A health check for Social Security and Medicare

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Jun 02, 2022 View in browser   By Kate Davidson and Aubree Eliza Weaver Editor's note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day's biggest stories. Act on the news with POLITICO Pro. The Social Security and Medicare trustees will release an updated snapshot this afternoon of the programs' financial health, which held up much better during the pandemic than analysts initially expected. We'll get more details today on the toll Covid took on the program's still-shaky finances, and what it portends for the future, along with decades-high inflation, a super-tight labor market and rising interest rates. We checked in with Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, and Kathleen Romig, director of Social Security and Disability policy at the Center on Budget and Policy Priorities, to see what they're looking for and what to expect today. A few takeaways: The good and bad of inflation — One of the underappreciated aspects of Social Security, Romig notes, is that benefits are automatically adjusted each year for inflation. That's great for beneficiaries, who saw a 6 percent rise in benefits last year, the biggest annual increase since 2008. It's not so great for the program's finances, which take a big hit from those higher costs. High inflation also erodes the value of Social Security's trust fund, which is meant to cover income shortfalls. At the same time, high inflation is good for Medicare Part A, which sets rates based on expected inflation. Last year, those rates were much lower than actual inflation turned out to be, which likely had the effect of holding down costs. It's worth noting that the strong economy and rising worker wages has also helped boost program revenues. The tricky economic assumptions — The trustees' economic assumptions, from inflation and economic growth to employment and interest rates, all factor prominently into their financial forecasts for Social Security and Medicare. But forecasting this year has been tricky business, given the huge shifts in the outlook driven by more persistent price pressures, faster tightening of monetary policy and the war in Ukraine. Goldwein said he'll be looking to see exactly when the trustees locked in those economic assumptions to determine how realistic they are. The obvious question: Do they think the Fed can achieve a soft landing, or are they bracing for recession over the next few years? The grim reality of Covid deaths — Social Security's finances were likely bolstered by a grim reality: Many of the people who have died from Covid-19 were older Americans, and more likely to be collecting benefits than paying into the system. That will likely result in lower program costs, at least in the near term. But it's hard to gauge how the pandemic effects will play out over time, officials said last year. For example, the pandemic may have accelerated deaths of sicker individuals, leaving a healthier pool of beneficiaries that pushes up future program costs. And the prevalence of long Covid, which is not well understood, may result in higher rates of disability or Medicare costs. The mystery of disability insurance — Applications for Social Security's disability program typically shoot up during recessions, but the opposite happened during the pandemic. With many in-person services suspended, some applicants — including people with limited English proficiency or homeless people, who tend to apply in person — were much less likely to seek disability benefits, Romig said. Goldwein also said the very generous jobless benefits available during the pandemic, followed by a historically tight labor market, likely kept some people in the labor force who otherwise would have applied for disability. The programs are still not in great shape — In its 2020 report, the trustees said Social Security would deplete its trust fund by 2034, while Medicare would exhaust its reserves by 2026. After that, automatic benefit cuts would kick in unless Congress acts. Goldwein said those depletion dates may have shifted by a year or two, but he expects the trajectory is roughly the same. "We're still going to have a 15-year trajectory of the Social Security balance getting worse each year, to the point that it would be really, really, really challenging to close it at this point, especially if you want to phase things in." IT'S THURSDAY — Good morning, MM readers! If you haven't done so yet, now is your chance to let us know how we're doing with this brief survey. And please send us your tips, takes, feedback and story ideas: kdavidson@politico.com or @katedavidson, and aweaver@politico.com or @ aubreeeweaver.   STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president's ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.     Driving the Day April factory orders data released at 8:30 a.m. … Assistant Treasury Secretary Ben Harris and Deputy National Economic Council Director Bharat Ramamurti participate in a virtual discussion hosted by the Roosevelt Institute at 11 a.m. ICYMI: BIDEN BATTLES CEOS IN INFLATION BLAME GAME — The Biden administration's new messaging push on the economy may not be enough to overcome a vicious blame game on the economy emerging between corporate leaders and the White House, our Ben White wrote this week. "Biden and Democrats say some of the fault rests with greedy companies artificially hiking prices, skimping on new domestic investments and paying too little in taxes. "Corporate executives and business groups blame Biden for — among other things — pumping too much stimulus into the system at the wrong time, not moving fast enough on supply chain fixes or eliminating more Trump-era tariffs." BIDEN ADMINISTRATION FORGIVES CORINTHIAN STUDENT LOAN DEBT — Our Michael Stratford: "The Biden administration will automatically cancel all remaining federal student loans owed by more than a half million borrowers who attended Corinthian Colleges, the now-defunct nationwide chain of for-profit colleges. The loan forgiveness is the single largest discharge of federal student debt in history, according to the Education Department." WHITE HOUSE BEGINS TRADE TALKS WITH TAIWAN — Our Gavin Bade: "The U.S. and Taiwan will open new talks aimed at aligning the two nations' commercial practices, the Biden administration announced Wednesday, while stopping short of full-scale trade negotiations … "The talks are an olive branch to Taipei after the Biden administration left Taiwan out of its new