Bob’s Journal 7/31

Plan for Big Increases in Medicare Part D Premiums

The final numbers aren’t in yet, but it looks like premiums for Medicare Part D prescription drug insurance policies will increase for 2026.

Part D consists of insurance policies issued by private sector companies and overseen and regulated by the Centers for Medicare and Medicaid Services (CMS). The program has been in existence since 2006 and is partly subsidized by the federal government.

There were substantial premium increases and reductions in benefits for 2025, despite a $6.2 billion increase in the federal government’s subsidies for the year. The subsidy is expected to be decreased by about 40% in 2026.

Insurers still are developing their plans for 2026 and submitting bids to CMS. But insurers told The Wall Street Journal that premiums are likely to increase significantly for 2026 because of higher costs (due to tariffs and higher claims), regulatory changes and the subsidy reduction.

CMS hasn’t published data on the range of 2026 premiums and plan terms, though it often does that during the summer.

But CMS officials told the Journal that premiums will rise about $10 per month because of the reduced subsidy. They expect the total increase in premiums for 2026 to be no more than $50 per month. The increases will vary between policies and insurers.

Beneficiaries of original Medicare should plan to pay higher Part D premiums in 2026 and beyond. An alternative is to enroll in a Medicare Advantage plan, but those plans have their own pros and cons.

Why Corporate Profits Have Been Rising

Corporate profits have been surging since the onset of the Covid-19 pandemic. But there are a lot of misunderstandings about the profit increase.

Most analysts focus on earnings as reported in corporate financial statements. But those earnings reports cover only publicly traded companies. Plus, they can be manipulated and often are restated.

A recent study used corporate profits from the U.S. national income and product accounts (NIPA) from the Bureau of Economic Analysis.

The NIPA numbers are derived from federal corporate income tax returns, which are harder to manipulate and include both public and private businesses. A disadvantage of the data in the study is it doesn’t include income earned abroad by U.S. companies.

Corporate profits had been rising steadily for some time, but they increased at a much faster rate once the pandemic began. Profits more than doubled from 2010 through 2024, reaching $4.0 trillion in 2024.

Corporate profits’ share of national income was in a narrow range averaging 13.9% for many years. But their share of national income rose to 16.2% at the end of 2024.

The industries leading the profit increase were different than many people believe.

Retail led the pack. Other industries with the greatest profit increases were wholesale trades, construction, manufacturing and healthcare. While technology and artificial intelligence have been the drivers of stock market gains, other sectors drove the national rise in corporate profits.

Also, the study found that a large share of the profits was distributed to shareholders as dividends.

About 9% of the profits were paid in taxes and another 15% were retained by the businesses. The rest of the profits were distributed to shareholders.

The Push to Reduce the Government’s Interest Expense

Many of President Trump’s recent actions are driven by the goal of reducing the amount of money the government pays as interest on its debt.

In the past, I’ve pointed out how the interest rate increases that began in 2022 substantially increased annual deficits by boosting the amount the government must pay on its debt.

As treasury bonds and other obligations mature, the government must issue new debt. The new debt carries much higher interest rates than the maturing debt, most of which was issued in the post-financial crisis period when interest rates were near zero.

The share of government spending devoted to interest now exceeds the amount spent on defense. Interest payments were less than 6% of government spending in 2020. They rose to 13% by 2024.

The government’s interest expense is likely to keep rising because of the higher annual deficits and the amount of long-term debt that is maturing.

When President Trump complains that the Federal Reserve hasn’t reduced interest rates, he doesn’t say lower interest rates are needed to increase economic growth, as past presidents did. President Trump’s complaint is that higher interest rates are costing the government a lot of money.

Also, a major reason for the strong push for tariffs is to use those tax revenues to reduce the annual deficit.

Even the recent efforts to pass The Genius Act, which established new regulations for stablecoins, were at least partly motivated by the expectation that the law will increase demand for treasury debt. The higher demand could cause interest rates to fall.

