Notes on Recent Economic Developments
Jobs, wage increase and held rates lift markets
A positive December jobs report, big gains in wages and remarks from central bank chairman Jerome Powell regarding on-hold rates boosted stock prices at the outset of 2019, The Wall Street Journal reported in its Jan. 5-6 weekend edition.
The Labor Department reported on Jan. 4 that nonfarm payrolls rose a seasonally-adjusted 312,000 in December, compared to an average gain of 215,000 a month over the previous five years. Average hourly wages rose 3.2 percent in 2018, the WSJ said.
From a conference in Atlanta, Mr. Powell indicated that mild inflation influenced the Fed’s hesitance to adjust rates upward in the short term.
“With the muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves,” he said.
His remarks buoyed investors who have worried about an economic slowdown and lifted stock prices after they reflected the worst two-day start to a year since 2000.
The central bank had raised rates once every quarter in 2018 and last month raised them by a quarter percentage point to a range between 2.25 percent and 2.5 percent, with two more increases tentatively planned should the economy grow above 1.9 percent in 2019, the WSJ said.
Adding to investors’ anxiety also had been the partial government shutdown stemming from the Trump Administration’s protracted fight with Democrats over funding for a border wall, trade friction between the U.S. and China and potential for a global economic slowdown. Prompted by declining sales in China, Apple Inc. downgraded its quarterly revenue forecast, leading to investor jitters.
Mr. Powell indicated at the Atlanta conference that central bank officials would adjust rate plans accordingly if recent volatility slowed the economy enough to warrant it.
“We will be prepared to adjust policy quickly and flexibly and use all of our tools to support the economy should that be appropriate,” he said.
Billions overpaid to Medicare insurers
A Wall Street Journal investigation, reported in its weekend edition, January 5-6, found that Medicare overpaid billions to health insurers that pocketed excess revenue for managing Part D drug plans.
The insurers submit detailed forecasts to the government each June, estimating costs for providing prescription drug benefits to more than 40 million people on Medicare. They kept $9.1 billion more in taxpayer funds based on their inaccurate estimates from 2006 to 2015.
Known as Part D, the government designed Medicare’s prescription drug benefit to contain drug costs by having insurers manage the coverage. The WSJ investigation determined that, ironically, Part D spending has instead grown faster than all other Medicare components, accelerating 49 percent from $62.9 billion in 2010 to $93.8 billion in 2017.
According to the article, after a year ends, insurers pay back some of the extra money when its greater than 5 percent of the original estimated bid, but still pocket considerable excess.
As an example, the WSJ said in 2015 insurers overestimated costs by $2.2 billion. They paid back $1.1 billion of the overestimated monies to the government but pocketed about $1.06 billion.
Insurers contacted for the article denied purposely overestimating bids. “The Part D program provides a stable and sustainable way for seniors to obtain their medications at an affordable price, and the private sector innovation and competition it fosters deliver great value to the government and taxpayers,” a UnitedHealth spokesman said in an email to the Washington Post.
The Centers for Medicare and Medicaid Services, or CMS, the agency overseeing Part D, declined to share data that would divulge insurers’ bidding patterns, calling it confidential industry information.