Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. The Social Security and Medicare trustees will release an updated snapshot this afternoon of the programs’ financial health, which held up much better during the pandemic than analysts initially expected. We’ll get more details today on the toll Covid took on the program’s still-shaky finances, and what it portends for the future, along with decades-high inflation, a super-tight labor market and rising interest rates. We checked in with Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, and Kathleen Romig, director of Social Security and Disability policy at the Center on Budget and Policy Priorities, to see what they’re looking for and what to expect today. A few takeaways: The good and bad of inflation — One of the underappreciated aspects of Social Security, Romig notes, is that benefits are automatically adjusted each year for inflation. That’s great for beneficiaries, who saw a 6 percent rise in benefits last year, the biggest annual increase since 2008. It’s not so great for the program’s finances, which take a big hit from those higher costs. High inflation also erodes the value of Social Security’s trust fund, which is meant to cover income shortfalls. At the same time, high inflation is good for Medicare Part A, which sets rates based on expected inflation. Last year, those rates were much lower than actual inflation turned out to be, which likely had the effect of holding down costs. It’s worth noting that the strong economy and rising worker wages has also helped boost program revenues. The tricky economic assumptions — The trustees’ economic assumptions, from inflation and economic growth to employment and interest rates, all factor prominently into their financial forecasts for Social Security and Medicare. But forecasting this year has been tricky business, given the huge shifts in the outlook driven by more persistent price pressures, faster tightening of monetary policy and the war in Ukraine. Goldwein said he’ll be looking to see exactly when the trustees locked in those economic assumptions to determine how realistic they are. The obvious question: Do they think the Fed can achieve a soft landing, or are they bracing for recession over the next few years? The grim reality of Covid deaths — Social Security’s finances were likely bolstered by a grim reality: Many of the people who have died from Covid-19 were older Americans, and more likely to be collecting benefits than paying into the system. That will likely result in lower program costs, at least in the near term. But it’s hard to gauge how the pandemic effects will play out over time, officials said last year. For example, the pandemic may have accelerated deaths of sicker individuals, leaving a healthier pool of beneficiaries that pushes up future program costs. And the prevalence of long Covid, which is not well understood, may result in higher rates of disability or Medicare costs. The mystery of disability insurance — Applications for Social Security’s disability program typically shoot up during recessions, but the opposite happened during the pandemic. With many in-person services suspended, some applicants — including people with limited English proficiency or homeless people, who tend to apply in person — were much less likely to seek disability benefits, Romig said. Goldwein also said the very generous jobless benefits available during the pandemic, followed by a historically tight labor market, likely kept some people in the labor force who otherwise would have applied for disability. The programs are still not in great shape — In its 2020 report, the trustees said Social Security would deplete its trust fund by 2034, while Medicare would exhaust its reserves by 2026. After that, automatic benefit cuts would kick in unless Congress acts. Goldwein said those depletion dates may have shifted by a year or two, but he expects the trajectory is roughly the same. “We’re still going to have a 15-year trajectory of the Social Security balance getting worse each year, to the point that it would be really, really, really challenging to close it at this point, especially if you want to phase things in.” IT’S THURSDAY — Good morning, MM readers! If you haven’t done so yet, now is your chance to let us know how we’re doing with this brief survey. And please send us your tips, takes, feedback and story ideas: kdavidson@politico.com or @katedavidson, and aweaver@politico.com or @ aubreeeweaver.
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