The Market Flashes a Recession Signal

Plus, how employers are reacting to soaring health care costs By Yuval Rosenberg and Michael Rainey The Market Flashes a Recession Signal: Does the Economy Need New Stimulus? Investors scrambled for cover Wednesday as the bond market flashed a signal that a recession may be on the way, sending stocks sharply lower, with the Dow Jones Industrial Average falling 800 points, or 3%, its biggest drop of the year. Early in the day, U.S. Treasury bonds experienced a yield curve inversion, with the yield on 10-year Treasuries dropping below that on 2-year bonds, reversing the usual pattern. This kind of inversion preceded each recession over the past 50 years and is thus viewed by many as an indicator that another downturn will occur sometime in the next 10 to 24 months. Not all inversions have been followed by recessions, though, and few analysts are now forecasting an impending U.S. downturn, but most agree that the burgeoning signs of a global economic slowdown — which include negative growth in Germany and Great Britain, currency devaluation in China and the growing toll that President Trump’s trade war is taking on U.S. businesses — suggest that the Federal Reserve will start cutting interest rates more aggressively in a bid to boost domestic growth. But the Fed, which cut rates in July from 2.25% to 2% in the first reduction in more than a decade, has relatively little room to maneuver given that rates are already low by historical standards. That suggests to some observers that the federal government may have to turn to fiscal policy as part of any effort to fight a potential recession. Jim Lebenthal of Cerity Partners said on CNBC Wednesday that, in his view, the Fed lacks the ability to sufficiently boost the economy and that the coming slowdown calls for a fiscal response, in the form of infrastructure spending or a tax holiday. “You need fiscal stimulus,” Lebenthal said. Economist and New York Times columnist Paul Krugman agreed, saying Wednesday that low interest rates were a sign that the economy needs the kind of help fiscal stimulus could deliver. “These low, low rates are telling us several things,” Krugman [tweeted](. “(a) private investment demand is really weak despite tax cuts (b) recession risks are pretty high (c) infrastructure! I mean, with borrowing virtually free, why not fix all those falling-down bridges?” Politically, however, fiscal stimulus seems unlikely. Jared Bernstein, former chief economist to Vice President Joe Biden, [said]( that the “most important thing you need an administration and Congress to do in a downturn is to quickly offset the demand contraction with fiscal stimulus.” But that means doing things that the Trump administration has been unable or unwilling to do, including bolstering the social safety net and investing in infrastructure. On top of that, the U.S. just went through a period of fiscal stimulus from the tax cuts and the spending boost that began in 2018, which delivered modestly higher growth but also higher debt. “We’ll be entering the next recession with a debt-to-GDP ratio that’s twice the historical average (80 vs. 40 percent),” Bernstein said, with annual deficits projected to top $1 trillion as soon as this year. So far, there are no signs that the Trump administration is taking any steps to address a potential recession using fiscal policies, and the president on Wednesday [again blamed]( the Federal Reserve for signs of economic turmoil, insisting that the U.S. is “winning, big time, against China” even as others point to his trade war as a key reason many businesses have stopped investing. “White House officials have not begun talks about how to deal with mounting problems in the global economy,” Damian Paletta of The Washington Post [wrote]( Wednesday. “There are no real discussions of any stimulus, in part because they already cut taxes and boosted spending. Their main tactic is pressure [Fed Chair Jay] Powell.” Employee Health Costs Expected to Top $15,000 The cost of employee health benefits is projected to rise 5% next year, topping $15,000, according to an annual [survey]( released Tuesday by the National Business Group on Health. That increase is the same as was projected for 2019, though the actual rise this year has been lower, following the trend of the last several years. For 2020, the employee share of health care costs is expected to average nearly $4,500. The survey of nearly 150 large employers — who offer coverage to more than 15 million people — found that fewer plan to offer high-deductible health insurance plans as the only option for workers. Instead, they will look to give employees more choices, such as preferred provider organization (PPO) plans. The share of employers offering high-deductible plans will shrink to 25% in 2020, down from 30% this year and 39% in 2018. The survey also found that, to deal with rising health care costs, many are considering or implementing new strategies, such as passing drug price discounts directly on to workers or offering new options for primary care. Some are also expressing openness to the idea of expanding access to Medicare, though most have reservations about Medicare for All. “One of the challenges employers face in managing their health care costs is that health care is delivered locally and change is not scalable. It’s a market-by-market effort,” said Brian Marcotte, President and CEO of the National Business Group on Health. “Employers are turning to market-specific solutions to drive meaningful changes in the health care delivery system.” Employers’ health care agenda: More than half