What Is the Right Price Index for the Social Security COLA?

IB#21-19

The brief’s key findings are:

  • How best to adjust Social Security benefits for inflation has been controversial.
  • Critics argue that an experimental index for the elderly (the CPI-E) should replace the current broader index (the CPI-W).
  • Historically, the CPI-E, which places more weight on health care costs, has risen faster than the CPI-W.
  • But, over the past two decades, this gap has narrowed and, in the past year, health cost growth was so slow that the CPI-E actually rose less than the CPI-W.
  • If health costs continue to be held in check, the argument for the CPI-E weakens.
  • Moreover, the CPI-E was not designed for use in policymaking so, if a more targeted index is desirable, a new one would need to be constructed.

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