After a 16-day shutdown of the United States government, budget negotiations are beginning again. For five years, ongoing negotiations have centered around passing a budget that is accepted by both Democrats and Republicans and that addresses problems related to the deficit and the need for economic growth. In the upcoming budget negotiations, the focus is likely to include attempts to replace automatic spending cuts known as the Sequester.
One of the proposals that has been on the table during prior budget debates is something called Chained CPI. While it is unclear whether any changes to entitlements such as Social Security benefits will be made in the upcoming budget debates as there are still fundamental disagreements that may make change impossible, our Boston disability lawyers know that the idea of chained CPI may not be going away any time soon as there are still plenty of supporters. President Barack Obama even included chained CPI in his budget, although he insists chained CPI would only be an option as part of a larger agreement that includes revenue increases. Recipients of SSI and SSDI benefits, therefore, need to understand what chained CPI is and what it means for them.
Understanding Chained CPI and Your Benefits
Chained CPI reflects a new way of setting the annual cost of living adjustments (COLA) that provide for increases in Social Security benefits to offset inflation. Cost of living adjustments have been automatic since 1975 and the COLA adjustment is based on inflation.
As we recently mentioned in a prior blog, the expected COLA adjustment this year is likely to be one of the lowest in record history, and last years adjustment was also very low as well. Only six times since 1975 has the cost-of-living adjustment been below two percent. Last year was one of those times and this year’s looks as if it will be as well. In both 2010 and 2011, there was no COLA increase. In 2012, the COLA was just 1.7 percent and while reports aren’t out yet, estimates indicate this years will be just 1.5 percent.
This increase amounts to a change of less than $20 per month for most recipients of SSD benefits. Unfortunately, with chained CPI, the increases would be even lower.
Chained CPI is a different way of calculating the increase in the cost of living caused by inflation. Under the current model in which the Consumer Price Index (CPI) is used, the COLA adjustment is based on how much the price index shows that the cost of things like medicine, food and housing have increased. It is assumed that people need more money when their buying power decreases due to inflation, so they can continue to afford the products that they need.
Under chained CPI, however, it is instead assumed that people will make a switch in the products they use when one item or type of item becomes too costly. For example, if beef goes up in price and becomes more expensive to buy than last year, a cost of living adjustment under the current formula would increase SSD benefits to allow you to continue to buy beef. Under chained CPI, it would be assumed that you would instead switch to buying a less expensive product like chicken.
As the Huffington Post points out, Chained-CPI would thus result in COLA that are less generous than the current model, and the buying power of those on SSI and SSDI would be reduced as a result of the benefits not quite keeping pace with actual inflation. This, of course, would be very bad news for those who are dependent upon SSI and SSDI benefits as their sole source of income.
If you are receiving SSDI or SSI benefits, this means it is important to watch the budget debate very closely to see if chained CPI makes its way into any deal that the politicians reach.
If you are considering filing for SSDI in Boston, call for a free and confidential appointment at (617) 777-7777.
More Blog Entries:
Government Shutdown and SSDI, Massachusetts Social Security Disability Lawyers Blog, October 10, 2013.