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Medicare + SS Anxiety

A discussion of the impact of demographic shifts and debt in the USA on government benefits for retirees.

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Medicare + SS Anxiety

  1. 1. Medicare + SS Anxiety 27 April 2016 War Room
  2. 2. HiddenLevers War Room Open Q + A Macro Coaching Archived webinars CE Credit Idea Generation Presentation deck AccountabilityScenario Updates
  3. 3. Market Update US Govt Debt Medicare + SS Scenario: Debt Cliff Medicare + SS Anxiety UPDATED
  4. 4. HiddenLevers MARKET UPDATE
  5. 5. Market Update sources: HiddenLevers, USA Today, Int’l Spectator, Economist 1 Commodity Bounce 2016 GDP Winners India 7.5% Vietnam 6.6% China 6.4% Pilipines 6.3% Malaysia 5.5% Indonesia 5.1% Pakistan 4.8% Egypt 4.0% 3 Apartment Boom2 Oil +60% Gold +4% Oil -52% Gold -16%
  6. 6. HiddenLevers GOVERNMENT DEBT
  7. 7. DEBT: US in Global Context sources: Thompson Reuters, WSJ • USA = average OECD debtor • Japan still an outlier • PIIGS entitlements weigh
  8. 8. DEBT: Debt to GDP sources: Peter G. Peterson
  9. 9. DEBT: Medicare + SS as Drivers 1970: 20% of budget = Medicare + Medicaid + Soc. Security 2014: 47% big jump due to retiring Baby Boomers 2040: 56% = projected allocation (wishful thinking) source: Peter G Peterson Foundation
  10. 10. HiddenLevers MEDICARE + SOCIAL SECURITY
  11. 11. healthy population pyramid Demographics Shift sources: HiddenLevers, US Census Bureau,, 1960 2000 2040 worker base shrinking
  12. 12. Demographics Shift = Challenge source: Committee for a Responsible Budget • As US population ages, worker / retiree ratio is falling • By 2035 two workers will have to support each retiree • Leads to payroll tax shortfalls for Social Security and Medicare
  13. 13. Demographics: Labor Force Participation sources: HiddenLevers, Calculated Risk Young People not working Retirees need to work still
  14. 14. Medicare + SS: Current Status sources: WSJ. Social Security + Medicare Boards of Trustees Reports • SS Trust Fund Depleted in 2034 • After 2034, taxes still pay 75% of benefits
  15. 15. Medicare + SS: Trust Fund Patches Over Time Source: HiddenLevers, Congressional Research Service, Commonwealth Fund, Kaiser Health News 2010 Obamacare 1997 Balanced Budget Act 1983 Medicare Payment Reform • Medicare has neared insolvency almost once per decade • Governments of both parties have pushed through reforms • Reforms usually combined both cost cuts + tax increases
  16. 16. HiddenLevers SCENARIO: DEBT CLIFF
  17. 17. GOOD: Demographic Windfall source: HiddenLevers Millennials + Immigrants save the system SS fully funded + no higher taxes Labor Force participation rises to pre-2008 levels Accelerating GDP growth assumed Labor force uptick 100% of benefits intact
  18. 18. BAD: Trust Fund Depleted Only 75% of benefits, based on intact payrolls source: HiddenLevers consumer spending tanks younger Boomers pull assets early 25c of every 1usd is from SS Trust
  19. 19. UGLY: Payroll Taxes Dwindle No alternatives put in place by Congress source: HiddenLevers GDP killer lack of consumption Automation = job market collapse = no benefits Capital v Labor Assumes that Capital wins Japan + Europe facing this now
  20. 20. Scenario: Debt Cliff Good: Demographic Windfall Bad: Trust Fund Depleted Ugly: Payroll Taxes Dwindle GDP Growth -2.0% S&P -36% GDP Growth 0.5% S&P -18% GDP Growth 3.5% Strong growth pulls Millennials and immigrants into labor market, funding retiree benefits fully. The status quo continues, and Social Security benefits drop 25% in 2030s as trust fund is exhausted. Market drops as retirees spend assets. Automation causes a drop in employment under- mining funding of benefits. Potential for system collapse could roil markets and cause recession. S&P +15%
  21. 21. Debt Cliff – Take Aways Medicare solvency = provider cuts RISK: automation causes payroll tax decline Don’t conflate Trust Fund + SS depletionPrepare for 25% benefits cut in 2030s