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Change in COLA calculation could affect disability benefits

On Behalf of | Dec 27, 2012 | Social Security Disability, social security disability 1 | 0 comments

Georgia recipients of Social Security disability benefits are probably familiar with the term COLA. Also known as the Cost of Living Adjustment, this number determines how social security benefits will be increased each year to compensate for inflation. When inflation is high, the COLA will also be high, resulting in a large increase in monthly payouts.

The hope is that these COLA increases will allow recipients to keep the same amount of buying power even as the currency fluctuates. However, calculating these adjustments are not as easy as it may sound. In order to properly compensate for inflation, inflation must be calculated accurately, and there is currently a disagreement among lawmakers about the proper way to do this.

Currently, inflation is calculated using a method called “CPI-W.” Some lawmakers are advocating a change to a slightly different method, called “chained CPI.” It’s a change that is being fiercely resisted by disability advocates, who say it will harm current disability recipients.

The difference between the two methods is relatively slight. Mostly, it revolves around the concept of the “substitution effect.” This is the idea that when the price of a commodity goes up, consumers will simply purchase a cheaper alternative. For example, if the price of oranges increases, consumers might buy grapes instead.

The chained CPI takes the substitution effect heavily into account, and therefore results in a lower figure for inflation. Thus, COLAs calculated using chained CPI will tend to be smaller.

This is problematic for disability recipients, because many disabled workers are faced with expenses that cannot easily be traded for a cheaper alternative. If the price of medicine increases, for instance, disabled workers cannot chose an alternative remedy- they must pay the required price.

Disability advocates say that the chained CPI therefore does a poor job of calculating cost of living increases for disability recipients. Still, it remains to be seen whether the new method will be adopted.

Given the uncertainty about the future of COLA increases, it is important that those preparing to apply for disability benefits do so correctly, in order to receive the maximum benefit they are entitled to. This process can seem confusing or intimidating, but with the proper assistance it can be made much simpler and smoother, allowing applicants to receive their benefits more easily.

Source: The Huffington Post, “The Chained Consumer Price Index Would Hurt People With Disabilities,” Donna Meltzer, Dec. 11, 2012


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