A proposal for Project 2029: Medicare Advantage for All

 

 - by New Deal democrat

On this Indigenous Peoples/Columbus Day holiday, there is no new economic news, so let me roll out something I have been thinking about for quite a while; namely, how to migrate from out current patchwork health care insurance system to a better, universal system.

Such a migration is very popular. Just last week, the Kaiser Family Foundation reported that 66% of all Americans, including 72% of all self-identified Independents, favor some sort of national health care plan:

 

The question has always been, how to get there from here, given the many stakeholders with strong financial incentives under the current hodgepodge.

While many observers have issues with Medicare Advantage plans, they are very - and increasingly - popular among Medicare recipients. But they do have several advantages, including that a person enrolled knows up front how much is being paid for by the plan (rather than the uncertain “80%” coverage of regular Medicare). And over the long run, both types of plans seem to cost a similar amount, with the difference being that Medicare Advantage plans are better for relatively younger, healthier seniors, and regular Medicare better for seniors who have costly medical conditions.

(ADDENDUM: I also wanted to mention that other countries with very efficient and successful universal public health insurance programs, like France and Germany, rely upon private insurers to provide coverage).

Another advantage that “Medicare Advantage for All” would have over “Medicare for All” is that the potent medical insurance lobby would very much be in favor of its passage, removing one very big roadblock to it. And it could easily be employed promptly, since medical insurers already have plenty of experience handling and paying medical claims.

But one big question is, how would it be paid for? Especially if some sort of taxpayers’ revolt from an increased tax burden might be feared.

First of all, there should be no further concern about deficit spending for such a plan. If the GOP can blow a huge hole in the budget and run up $Trillions of debt for a tax giveaway to Billionaires, there is no point in arguing for fiscal prudence on the other side. On top of which, as I’ll lay out below “Medicare Advantage for All” ought to be able to pay for itself.

Here’s how my proposal would work.

1. Everybody not covered by existing Medicare, CHIPs benefits, or Veterans’ benefits, would qualify.

2. The plan would be funded by a FICA withholding tax. Similarly to income tax withholding, at the beginning of each year, every person employed would fill out a form listing the number of persons in their household. Full exemptions would be granted for every household member covered by any other type of medical insurance (including employer-sponsored medical coverage at least equivalent to either an Obamacare silver plan or a Medicare Advantage plan. FICA taxes for the program would be withheld from the person filing the form, as well as any dependent not so covered. In this way, most importantly anyone already covered by an employer’s plan would face no new taxes.

3. Employers with more than 50 employees and $5 million in gross sales would be required to pay their 50% share of the FICA withholding tax starting with the next fiscal quarter more than 60 days after the passage of the act.

4. Employees and smaller employers would not be required to pay their share of the FICA withholding tax until the first fiscal quarter more than one year after the passage of the act.

5. Which means, as per my opening comment, most of the initial year’s outlays for the program would be put right on the general national debt. After that, the FICA taxes would be designed to fund the annual costs of the program, just as FICA taxes have done for, e.g., Social Security and Medicare in the past.

6. Benefits under the act would begin to be paid the first fiscal quarter more than one year after passage of the act as well.

7. The year’s delay in employees’ having to pay the tax would give them a chance to bargain with their employer, formally or informally, about their pay; and if their employer refused to raise their pay to cover their share of the FICA withholding tax, it would give them a chance to find employment elsewhere at a higher rate of pay.

8. Any employer with over 100 employees or over $10 million in gross sales refusing to increase employee wages or salaries to cover their share new FICA taxes would be hit with an income tax surcharge of an equal amount.

9. Just like Medicare Advantage plans, people newly enrolled in the plan would have to compare various plans on offer. If they failed to choose one during the coverage window (the same window of time as with existing Medicare), they would be enrolled in a randomly chosen plan available in their area. Over several years, even lazy consumers who wound up with poorer plans would likely migrate to better plans recommended by relatives and/or friends.

10. The year’s delay in the beginning of payments of benefits would also allow insurers to develop their Medicare Advantage plans for the new influx of younger people (who on average would be in much better health than current Medicare enrollees).

11. Since the program would be funded just like Social Security and existing Medicare, it should withstand any creative Court challenges (with the big caveat that nothing is beyond the majority of the current SCOTUS, but SCOTUS expansion should happen first before anything else anyway).

12. Over time, it’s likely that employers would find it easier and less expensive just to pay their employees’ FICA taxes to join the new Medicare Advantage plans rather than continue with the burdensome paperwork of their own private plans.

13. In addition to being funded by new FICA withholding taxes, the one year hole in the budget would be covered by rescinding the last 3 GOP tax giveaways to the wealthy in 3 stages. For individual taxpayers who earned over $500,000 and corporate taxpayers with gross sales or earnings over $10 million, the 2025 Big Bad Bust-out Bill’s tax cuts would be rescinded immediately. The similar but relatively smaller 2018 tax cuts would be rescinded in two years. And the 2012 extension of the 2002 Bush tax cuts would be rescinded in four years. Further, the rescission would be made retroactive for four years based on income declared then (note there is no “ex post facto” issue as to taxes, which can be made retroactive); and the taxpayers would be given years from the inception of each rescission to pay back the relevant taxes.

