How Social Security’s COLA Politics Lead to Bad Policy

On October 15 the Social Security Administration announced there would be no Cost-of-Living-Adjustment (COLA) for 2016. Many perceived this as signifying a hardship for seniors. Lawmakers afterward included a provision in the budget deal to prevent some seniors from facing huge Medicare premium increases, which were among the perverse effects that otherwise would have arisen from the zero COLA. Zero COLA years can lead to confused politics and strange policy.

The policy ideal would be a Medicare system in which costs do not rise faster than the ability of senior premium payers to bear. This would require tough decisions about fundamental reforms, eligibility rules and benefit growth rates that the body politic has thus far been unwilling to make. Failing this ideal, the next best outcome would be a system in which beneficiaries and taxpayers each shoulder an appropriate and transparent proportionate share of rising program costs. But this in turn would mean Social Security checks net of premium payments declining in some years, the optics of which have long made for prohibitive politics. As a result, the opaque and seemingly arbitrary process of Medicare premium setting is likely to continue for some time.

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