Squared Away Blog

June 16, 2022

Economists Show Inequities’ Roots in Slavery

Conversations about the vast White-Black disparity in U.S. wealth may acknowledge its roots in slavery. But four economists have now made the case quantitatively by charting changes in the wealth gap since the Civil War.

The political and societal influences on wealth accumulation between 1860 and today are multifaceted but the basic trajectory is this:

The wealth gap shrank by roughly half during the Civil War era from 1860 to 1870 and dropped in half again between 1870 and 1920, the researchers said in their recent paper. The decades of improvements in Blacks’ per capita wealth, compared with Whites’, occurred despite a quick end to Reconstruction after the Civil War and the rise of Jim Crow laws around 1890 that curtailed recently freedmen’s rights in the South. (I’ll explain more about this counterintuitive finding below.)

Progress continued but was more modest after the 1920s and started stalling out around the 1950s. The situation deteriorated after the go-go-1980s on Wall Street as Black Americans’ wealth levels fell behind largely because they own much less stock and haven’t equally enjoyed the bull market gains of recent decades.

The wealth gap is so entrenched today, the study concluded, that reaching equality is “an extremely distant or even unattainable scenario.” …Learn More

June 14, 2022

Does Private Disability Affect Federal Rolls?

Economists have long thought that if employees have disability insurance on the job, they might never migrate over to the government’s disability rolls. A new study finds just the opposite.

In Canada, the existence of short-term disability in the private sector increased the number of people going into the national government’s program by 18,300 in 2015 and increased program spending by 5 percent, according to a researcher at the University of Toronto.

The logic behind this is that enrollment rises in the government program, which provides long-term benefits, because a negative incentive is at play. If employees with a disability or workplace injury have short-term coverage at work, they will have a regular source of income to tide them over while they apply for government benefits and wait for a response.

The Canadian study has implications for the United States, because the two countries’ programs are similar. The connection between U.S. government and employer disability is also of interest because some policymakers here would like to see mandates for employer disability become more widespread. Ten U.S. states and the District of Columbia currently require employers to provide the coverage for serious medical conditions.

This research adds a new voice to a lively debate on both sides of the U.S.-Canada border. Others have argued that when companies offer short-term disability, they prevent some people from going onto the government rolls by giving them time off to recover from an illness or injury before it becomes chronic. Employers also have an incentive to control their insurance costs by preventing injuries or accommodating employees with disabilities so they can keep working. …Learn More

June 9, 2022

Get Help with Medicare Coverage Denials

The United States has a notoriously complex healthcare system, and Medicare is no different.

In the early months of the pandemic, the Medicare Rights Center received a large number of calls to its telephone help line from people over 65 who had suddenly been laid off and lost their employer coverage. Even when there isn’t a crisis, the center’s staff and volunteers answer all manner of questions about Medicare enrollment rules, insurance options, and what to do when an insurance company denies them coverage.

Sarah Murdoch is the center’s director of client services and oversees the helpline. She spoke with Squared Away about the common issues retirees face and how they can address them.

Question: Your helpline fielded 42,000 questions about Medicare in 2020 and 2021. How does that compare to past years?

It’s in that ballpark year to year – around 20,000 questions. But we saw, within that 42,000, a shift in the actual trends.

Throughout the pandemic, particularly in 2020 when there were lockdowns and people were getting laid off left and right, we got a lot of calls from people who unexpectedly had no income. We heard from people who had insurance through their job and that was not an option anymore. Or they were already on Medicare and were trying to figure out how to pay their costs, or they were laid off and had to figure out how to get into Medicare. That has eased up but was a big thing we saw in the beginning of the pandemic.

We also had questions related to benefits for low-income people. We told people who suddenly had zero income about the income requirements for the Medicare Savings Program, Medicaid, and the state pharmaceutical assistance programs – anything that can lessen the hardship.

In 2020 and 2021, nearly a third of the complaints on your helpline were about service denials by insurers that provide Medicare Advantage or Part D drug plans. Start with Advantage plan denials – are they a big issue for retirees?

The Medicare Advantage plans often have doctor and hospital networks, whereas original Medicare doesn’t have networks. People may be denied coverage by an Advantage plan if they have an out-of-network provider. It could also be a denial of a medical service or a prescription medication. We do see it more but it’s hard to tease that out from the fact that more people are just enrolled in Medicare Advantage.

Do Medigap supplements to Medicare have similar issues with denial of coverage?

Medigap is different – the plans are never making their own claim determinations. If something is approved by original Medicare, then Medigap is going to pay for it as long as the retiree has a Medigap plan that has that type of coverage. In the Medicare Advantage policies, however, insurers are making the claims determination. All of the insurance companies have their own claims adjusters making those decisions – as opposed to contractors who process claims for the Medigap plans on behalf of the Centers for Medicare and Medicaid Services. The Medigap insurer isn’t making any decisions as to whether something is covered or not – it has already happened at the government level. …Learn More

June 7, 2022

Some Public Sector Pensions are Inadequate

About 5 million employees in state and local government are not currently part of the Social Security system.

Federal law tries to protect them by requiring that their traditional government pensions provide the same retirement benefits they would receive if they and their employers were instead contributing to Social Security.

But the Center for Retirement Research finds that roughly 17 percent of these workers’ pensions fall short of that modest standard. The reasons involve how long they remain in their government jobs and how their pensions are calculated.

