Do You Want a COLA with Your Social Security Disability?

The current consumer price index shortchanges the disabled by measuring goods and services they don't use and ignores important costs, such as healthcare

Benefits from the Social Security Disability program can be difficult to obtain. The eligibility requirements are strict, and many applicants are denied coverage after their initial application. They then have to appeal the denial and may have to attend a live hearing in front of an administrative law judge (ALJ). The system has suffered from years of inadequate budgets and lacks sufficient numbers of staff and ALJs to deal with all of the applications and appeals, leading to massive backlogs.

Underlying all of these issues is the structural problem of inadequate funding through the FICA payroll tax and the ceiling on the income taxed.

However, the 2016 Trustees report has some good news, with the SSDI trust fund gaining one more year of solvency, but the much larger retirement trust fund is still projected to be exhausted in 2034.

For those who manage to secured benefits from SSD, often with the assistance of an attorney working on their claim, there is one more concern: that of the Cost Of Living Adjustment. The COLA is designed to counteract the effect of inflation, which otherwise would slowly erode the benefit.

The problem with COLAs

The COLA used to determine increases for SSD is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. This measure looks at a basket of goods that an "average" worker would purchase. The problem with this CPI is that many of the goods and services purchased in that basket are what younger workers and families would buy, and not retirees or the disabled.

For those groups, healthcare costs are much more important than, say, gasoline. In 2016, there was no COLA for Social Security disability benefits due to falling gasoline prices. Yet, at the same time, medical, healthcare and prescription drug costs all increased much faster than the average inflation rate.

The lack of a COLA in 2016 made it the third year in the last six without any COLA. This is beginning to have a cumulative effect on the disabled. According to one group, seniors and the disabled have seen expenses increase 75.3 percent since 2000, but have only received cost of living adjustments of 43 percent.

This means that they have lost 23 percent of their buying power over that period. This is all the more significant when you consider that the average SSD benefit payment in 2015 was only $1,165. It looks unlikely that that amount will increase much in 2017 as the projected COLA in June for next year was only 0.02 percent, which would work out to be less than a $2 per month increase.

We need a different CPI

One way to make the COLA more accurate for seniors and the disabled would be to change they type of CPI used to calculate the COLA amount. A CPI that better measured the cost of healthcare, medical expenses and prescription drugs would be more realist than a CPI that is heavily affected by gasoline prices when most seniors and the disabled drive very little or not at all.

One CPI has been proposed by the U.S. Bureau of Labor Statistics, known as CPI-E, would do this. Some political candidates have supported this change, but for it to become effective, a majority in Congress would have sign-on to the change.

Congress is a large part of the problem, as it has been unwilling to make significant changes that would support seniors and the disabled and increase funding to the program that would ensure its solvency.

The importance of these programs and the need for these changes is demonstrated by the fact that most seniors and disabled receive 50 percent or more of their income from Social Security benefits and for 25 percent, it represents 90 percent of their income.