The best thing about 2019 COLA Social Security is this – The Fool Motley

The long-awaited day for more than 62 million beneficiaries of social security is over. A little over a week ago, the Social Security Administration announced that all beneficiaries would benefit from a cost of living adjustment (COLA) of 2.8% from 2019. increase "represents the largest increase in benefit payments, as a percentage since 2012, which represents a leap from the 2% increase in beneficiaries received in 2018.

But there are many more things that we must be grateful for with regards to the 2019 COLA as the simple percentage increase.

Understand the role of the conservative disposition

It can be said that the best thing about COLA Social Security for next year is that more beneficiaries will receive a real net increase in their net program revenues. The reason? There will be less impact of holding harmless in 2019.

For those of you who do not know the reserve clause, I bet you are not alone. Staying in the shelter is a provision designed to protect people who are both registered with Social Security and Medicare and whose Medicare Part B premium (insurance of health and social services). external consultations) is automatically deducted from their Social Security payment each month. If Part B premiums were to increase at a faster rate than the Social Security COLA, as a percentage, this could result in a net reduction in what the beneficiaries would receive the following year. In order to prevent this from happening, legislators have introduced the "keep the reserve" provision. This essentially ensures that the bonuses in Part B can never increase faster than COLA, in percentage terms.

For new Medicare enrollees, older workers enrolled in Medicare but not in Social Security, or those who prefer to be billed directly through Medicare rather than having their Part B premium deducted automatically from their monthly Social Security check, There is no restraint protections. But for the remaining percentage of people with double enrollment in Social Security and Medicare, keep in the shelter prevents a rapid increase in Part B premiums.

This is why COLA Social Security will really mean in 2019

Even though Holding at the shelter had been a savior for Social Security beneficiaries since the beginning of the decade, when COLAs were small or nonexistent, this has turned into a sort of nightmare in 2018.

You see, after years of rapid increases in the Medicare Part B premium, it has remained stable this year at the standard rate of $ 134 per month. This meant that all duplicates who had been protected in previous years from the rapid increase in Part B premiums through harmless contracts had some catching up to do. The result is that many social security beneficiaries have not seen much or none of the 2% COLAs that have been passed on this year. A survey of the Senior Citizens League (TSCL) found that 50% of retirees surveyed had received a monthly payment increase of $ 5 or less this year.

But it's about to change. Even though TSCL estimated in its latest analysis that it was unlikely that more than 5 million low-income social security beneficiaries would see a net increase in their payments offsetting the catch-up in 2019, a significantly larger number of beneficiaries will see their real earnings increase next year. Medicare Part B premiums only increase by 1.1% to reach $ 135.50 next year, and many beneficiaries are caught up with the standard monthly Part B fee, do you do not worry about COLA for years to come. This is good news.

Now, it stinks!

However, there is always one drawback: COLA's inability to cope with the actual inflation that older people are facing.

The Inflation Factor of Social Security is the consumer price index for employees and clerks in urban areas (CPI-W). Although designed to measure the cost of a predetermined basket of goods and services, as its name suggests, it measures the spending habits of urban workers and office workers – many of whom do not receive social security benefits. The problem is that urban workers and clerical workers spend their money very differently from retired workers, who make up about 70% of all beneficiaries, resulting in significant costs, such as medical care and housing, in the calculation of the COLA. In short, it is unlikely that seniors will receive a COLC offsetting the actual inflation they face, regardless of what happens with the Medicare Part B premiums.

Equally frustrating, there is really no easy solution to this COLA dilemma, even though Democrats and Republicans hate CPI-W as an inflationary link to social security.

Democrats would prefer that the Consumer Price Index for Seniors (CPI-E) be used instead of the CPI-W index. The CPI-E would only take into account the consumption patterns of households with people aged 62 and over. This would probably better reflect the costs of medical care and housing, leading to an increase in annual COLAs.

Meanwhile, Republicans prefer the chain CPI, which takes into account consumer behavior called substitution bias. If, for example, the price of beef increases by 25%, the consumer can choose to buy pork or chicken to save money. This substitution would lead to a precise form of comparison of inflation, but also to smaller annual COLAs, probably even lower than the CPI-O.

Since neither party can agree on what to do, Social Security income should continue to be eroded by inflation, regardless of the type of COLA recipients received each year.