While individual Disability Insurance Benefits (DIB) are determined based on the amount individuals have paid into the system over time, Supplemental Security Income (SSI) is need based, and cost-of-living adjustments (COLA) in maximum amounts are determined based on a formula set by Congress. There have recently been proposals to change the way this COLA is calculated.
The formula set by Congress depends on the idea of an individual’s buying power, currently from a statistic called CPI-W, the Consumer Price Index for Urban Wage Earners and Clerical Workers. CPI-W measures the change in the cost of the things these individuals (32% of U.S. workers ) buy over a defined period of time.
Chained CPI-U takes a larger amount of purchases over a longer period of time than CPI-W, and assumes that as goods and services become more expensive, consumers will substitute less expensive alternatives. Certain demographics, however, may need certain products and services that may increase in price more rapidly. In other cases, the products that a particular group of consumers need may not have available substitutes. For these reasons, chained CPI-U may underestimate the amount by which their cost-of-living expenses increase. While the current administration has agreed that chained CPI-U may help in reducing some costs, they argue that means-tested benefits like SSI should be exempted from any changes.
If you want to read more about the difference between Chained CPI and CPI-W, and how they are calculated, there is an interesting blog post by the Congressional Budget Office. The CBO also has posted an article about how these changes might impact the elderly.
