Those relying on federal benefits were dealt a blow recently after the US government announced that their monthly payments would increase by just 1.7% from next year. The increase is known as the annual cost-of-living-adjustment (COLA) and is designed to protect those relying on social security payments against inflation. More than 70 million people rely on federal benefits including disabled veterans and federal retirees which equates to more than 20% of the entire US population. Many have expressed their disappointment in the small increase as it is the third time in a row that it has amounted to less than 2%. The government claims that this is due to the fact that inflation levels have been relatively low for the past few years with the cost of gas actually falling since the last year. However, critics claim that the COLA will not protect senior citizens against the rising cost of health care which accounts for the vast majority of their monthly expenditures.
How is the Cost-of-Living-Adjustment Calculated?
The government calculates the COLA by comparing the standard cost of living in July, August and September each year against the same period during the previous year. The cost of living is estimated by comparing any increase in the price of items such as food, clothing, transport, rent, energy and medical care. If the cost of living is more than the previous year, then the COLA should accurately reflect that increase. The cost of clothing rose by just 1% last year, and medical costs increased by 1.9%. However, the price of food increased by 3.1% with certain items such as meat, eggs and fish rising by 10%. The government keeps track of the rising cost of living through the Consumer Price Index for Urban Wage
Earners and Clerical Workers (CPI-W).
Will This Increase Protect Senior Citizens Against Inflation?
Although the overall cost of living has risen only slightly over the past few years, advocates for senior citizens claim that the COLA will not be not be enough to protect federal retirees from rising medical costs. Those who are signed up to Medicare, the government-run health insurance program, will not see any increase in their monthly premiums. Federal retirees, however, face an increase of 3.8% on their health insurance premiums over the coming year. People who suffer from serious illness or those requiring surgery can also find themselves facing large medical bills.
The COLA has been a legal requirement since 1975. The annual increase was less than 2% only three times in the first 35 years of the scheme. This year’s increase is a slight improvement on last year which saw an increase of 1.5%. Many economists remain critical of the method that the government uses to calculate the COLA for federal retirees and disabled veterans. Senior citizens often have to pay more for their medical carethan the rest of the population in the form of prescriptions, surgery and physiotherapy. Therefore, the government must come up with an alternative method of calculating the COLA that is more suited to those receiving federal benefits.