Let’s start with the workers who usually do not fall short: career public sector employees. They are protected because their pension annuities are based on their average salaries in the final years of employment when pay tends to be at its highest. In that way, pensions resemble Social Security. The benefits retain their value because they are based on a worker’s 30 highest years of wages, which Social Security adjusts upward at the rate of average wage growth.

Another group that is relatively unscathed are employees who have worked no more than five years in a government job. If they spend most of their careers in the private sector, they will accumulate many years of Social Security coverage in those jobs.

The government workers most at risk are in medium-tenure jobs lasting about 6 to 20 years, the researchers found. If they leave government mid-career, the wage growth they miss out on will have substantially eroded their pensions. … Learn More

June 2, 2022

COVID Relief Checks Helped Needy the Most

In the pandemic’s early days, the unraveling of economic life was breathtaking. Some 3.3 million Americans filed for jobless benefits in the second week of March 2020. A record 6.6 million joined them the following week.

By April, government checks were starting to land in workers’ bank accounts, bringing the urgent relief Congress intended. The unemployed used the often-substantial assistance – up to $3,400 for a family of four – to cover basic expenses, and the people who were holding on to their jobs saved for possibly difficult days ahead.

New research shows that the benefits of this assistance disproportionately went to those who needed it most: low-income workers and people who had financial problems before COVID hit.

The relief checks “have been more of a lifeline for individuals who were struggling,” the study concluded. “Rather than simply help prevent widening inequality,” the relief “may have helped close the gap.”

Consider the workers who either had great difficulty paying their debts in 2019 or had been spending more than they earned. Thanks to the first round of relief distributed in 2020, both groups saw improvement in three major areas, according to the Dornsife Center for Economic and Social Research at the University of Southern California.

The disadvantaged workers experienced the largest reductions in financial stress and felt more satisfied with their finances. They also felt less financially fragile, reporting that it was easier to come up with $400 in cash for an emergency like a car repair. And their ability to save increased.

The researchers said they couldn’t directly credit the relief checks for these improvements. Another important factor – the enhanced unemployment benefit of $600 per week – was also simultaneously at play. But one analysis in this study did find that the people who had received the checks saw more gains than the workers who were still waiting for their checks when they participated in the Internet survey in April 2020 that the researchers used.

As was widely acknowledged at the time, lower-paid hourly workers suffered the brunt of the pandemic-related layoffs. The researchers found that $60,000 in yearly income was a sort of dividing line: households that earned less benefited more from the government assistance than households that earned over $60,000. The lower-income households were more likely to build up their checking and savings account balances. …Learn More

May 31, 2022

Remote Work Has Pushed Up House Prices

Slack, Citizens Bank, Penguin Random House, Verizon, 3M, Twitter – the list is long and growing of companies that have allowed employees to continue working remotely even though the pandemic seems to be easing.

The COVID-19 upheaval in lifestyles – the moving around to larger homes, to the countryside or to an affordable city – is pushing up house prices.

John Mondragon at the Federal Reserve Bank of San Francisco and Johannes Wieland at the University of California, San Diego, estimate that remote work fueled a 15 percent rise in house prices over the two-year period that ended in November 2021. That’s more than half of the total price increase for that period, which was a record, the researchers said.

A few different types of lifestyle changes drove the price hikes. But the bottom line is that remote work caused a frenzy of buying activity that wouldn’t have happened otherwise. The increase in demand sparked competitive bidding for properties – and prices shot up. And the parts of the country where remote work was more common had significantly larger price increases.

The price increases “reflected a change in fundamentals rather than a speculative bubble,” the researchers concluded.

Soon after the pandemic began, workers who were changing their living arrangements made the news. Renters left behind expensive apartments in New York or San Francisco to escape COVID’s dangers. Now working remotely, they used their newfound freedom to become first-time homeowners in an appealing suburb nearby or a rural area halfway across the country where they could afford to buy a house.

The need for larger homes also heated up market activity. Having more space was suddenly more valued by workers who required an additional bedroom to set up a home office or now had to accommodate both spouses working from home – and, early in the pandemic, children attending classes on Zoom.

The researchers stress that they measured only the price increases resulting from an increase in aggregate housing demand nationwide. In other words, people didn’t add to total demand if they simply moved from Chicago, where they sold a condominium, to Des Moines, Iowa, where they purchased a house of similar value. …Learn More

May 26, 2022

Parents Work Less After Kids Leave Home

When children grow up and become financially independent, how do parents adjust their finances? Are they finally spending money on themselves? Saving more for retirement? Paying down debt?

No one has come up with a convincing answer yet. Especially puzzling is that past research has shown that parents seem to reduce their consumption after the adult children move out. Yet there’s no evidence that much of the extra money is going into 401(k)s. So what’s going on?

A new study for the first time finds a missing puzzle piece: parents, freed from the obligation to support their children, are choosing to work less.

Parents work one to two hours less per week after their adult children leave home for good, according to researchers at the American Enterprise Institute and the Center for Retirement Research.

Consistent with this finding, their household income declines roughly 4 percent because they’re working fewer hours or finding less demanding jobs with lower pay.

Reaching this conclusion required a series of steps. First, the researchers broadened the definitions of saving and consumption used in earlier studies to see if that shed any light on the issue. Finally, they looked at the parents’ decisions about work.

In the past, the estimates of saving had largely been confined to putting money in 401(k)s. Perhaps something could be learned by counting paying off a mortgage or other debts as a form of saving. But the researchers still found no evidence parents are paying their debts off faster after the kids leave.

So where is that extra money going? …Learn More