Indo-Pacific Economic Framework, which was launched earlier this month with over a dozen other nations in Asia." MAIN STREET INVESTORS BREAK RECORDS IN RUSH FOR GOVERNMENT BONDS — WSJ's Sam Goldfarb: "Meme stocks are fading. Crypto has cooled. The latest hot investment for individual investors: U.S. government bonds . Lured by higher interest rates and spooked by turmoil in stocks, investors poured a net $20 billion into mutual and exchange-traded funds that focus on buying ordinary U.S. Treasurys over the four-week period ended May 25, according to Refinitiv Lipper. That marked the largest infusion over a four-week span in records going back 29 years." Ukraine U.S. OFFICIALS SPLIT OVER NEXT ROUND OF RUSSIA SANCTIONS — Bloomberg's Nick Wadhams: "Biden administration officials are divided over how much further the U.S. can push sanctions against Russia without sparking global economic instability and fracturing transatlantic unity. … "One group, which includes many officials at the State Department and White House, advocates even stricter measures known as secondary sanctions in response to Russian atrocities, arguing opposition from allies can be overcome. Another group of officials, many based at Janet Yellen's Treasury Department, worry about further strains on a global economy already suffering from supply-chain woes, inflation, volatile oil prices and a potential food crisis." RUSSIAN OIL PRODUCERS STAY ONE STEP AHEAD OF SANCTIONS — WSJ's Anna Hirtenstein and Benoit Faucon: "Europe just targeted Russian crude with its toughest sanctions yet, but shippers and refiners are getting the oil to market by obscuring its origins. Some fuels believed to be partially made from Russian crude landed in New York and New Jersey last month. "The cargoes were brought through the Suez Canal and across the Atlantic from Indian refineries, which have been big buyers of Russian oil, according to shipping records, Refinitiv data and analysis by Helsinki-based think tank Centre for Research on Energy and Clean Air." Fed File FED'S BULLARD: HIGH INFLATION IS 'STRAINING' CREDIBILITY — Reuters: "Inflation at levels last seen in the 1970s and early 1980s is putting the U.S. central bank's credibility at risk , St. Louis Federal Reserve Bank President James Bullard said on Wednesday, reiterating his call for the Fed to follow through on promised rate hikes to bring down inflation, and inflation expectations." SURVEY: U.S. FIRMS SHOW FIRST HINTS OF IMPACT OF FED'S POLICY TIGHTENING — Reuters' Lindsay Dunsmuir: "The economy in the majority of regions in the United States expanded at a modest or moderate growth pace in April through late May and there were some tentative signs that the Federal Reserve's actions to cool demand were beginning to be felt, a Fed report showed on Wednesday. The latest temperature check on the health of the economy comes at a critical time for the U.S. central bank as it more aggressively tightens financial conditions in its quest to bring down inflation that remains at a 40-year high."   DON'T MISS DIGITAL FUTURE DAILY - OUR TECHNOLOGY NEWSLETTER, RE-IMAGINED:  Technology is always evolving, and our new tech-obsessed newsletter is too! Digital Future Daily unlocks the most important stories determining the future of technology, from Washington to Silicon Valley and innovation power centers around the world. Readers get an in-depth look at how the next wave of tech will reshape civic and political life, including activism, fundraising, lobbying and legislating. Go inside the minds of the biggest tech players, policymakers and regulators to learn how their decisions affect our lives. Don't miss out, subscribe today.     Economy JOB OPENINGS DECLINED SLIGHTLY IN APRIL FROM HIGH POINT — NYT's Lydia DePillis: "The labor market may be cooling off, but not by much , according to new data on job openings and turnover. Employers had 11.4 million vacancies in April, according to the Labor Department, down from a revised total of nearly 11.9 million the previous month, which was a record. The April vacancies represented 7 percent of the entire employment base, and left nearly two available jobs for every person looking for work, reflecting continued high demand for labor even as the Federal Reserve begins to tamp it down." DIMON SAYS JPMORGAN IS BRACING ITSELF FOR ECONOMIC 'HURRICANE' — Bloomberg's Sally Bakewell and Steve Dickson: "Jamie Dimon warned investors to prepare for an economic 'hurricane' as the economy struggles against an unprecedented combination of challenges, including tightening monetary policy and Russia's invasion of Ukraine. 'That hurricane is right out there down the road coming our way,' the JPMorgan Chase & Co. chief executive officer said at a conference sponsored by AllianceBernstein Holdings Wednesday. 'We don't know if it's a minor one or Superstorm Sandy. You better brace yourself.'" And he wasn't the only bank chief with concerns about inflation — NYT's Lananh Nguyen: "Wells Fargo's C.E.O., Charles W. Scharf, said that while the economy remained robust, 'the question is, how long will that continue?' As the Fed raises interest rates to slow inflation, he said, 'we do expect the consumer, and ultimately businesses, to weaken.'" Jobs Report Ben Watson has joined FTI Consulting's financial services public affairs team. Watson previously served as press secretary to Sen. Joni Ernst (R-Iowa). Colin McLaren, an alum of the Calvert Street Group and Biden campaign, and Gia Beaton , formerly at JPMorgan Chase's global regulatory affairs shop, also joined the FTI team. Cambria Allen Ratzlaff has joined JUST Capital as its new managing director and head of investor strategies. She was previously the corporate governance director for the UAW Retiree Medical Benefits Trust. Fly Around A group of renowned technologists has joined forces to urge US lawmakers to crack down on the burgeoning cryptocurrencies industry, marking the first concerted effort to counter well-financed lobbying by blockchain companies. — FT's Scott Chipolina WaPo's Abha Bhattarai breaks down why gas prices are so high. Summer is all fun and games until the pool can't open. That is a reality some localities are facing this year because a labor shortage is affecting a community-pool staple: lifeguards. — WSJ's Allison Prang   Follow us on Twitter Mark McQuillian @mcqdc Kate Davidson @KateDAvidson Aubree Eliza Weaver @aubreeeweaver Ben White @morningmoneyben Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary   Follow us

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