Chain-CPI

Chain-CPI
Endorsement

 The change would lower the buying power of benefits progressively over time.  The amount isn't much, but it affects people as they age.  This is like fire insurance that increases its deductible as more rooms of the house burn. It is a benefit cut that targets the very old.  It is a crazy way to fix old-age insurance.

What Do The Trustees Say

Here is the research from the Social Security Administration, "Solvency provisions.  The change would extend full benefits by about 3 years.  Over the longer term, the report says that the change will erase about 19% of the 75 year shortfall.  The research is from 2014 which will overstate the results somewhat. 

How Does It Work?

CPI measures inflation by buying-power.  Chain-CPI measures the cost of living.  These are different things.  If the cost of my healthcare rises, and I switch a higher deductible so that my price stays the same, CPI says that there is inflation.  Chain-CPI says that there is no inflation because the cost of living sees that consumers live with less effective healthcare insurance.

If we change the COLA to Chain-CPI, benefits will grow more slowly.  As Social Security spends less, the system will be able to provide scheduled benefit for a longer period of time. 

Strengths

Almost none.  This change is a benefit cut, one that is applied somewhat evenly to the population within a specific birth year.   

Weaknesses

This change is a benefit cut which focuses the reduction of benefits progressively as we age.  This is something like fire insurance which lowers the coverage of damage as more rooms of the house burn. 

This change shifts Social Security away from its purpose. Social Security is suppose to be old-age insurance.  Yet this change will have a greater impact on people as they live longer.  Jed Graham, who is a solid writer on the subject of Social Security, says "What is particularly bad about the chained CPI, which Social Security actuaries say would cut cost-of-living adjustments by 0.3 percentage point a year, is that it would make benefits more generous in real terms at age 62 than at 92."   See the full article

Distortions

Chain-CPI does not measure inflation more accurately.  It measures in part the behavioral response to inflation.

There are people who say that lowering the rate of the increase of benefits is not a benefit cut.  That is factually not true.  This change does lower the inflation protection of Social Security.  That is a substantial benefit. 

Other Reviews