Florida Elder Law & Estate Planning Blog

New Social Security COLA formula proposed

CPI-W and CPI-E. What a difference one letter makes!

Currently, the CPI-W  (Consumer Price Index for Urban Wage Earners and Clerical Workers) determines whether Social Security recipients receive a cost of living adjustment, and the amount. However, there is ongoing debate over whether this is the most appropriate way to calculate COLA. Opponents argue that the CPI-W is heavily weighted with costs of less importance to seniors than to working-age Americans – for example, apparel, transportation and educational costs. Based on the CPI-W, Social Security recipients (two thirds of whom are over 62) got a paltry cost of living adjustment of .3% in 2017.

To address this problem, some suggest using a different index, the CPI-E (Consumer Price Index for the Elderly). This index places greater emphasis on medical costs and housing costs, thus better reflecting the actual expenses of the average Social Security recipient. But it, too, is not without its flaws: the CPI-E does not include Medicare A costs, which continue to rise.

Recently, U.S. Rep. John Garamendi (D-CA) introduced HR 1251 (The CPI-E Act of 2017) which would require the CPI-E to be used as the basis fpr calculating Social Security cost-of-living adjustments. Proponents of the bill note that if the CPI-E had been in use for the past eight years, seniors would have received substantially higher cost-of-living adjustments.

Whether the bill will make progress in Congress is anyone’s guess, given the current cost-cutting climate and concerns about Social Security’s long-term solvency. You can read the text of the bill and track its progress here.