Bob’s Journal For 11/18

Medicare Premiums Increase for 2022

Higher inflation and other factors are increasing the cost of Medicare, the Centers for Medicare and Medicaid (CMS) said last week when it released the inflation adjustments for 2022.

The standard Medicare Part B monthly premium will increase to $170.10 in 2022 from $148.50 in 2021, a $21.60 increase. The annual deductible for all Medicare Part B beneficiaries increases to $233, a $30 jump from 2021.

This is the largest annual increase in the Part B premiums in dollar terms, but not in percentage terms, during the history of the program.

Recently, the Social Security Administration announced the 5.9% 2022 inflation adjustment for benefits would increase the average benefit by $92 per month. The Part B premium increase absorbs a lot of the average Social Security benefits increase.

The Medicare premium surtax, also known as IRMAA, paid by higher-income beneficiaries, will also increase in 2022. The maximum monthly total Part B premium including the IRMAA will be $578.30. That applies to individuals whose modified adjusted gross income in 2020 was $500,000 or above for single taxpayers and $750,000 or above for married couples filing jointly.

The surtax scales up to that level. The IRMAA begins with a total monthly premium of $238.10 for individuals with modified adjusted gross income above $91,000 and married couples filing jointly above $182,000.

By law, the standard Part B Medicare premium is supposed to cover 25% of the program’s estimated costs for the year.

CMS attributed the substantial 2022 increases to several causes.

One cause was the usual cost of inflation, which has been exacerbated by increased demands on the health care system.

Another cause was that during the early days of the pandemic, Congress mandated a significantly lower increase in 2021 Part B premiums than would have occurred otherwise. To make up for the artificially low premiums in 2021, there will be a $3.00 per month increase per beneficiary imposed through 2025.

The third cause is a contingency that was created in the event that CMS approves coverage for the Alzheimer’s drug with the brand name Aduhelm.

Use of the drug was approved by the Food and Drug administration earlier in 2021, but CMS still is studying whether the drug will be covered by Medicare in 2022. About one-half of the premium increase for 2022 is a contingency in case the process results in approved coverage for the drug, according to some media reports.

The CMS also announced that the average premium for a Part D Prescription Drug policy will be $43 in 2022. Part D coverage is provided through policies purchased from insurers, and the insurers determine the premiums.

Inflation Increases Tax Breaks for 2022

Many tax breaks are increasing in 2022 because of inflation. The IRS recently announced the 2022 inflation adjustments (COLAs).

The lifetime estate and gift tax exemption is increased to $12.06 million from $11.7 million in 2021. The annual gift tax exclusion increases to $16,000 in 2022 from $15,000.

The standard deduction for married couples filing jointly increases by $800 to $25,900. For singles, it will increase by $400 to $12,950.

The maximum amount of salary that can be contributed to a health flexible spending arrangement will be $2,850.

The maximum 401(k) deferral increases to $20,500 from $19,500 in 2021. Catch-up contributions for those ages 50 and over remain at $6,000 in 2022.

Tesla Can Make Your Mutual Fund Look Bad

The electric car company Tesla (TSLA) was by far the stock market’s leader until recently. That’s made a lot of mutual funds look bad.

TSLA was included in most of the major stock market indexes over the last couple of years. The stock’s been soaring, which increases the stock’s weighting in the indexes and its influence on the indexes’ returns. Recently, TSLA was 2.5% of the S&P 500 and 4% of the Russell 1000 Growth Index.

A number of individual investors love the stock and have been pushing its price higher. Despite a recent decline (down over 15% in the last four weeks), TSLA is up 150.98% over the last 12 months and an annualized 149.85% over three years.

But mutual fund managers aren’t as excited about the stock. They point to its valuation of 148 times estimated forward earnings, compared to 22 for the S&P 500. Value-oriented managers, of course, own few or no shares of the stock.