The end result would be that every American would be covered by medical insurance at least equal to either Medicare or an Obamacare silver program. Insurers, who suddenly would have a substantially larger pool of relatively healthy new customers, would also be happy. And to the extent necessary (which I doubt it would be), “Medicare Advantage for All” could be a stepping stone, via a subsequent public option if so passed, to “Medicare for All.”

Weekly Indicators for October 5 - 9 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

The paradigm that has been supreme for the last few months continues. On the one hand, there are soaring AI related stock prices fueling consumer spending. On the other hand, there are also sharply higher interest rates and gas prices. So far, AI has been ‘winning.’

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me a little bit for obtaining and organizing it all for you.

The US economy right now: AI vs. everything else

 

 - by New Deal democrat

Let’s wrap up this week of limited economic data by looking at perhaps the most prevalent theme about the state of the US economy right now: that it consists of basically 2 components, (1) AI and (2) everything else. This is a round up of a bunch of graphs I have seen in the past few weeks that have all circulated around this same point.

First of all, construction spending. While unfortunately FRED doesn’t separate out data center spending, some other writers have. Here’s a good graph from Steve Rattner showing how, when we take out AI data center construction spending, the entire remainder of construction spending has been declining since the middle of 2024:

Here’s a fuller breakdown from Prof. Jason Furman:

And Prof. Furman also points out that total CapEx investment is more concentrated now than at any point in the last 50 years:

This is showing up in stock market valuations:

The valuations of AI related companies are Booming. Everything else is moribund.

This is apparent in the advance-decline line. If share prices in more companies in, e.g., the S&P 500, increase on any given day vs. decline, the A-D line is positive. If the declining number of stocks outnumber advancing ones, the A-D line is negative:

Here is a longer term historical view of a similar, basically self-explanatory, metric:

The last time the number of outperforming stocks was this narrow was during the dotcom bubble at the end of the 1990’s.

Meanwhile borrowing costs are rising for lower rated corporate debt:

Here is a similar FRED graph that, in addition to Treasurys (purple), includes high rated AAA corporate debt (blue), lower rated but still investment grade BBB corporate debt (orange), vs. risky high yield CCC or lower corporate debt (red), all normed to “0” as of the lows in the bond market last October:

In general, the lower rated the debt, the more it blows out to the upside in the yield investors demand to buy that debt. This includes before and during recessions, but also during and after other scares, such as the Silicon Valley Bank collapse in March 2023.

Basically the US economy has put all its eggs in one basket, called AI. Earlier this week Paul Krugman wrote on his substack that "Massive spending on data centers is crowding out investment in everything else in the economy,” adding that "this isn't a hypothetical risk." And as I have written in the past several months, while the *software* aspect of AI may not be a bubble, i.e., the end result of AI may be a boon to human productivity, the *hardware* aspect, i.e., 10 or 20 different companies all making massive construction investments in plant and equipment, where only 1 or 2 companies are likely to survive as winners (much as in the 1990s all of the internet search companies withered except for the big winner, Google), almost certainly *is* a bubble. 

New jobless claims continue near historical lows; plus the “quick and dirty” forecast, and an important comparison vs. long term unemployment

 

 - by New Deal democrat

Let’s take our regular weekly look at jobless claims. Plus, this week I want to make a statement about jobless claims vs. long term unemployment.

First, initial jobless claims declined -2,000 to 197,000. Aside from 2 weeks in 2018, the only time prior to the pandemic that initial claims were this low was all the way back in the 1960s. The four week moving average declined -2,500 to 198,000, also the lowest since the 1960s. And with the typical one week delay, continuing claims rose 17,000 to 1.716 million, in the lowest range since early 2023:

In the YoY% comparisons more important for forecasting purposes, initial claims were lower by 15.5%, the four week moving average lower by 13.0%, and continuing claims lower by 11.0%:

These YoY comparisons keep getting better, even in the face of very good numbers one year ago. This is very positive for the economy over the next few months.

Not only are jobless claims very positive, but the stock market (blue in the graph below), concentrated on AI-related gains, is higher by about 15% YoY. Thus the “quick and dirty” forecast model, which also included the four week average of jobless claims (inverted, +10%), remains very positive for the economy as well:

It’s early enough in the month that I can eschew a comparison with the unemployment rate, but last Friday I read a prominent reporter touting how long term unemployment was recessionary. This is simply not the case. So let’s compare YoY jobless claims with long term unemployment by 27 weeks or more (blue in the graph below):

There are two important things to notice about the above graph. The first is that, if new jobless claims lead the unemployment rate, they lead long term unemployment even more. Secondly, note that long term unemployment continues to rise even after a recession is over; i.e., early during the ensuing economic expansion. In other words, a rising long term unemployment number is consistent with both a recession and also a renewed upturn in the economy.

