Friday, October 16, 2015

Government Shortchanges Seniors When Calculating and Reporting Inflation for Social Security Benefits

We wrote earlier that there will be no increase in Social Security benefits next year due to the government reporting a lack of inflation.

We also noted that Medicare and other health care related costs continue to escalate at a rate higher than most other prices experienced by consumers.

But while overall inflation is at historic lows and interest rates on savings are virtually zero, the government's inflation cost calculations nevertheless understate the impact of ever rising medical expenses on living costs for the elderly.

Setting aside for now whether inflation related COLA adjustments are even appropriate in today's non-inflationary environment, let's look closer at the relationship between stated general inflation and medical cost inflation.

In fact, the oldsters will be 'cheated' on government calculated COLA adjustments in 2016 and perhaps 2017 as well. They will receive no increase in Social Security benefits, but they will be hit with higher costs for health care expenses.

COLA would go up if government used its own measure of elderly inflation says this about that:

Social Security recipients are going to get no cost-of-living adjustment next year. But if the determination was based on the government’s own estimate of what inflation is like for those 62 years and over, there would be a rise in benefits.

Social Security is calculated based on the change in prices for an inflation measure called CPI-W during the third quarter. That dropped 0.4% from the third quarter of 2014 to the third quarter of 2015.
But the Labor Department also calculates an inflation measure called the CPI-E, which is the consumer-price index for Americans 62 years of age and older. That grew 0.6% during the same period.

Put another way, Social Security recipients are missing out on an as much as $44 a month due to the way inflation is measured.

In fact, the elderly inflation measure has outgained the CPI-W for the last four years, using the same third quarter-to-third quarter time period.

The main difference between CPI-W and CPI-E is the proportion allocated to medical-care spending, which for the elderly is roughly double that of the general population. . . . it would be up to Congress to change the COLA formula."

Summing Up

The government score keepers always try hard to report the real score. Or do they?

The government always does its work with the best interests of We the People front and center. Or does it?

Inflation is dead or at least is sleeping. Or is it?

When it comes to those things that government purports to control, such as health care costs and the cost of education, inflation is all around us, even if the goodies are reported as being 'free.'

That's my take.

Thanks. Bob.

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