If interest rates don’t decline, the federal government is stuck on an unending escalator of higher deficits until all the low-interest rate debt is rolled over.

Concern about rising federal deficits also is a major reason for the dollar’s decline. The dollar had its worst first half of a year in 2025 since the 1970s.

While waiting for the Fed and other forces to reduce interest rates, the government is continuing a Biden administration policy that some Trump administration officials had criticized. The government is issuing more short-term debt than in the past and reducing new long-term debt to avoid locking in today’s interest rates for years.

The Data

The Consumer Confidence Index from The Conference Board increased by two points to 97.2 in July after June’s index was revised 2.2 points higher to 95.2.

Consumers’ assessments of the present situation declined but expectations about the future improved. Even so, the Expectations Index was 74.4. It has been below 80 for six consecutive months, and levels below 80 typically precede recessions.

The S&P Corelogic Case-Shiller Home Price Index increased 0.4% in May after rising 0.8% in April. The 12-month increase in the index was 2.8% through May, down from 3.4% through April.

The House Price Index from the Federal Housing Finance Agency dropped 0.2% in May and 0.3% in April. Over 12 months, the index was up 2.8% through May and 3.2% through April.

The Dallas Fed Manufacturing Index rose to 0.9 in July from -12.7 in June. July broke a streak of five consecutive months of negative readings for the index. The index has been positive in only three of the last 12 months.

The Kansas City Fed Manufacturing Index declined to -3 in July from 5 in June.

Durable goods orders fell 9.3% in June following a 16.5% increase in May.

Transportation orders were responsible for a large part of the volatility. After excluding transportation and defense, durable goods orders declined 0.7% in June after increasing 2.0% in May.

The PMI Services Index rose to 55.2 in mid-July from 52.9 at the end of June.

The PMI Manufacturing Index was 49.5 in mid-July, down from 52 at the end of June.

The PMI Composite Flash Index in mid-July was 54.6, up from 52.9 at the end of June.

New home sales increased 0.6% in June after falling 11.6% in May. The median sale price for a new home in June was 2.9% lower than 12 months earlier.

Pending home sales declined 0.8% in June following a 1.8% increase in May. Pending home sales declined 2.8% for the 12 months through June after rising 1.1% for the 12 months ending in May.

Gross domestic product (GDP) increased at an annualized rate of 3.0% in the second quarter. That’s an improvement from the -0.5% rate of the first quarter.

The volatility and changes in GDP in 2025 are due largely to changes in imports as businesses and consumers respond to tariff announcements. Imports increased 37.9% in the first quarter but declined 30.3% in the second quarter.

Private sector employment increased by 104,000 jobs in July, according to the ADP Employment Report. In June, the number of jobs dropped by 23,000, which was revised lower from last month’s initial report.

The number of job openings in the United States fell to 7.437 million in June from 7.712 million in May. There were only modest changes in hires and separations during the month.

New unemployment claims declined by 4,000 to 217,000 in the latest week, the lowest level since April. That’s the sixth consecutive week that initial claims declined.

Continuing claims, which lag a week behind new claims, increased to 1.955 million, the second highest level since November 2021, from 1.951 million.

The Markets

The S&P 500 rose 1.02% for the week, ended with Tuesday’s close. The Dow Jones Industrial Average gained 0.34%. The Russell 2000 lost 0.26%. The All-Country World Index (excluding U.S. stocks) fell 0.33%. Emerging market equities declined 0.47%.

Long-term treasuries increased 0.92% for the week. Investment-grade bonds gained 0.48%. Treasury Inflation-Protected Securities (TIP) added 0.18%. High-yield bonds were unchanged.

In the currency sector, the U.S. dollar gained 1.73%.

Energy-based commodities jumped 1.72%. Broader-based commodities fell 0.82%. Gold declined 3.11%.

Bob’s News & Updates

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