Another way to look at this is the ratio of long term unemployment to initial claims. Here’s the historical look:

Again, note two things about the above graph. First, just like the number of long term unemployed, the above ratio also continues to rise into the ensuing expansion for months after the recession is over. Secondly, note that there has been a long term secular trend of a higher ratio of long term unemployed vs. newly unemployed both at the troughs and the peaks of the comparison. This has been particularly true since the 1980s. In part this is likely due to the relative strength of employers vs. workers and the decline of unions since the Reagan era. It may also be due to workers adapting to the availability of long term unemployment benefits, especially as more and more spouses also work; i.e., the unemployed worker can afford to be choosier about what next offered position of employment to accept.

Now here is the post-pandemic view:

Just as with prior periods, the ratio peaked in the summer of 2021, more than a year into the post-pandemic Boom. There are ambiguous signs that it may be peaking again now, going on a year after the late 2025 “mini-recession.”

In short, whatever long term unemployment may suggest about the economy, new jobless claims get there first.

Last week’s major revisions to personal income: comparing the source data

 

 - by New Deal democrat

While we are waiting for new data releases to start back up, let me follow up on the surprise revisioins last week to personal income, that took real personal income for declining for over a year to an almost relentless rise. So shocking was this reversal that for the first time I wondered if the T—-p Administration had been successful interfering with economic reporting.  To give you an idea of just how large the revisions were. here is the YoY% change as originally reported (orange) vs. as revised (blue) of nominal personal income:

Once adjusted for inflation, the entire trend in *real* personal income changed from negative to positive:

Ultimately an answer came back from someone with impeccable credentials who pointed out that, so long as the revisions were in accord with the source data series giving rise to the revisions, they should be accepted.

So what do those data sources say? Let’s start with the Census Bureau’s note expalining where the revisions came from:

While I haven’t been able to track down all of these sources, there are two - the QCEW and income tax withholding receipts - which are readily available.

The QCEW is what the late financial analyst Jeff Miller called “the gold standard” of employment data, as it is the actual reporting by roughly 97% of all employers. Its biggest drawback is that it is not reported until almost 6 months after the close of any given Quarter, and it is subject to revisions until March of the ensuing year. I’ve reported on the employment side of this release for many years, but haven’t paid particular attention to the income side. 

In any event, as per usual the data lags by half a year. Additionally it is not seassonally adjusted, so the only valid measure is YoY. To cut to the chase, here is the post-pandemic YoY quarterly record of aggregate wages:

While I can’t show you a graph, I also went back and calculated the full quarterly change in withholding income taxes paid YoY from the Treasury’s “Daily Treasury Statement.” There are very volatile and noisy on a daily, weekly, and even to some extent monthly basis, but by the time you take the entire 13 weeks that constitute a Quarter, the vast majority of the noise has been ironed out.

With that explanation done, below is a list showing the revised YoY% change in nominal personal income beginning with the 4th Quarter of last year, and ending with the first two months of Q3 of this year from the personal income releases vs. the entire third quarter for withholding tax payments. Note that since the QCEW has only been reported through Q1 of this year, there are no subsequent comparisons for that metric:

Quarter  //  P. I. (O) //  P. I. (R)  //  QCEW  //  D.T.S.

Q4 ‘25   //  +4.4%  //   +4.8%      //  +4.2%  //  +4.6%

Q1  ‘26  //  +3.6%   //   +4.6%      //   +3.9% //  +5.0%

Q2  ‘26  //  +3.5%  //   +4.4%      //  n/a        //  +1.9%

Q3  ‘26  //  +3.8%*  //   +4.4%*    //  n/a      //  +5.6%

(O) = original; (R) = revised

*average of first two months of quarter

For the entire period through August, the originally personal income averaged +3.82%. As revised it averaged +4.55%. For the entire fiscal year ending in September, YoY withholding tax payments averaged 4.3%, much closer to the revised income data than the original. for the first two quarters of the fiscal year, however, the QCEW is much closer to the original income data than the revisions (although note that the QCEW explicitly only covers wages, whereas the D.T.S. includes estimated tax payments which of course cover all sources of income, not just wages).

The QCEW of the 2nd quarter of this year should be reported next month. At that point we will have a better idea of how well that data tracks the revisions to personal income.

In any event, given the major revisions to the personal income data, going forward I will not just pay attention to the employment data in the QCEW, but also the wage data; and I will also report on the 13 week/quarterly average of withholding payments.

 < sigh > more work. For some reason I keep thinking of this old “Far Side” cartoon:

September vehicle sales send mixed message

 

 - by New Deal democrat

One piece of economic data that got reported late last week that is worth following up on is the monthly tally of heavy truck (red) and car sales (blue, right scale):

Both of these are leading indicators, but heavy truck sales are less noisy, and generally signal first (although, like the unemployment rate, they lag significantly coming out of recessions).

In any event, in September car sales were 16.0 million annualized, while heavy truck sales declined sharply in the month to 396,000. Car sales were therefore right in the middle of their range over the last three years, while truck sales are back down into recessionary territory (more than -10% from their recent peak) for the second month in a row. Here’s the zoomed in post-pandemic view that shows the situation a little more clearly:

Without confirmation from car sales, truck sales are not forecasting an imminent recession, but count this as a negative indicator.