Other fund managers avoid the fund because of its high volatility, concerns about Chief Executive Elon Musk and the company’s history of not meeting announced goals.

Since the skyrocketing stock is in the indexes, many fund managers look bad when compared to the indexes. Only 32% of actively managed funds that focus on large company stocks outperformed the Russell 1000 index in October, according to a report published in The Wall Street Journal.

The lesson here is that it’s a good idea to compare a fund manager or any investment manager to an index. But it is essential to know why the manager is beating or lagging the index.

If you’re the type of investor who doesn’t want to be exposed to a volatile, trendy stock such as Tesla, your fund manager probably is the same way. When the stock is running away from the pack, your fund will return less than the index. But at some point, the stock is likely to run out of steam. Then the funds without the stock should do well compared to the indexes.

The Data

Retail sales increased 1.7% in October from September’s level. Excluding vehicles and gas, retail sales still increased 1.4% in October.

There was a big 4% increase in spending at online retailers but also strong gains in sales by electronics, appliance and hardware stores.

The labor shortage became worse in September, according to the Job Openings and Labor Turnover Survey (JOLTS) report.

The number of job openings remained stable at 10.4 million. That is well above the pre-pandemic level of around 7.5 million. The number of hires and total separations from jobs also was stable.

But the quits rate, the percentage of workers voluntarily leaving jobs, was a record high of 3% in September. Also, the total number of workers quitting jobs hit a record high of 4.4 million in September.

A high percentage of the unfilled job openings are in warehousing, shipping and consumer-facing retail positions.

Consumer Sentiment, as measured by the University of Michigan, dropped to 66.8 in November from 71.7 in October.

Rising inflation was the major reason given for the decline in sentiment. Survey respondents expect inflation to rise 4.9% over the next year, which is the highest level in the survey since 2008.

The survey’s measure of households that believe this is a good time to buy long-lasting items such as homes, vehicles and durable goods fell to its lowest level since 1978.

The measure of current conditions declined to its lowest level since 2011, and the measure of future expectations was at its lowest level since 2013.

The Empire State Manufacturing Index continued the volatility it has exhibited in 2021.

The index soared to 30.9 in November. That’s an increase from 19.8 in October, which was 15 points below the September reading.

New orders and shipments increased substantially. Employment grew at the fastest pace in the survey’s history.

The index for prices paid by businesses remained near the recently posted record high, while the index for the prices received by businesses reached a new high.

Industrial Production increased 1.6% in October after declining 1.3% in September. Manufacturing output increased 1.2% in October, following a 0.7% decline in September.

Optimism increased among home builders in November, according to the National Association of Home Builders’ (NAHB) Housing Market Index. The index rose to 83 after falling to 80 in October.

The index steadily declined from a high of 90 in November 2020. Home builders’ main problems are shortages of supplies and land on which to build. In addition, higher prices are driving away first-time buyers.

Housing starts declined by 0.7% in October from September’s level. Starts in October were 0.4% higher than 12 months earlier.

Single-family home starts decreased 3.9% in October from September’s level and were 10.6% lower than 12 months earlier. Multi-family home starts increased 37% from 12 months earlier.

But building permits increased 4.0% in October and were 3.4% higher than the level 12 months earlier. Permits for single-family homes increased 2.7% in October.

The Markets

The S&P 500 rose 0.41% for the week ended with Tuesday’s close. The Dow Jones Industrial Average lost 0.37%. The Russell 2000 declined 0.90%. The All-Country World Index (excluding U.S. stocks) fell 0.03%. Emerging market equities are 1.39% higher.

Long-term treasuries lost 3.88% for the week. Investment-grade bonds decreased 2.32%. Treasury Inflation-Protected Securities (TIPS) fell 0.47%. High-yield bonds declined 0.77%. The dollar rose 2.14%.

Energy-based commodities fell 1.01%. Broader-based commodities rose 0.70%. Gold rose 0.98%.

Bob’s News & Updates

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