medicare + ss anxiety
TRANSCRIPT
Medicare + SS Anxiety27 April 2016
War Room
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Presentation deck
AccountabilityScenario Updates
Market Update
US Govt Debt
Medicare + SS
Scenario: Debt Cliff
Medicare + SS Anxiety
UPDATED
HiddenLevers
MARKET UPDATE
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 Boom
2
Oil +60%
Gold +4%
Oil -52%
Gold -16%
HiddenLevers
GOVERNMENT DEBT
DEBT: US in Global Context
sources: Thompson Reuters, WSJ
• USA = average OECD debtor• Japan still an outlier• PIIGS entitlements weigh
DEBT: Debt to GDP
sources: Peter G. Peterson
DEBT: Medicare + SS as Drivers
1970: 20% of budget = Medicare + Medicaid + Soc. Security2014: 47% big jump due to retiring Baby Boomers2040: 56% = projected allocation (wishful thinking)
source: Peter G Peterson Foundation
HiddenLevers
MEDICARE + SOCIAL SECURITY
healthy population pyramid
Demographics Shift
sources: HiddenLevers, US Census Bureau, Populationpyramid.net,
1960 2000 2040
worker base shrinking
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
Demographics: Labor Force Participation
sources: HiddenLevers, Calculated Risk
Young People
not working
Retirees need to
work still
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
Medicare + SS: Trust Fund Patches Over Time
Source: HiddenLevers, Congressional Research Service, Commonwealth Fund, Kaiser Health News
2010Obamacare
1997 Balanced
Budget Act
1983Medicare 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
HiddenLevers
SCENARIO: DEBT CLIFF
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
BAD: Trust Fund DepletedOnly 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
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 LaborAssumes that Capital wins
Japan + Europe facing this now
Scenario: Debt CliffGood:
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%
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