of employers surveyed said that implementing more virtual health initiatives, such as digital coaching and support for medical decisions, was a top priority for next year. And nearly four in 10 said that taking a more focused approach to high-cost claims was a top initiative. Embracing new approaches to primary care: About half (49%) of large employers said they plan to pursue at least one so-called “advanced primary care” strategy next year, providing employees with more comprehensive health management options. A third of employers will offer on-site or nearby primary care, while 24% said they are looking to contract directly with care providers and move away from the currently prevalent model of paying for each individual visit or treatment. “Employers are really looking to do something different at the primary care level and move away from fee-for-service episodic care to a whole-person view of managing health,” NBGH Chief Strategy Officer Ellen Kelsay told reporters, according to [Fierce Healthcare](. Dealing with drug costs: Employers remain concerned about the high cost of drugs, including how to finance new treatments with price tags of $1 million or more. “Some of these therapies will cost more than what an employee will earn in a lifetime,” said Marcotte. One in five employers in the survey said they will switch away from traditional pharmacy benefits contracts next year and instead pass along pharmaceutical rebates directly to workers. About 60% of employers plan to make such a switch by 2022. And three out of four employers said they would consider supporting a plan to have the government negotiate prices for all drugs that cost more than $1 million, and about half would consider supporting a national fund to cover part of the costs of such drugs. “That’s not something employers typically say,” Marcotte told [CNBC](. Skepticism about Medicare for All: While 72% of employers believe Medicare for All would reduce the number of uninsured, 81% believe it would increase taxes. More than half (57%) of employers say Medicare for All would result in higher overall health care costs — and worse health care quality. About half also say it will lead to higher costs for workers. Employers are split, though, on the idea of extending Medicare coverage to more people. More than half say that the government health care program should be expanded to cover people under 65, with about one in four in favor of lowering the eligibility age to 60 while a similar percentage say Medicare coverage should kick in at age 50. The bottom line: “U.S. health care spending is going to become increasingly unsustainable until employers — which cover a plurality of Americans — decide they've had enough,” Axios’s Caitlin Owens [says](. And this survey “is another sign that they're getting closer to that point.” A 12-year-old Ohio boy [found a woolly mammoth tooth]( while playing around during his vacation. Send your story finds and feedback to yrosenberg@thefiscaltimes.com. Or connect with us on Twitter: [@yuvalrosenberg]( [@mdrainey]( and [@TheFiscalTimes](. And please tell your friends they can [sign up here]( to get their own copy of this newsletter. News - [Dow Loses 800 Points as Recession Signs Emerge Around the World]( – Washington Post - [Why the "Inverted Yield Curve" Is Fueling Recession Fears]( – CBS Moneywatch - [The Inverted Yield Curve Explained and What It Means for Your Money]( – CNBC - [The 30-Year Treasury Bond Yield Plunges to an All-Time Low]( – MarketWatch - [The Last Recession Crippled U.S. States. But Bondholders Won Big]( – Bloomberg - [Hospital Costs Soar to a New Record in Just 4 Years]( – 24/7 Wall St. - [FDA Shatters Generic Drug Approval Record]( – Fierce Healthcare - [Health Care Industry Kills Cuts to Heart Pump Payments]( – Axios - [How Renewable Energy Can Boost Rust Belt Health Outcomes]( – Axios - [U.S. Officials Shield Ivanka Trump’s and Mike Pence’s Projects in Review of Foreign Aid]( – Washington Post - [Why the Secret Service Spent Thousands at a Trump Hotel]( – Politico - [Here’s Why Some People Don’t Mind Overpaying the IRS]( – CNBC - [Berlin’s Maddening Aversion to Fiscal Stimulus]( – Bloomberg Views and Analysis - [Global Economic Trouble Is Brewing, and the Trade War Is Only Part of It]( – Neil Irwin, New York Times - [Trump Will Have a Harder Time Turning Things Around as the China Trade War Drags On]( – John Harwood, CNBC - [Could Managing the Economy Be More Complicated Than Donald Trump Thought?]( – Paul Waldman, Washington Post - [U.S. Businesses Are Stuck in Trade War Uncertainty]( – Michael Strain, Bloomberg - [Hypocrisies Coming from GOP on Deficit]( – John Avlon, CNN (video) - [Why Doesn’t the United States Have Universal Health Care? The Answer Has Everything to Do with Race.]( – Jeneen Interlandi, New York Times - [The Ethical Mess of Our Health Care System]( – Amy Gutman and Jonathan D. Moreno, New York Times - [Obamacare’s Unpopularity Suggests Medicare for All May Be a Hard Sell]( – Dan Hopkins, FiveThirtyEight - [Medicare-for-All Would Help Pay for Long-Term Care. Why Don’t More People Know That?]( – Helanie Olen, Washington Post - [Don’t Like Trump’s New ‘Public Charge’ Rule? Blame Congress for Shirking Its Duty.]( – Henry Olsen, Washington Post - [Why a Banking Heiress Spent Her Fortune on Keeping Immigrants Out]( – Nicholas Kulish and Mike McIntire, New York Times [Like Us on Facebook]( [Like Us on Facebook]( [Read Us On the Web]( [Read Us On the Web]( Copyright © 2019 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, thefiscaltimes.com, or through Facebook. 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