cost of common senior expenses, especially health care.

How are Social Security “COLA” increases calculated, and why are they not keeping pace with the increased expenses seniors must bear?

COLAs are based on the Consumer Price Index, a government statistic tracked by the United States Department of Labor. The Consumer Price Index (the CPI) is based on data from eight spending categories, including medical care and housing. Seniors know very well that the cost of medical care and housing is rising at more than a 2% per year rate. However, costs for some of the other CPI components are growing more slowly.

As a result, seniors face rapidly increasing costs for essential services like health care while Social Security benefits are largely based on index prices for things like communication, transport and recreation. There is a mismatch, and this problem is made worse by the way in which Social Security benefits are involved with Medicare Insurance premiums. The monthly premium for Medicare Part B is automatically deducted from the Social Security benefit paid to seniors, and the amount of that insurance premium will vary, depending on the amount of non-Social Security income the senior had.  In some cases, the COLA increase will be mostly or entirely erased by an increase in Medicare costs.

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