'The Worst Is Yet to Come,' IMF Warns

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By Yuval Rosenberg

Happy Tuesday! The Phillies have taken the phight to Atlanta, Seattle is beating Houston and there are two playoff games still to come tonight! Here’s what else is happening.

‘The Worst Is Yet to Come,’ IMF Warns

The International Monetary Fund on Tuesday reduced its outlook for global economic growth and warned that there are still challenges ahead, including high inflation, central bank tightening, the war in Ukraine and the lingering Covid-19 pandemic.

“As storm clouds gather, policymakers need to keep a steady hand,” the IMF said in its World Economic Outlook report.

Global growth is now projected to come in at 3.2% in 2022, down from 6.0% in 2021, and then drop to 2.7% in 2023. The outlook is the weakest it’s been since 2001, the IMF said, except for during the global financial crisis and the initial phase of the pandemic.

“More than a third of the global economy will contract this year or next, while the three largest economies—the United States, the European Union, and China—will continue to stall,” the IMF said. “In short, the worst is yet to come, and for many people 2023 will feel like a recession.”

Medicare Advantage Has a Fraud Problem

Most of the large insurers involved in Medicare Advantage have been accused of various kinds of fraud, according to an analysis published by The New York Times, raising serious questions about the ability of the program to reduce costs and provide services more efficiently than the conventional Medicare system.

“Eight of the 10 biggest Medicare Advantage insurers — representing more than two-thirds of the market — have submitted inflated bills, according to the federal audits,” the Times Reed Abelson and Margot Sanger-Katz write. “And four of the five largest players — UnitedHealth, Humana, Elevance (formerly Anthem) and Kaiser — have faced federal lawsuits alleging that efforts to overdiagnose their customers crossed the line into fraud.”

The irony is that Medicare Advantage, which allows private insurers to manage federally funded health care plans for those 65 and older, was created to reduce costs, under the assumption that private industry is more efficient than government. But the evidence suggests that insurers have exploited the Medicare Advantage system to inflate their profits, using techniques that include making their patients appear sicker than they are, thereby inflating their bills.

“As a result,” Abelson and Sanger-Katz write, “a program devised to help lower health care spending has instead become substantially more costly than the traditional government program it was meant to improve.”

The money involved is substantial: The government now spends more on Medicare Advantage than it does on the Army and Navy combined, Abelson and Sanger-Katz note. Overpayments within the system are estimated to total at least $12 billion and perhaps as much as $25 billion — more than the federal government spends on the Environmental Protection Agency or the FBI (see the chart below).

To make matters worse, it’s not clear that insurers in Medicare Advantage do a better job at providing health care, even as the program grows rapidly and is poised to account for the majority of Medicare participants as soon as next year. According to health care expert Merrill Goozner, “studies show little difference in patient satisfaction or outcomes compared to traditional fee-for-service Medicare.”

One thing is clear, though: the profits are enormous. The health insurance industry “now generates as much or more profit from Medicare Advantage than any other line of business,” Goozner writes.

How Much Did Biden’s Rescue Plan Fuel Inflation?

President Joe Biden signed the $1.9 trillion American Rescue Plan Act into law 19 months ago. The benefits and drawbacks of the legislation are still being debated — and they will be for years, The Washington Post’s David J. Lynch wrote in a piece published Sunday. But, Lynch notes, “there is a consensus that the rescue plan was a double-edged sword: Bathing the economy in cash spurred the fastest recovery of any Group of 7 nation, even as the indiscriminate nature of that spending helped ignite the biggest jump in consumer prices in 40 years.”

Fueling inflation…but how much? At the time the law was enacted, inflation was tame but inflation warnings were already on the rise. It’s clear that prices would have risen without the rescue plan, but many economists say that the new law made inflation worse, with the highest estimate — a potentially flawed one — suggesting that about four percentage points of the 8.3% annual inflation rate could be attributed to the legislation. Other studies have concluded that the effects were smaller — with some putting its effects at about 3 percentage points and others at nearly negligible levels. “While experts disagree about the extent of the rescue plan’s contribution to inflation, it seems clear that its role has been larger than the Biden administration concedes while falling short of the calamity that Republicans claim,” Lynch wrote.

The Biden administration argues that the benefits of the law outweighed the costs — and that high inflation has not been confined to the United States (see chart below). “In June 2021, when the University of Chicago Booth School of Business surveyed economists, just 26 percent agreed that U.S. spending and monetary policies posed ‘a serious risk of prolonged higher inflation,’” Lynch reminds.

The bottom line: The economic and labor market recovery from the pandemic has been remarkable, with total employment having passed its pre-pandemic peak more than twice as fast as it did following the 2008 financial crisis. But the effects of the American Rescue Plan spending will continue to be studied and debated.

Number of the Day: 10 Million

As many as 10 million people may still be eligible to receive pandemic-related stimulus payments, the Government Accountability Office said Tuesday. Most of those eligible live in low-income households that don’t file tax returns, making it difficult to contact them.

“Throughout the pandemic, IRS and Treasury struggled to get COVID-relief payments into the hands of some people — especially those with lower-incomes, limited internet access, or experiencing homelessness,” the GAO said in a blog post. “Based on IRS and Treasury data, there could be between 9-10 million eligible individuals who have not yet received those payments.”

The deadline to file a simplified tax return in order to claim a stimulus payment is November 15.

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