Sticker Shocks Coming?

don’t expect any help from this group
Tip of the hat to

This is the time of year that many of us get the bad news on prices of such things as health insurance (or Medicare supplements for some), house insurances and of course winter heating fuel. 

As you know, insurance rates are based on experience of the companies. Stated another way, the rates are based on how much they paid out in the previous year. Thanks in large measure to those who refuse to get vaccinated for the corona virus, insurance cost have soared. While many claims are still being settled, you can expect that costs to insurance companies will be substantial. Companies will be making up ground with higher premiums.

Insurance costs are only a part of the story. As notes:

The medical, economic and financial welfare of 211 million vaccinated Americans is thus being threatened by the choices of 74 million eligible but unvaccinated Americans. Economists call such adverse spillovers “negative externalities.” Externalities arise when individuals fail to take into account the effects of their actions on other people.

The failure of private markets to provide appropriate incentives in the face of externalities represents the classic rationale for government regulation. In this case, the relevant regulations are mask and vaccine mandates. These mandates substitute for the incentives to control the COVID-19 virus that are missing in private life, protecting people not only from the health effects of the pandemic, but the economic effects as well.

What kind of economic effects are we talking about? According to a Kaiser Family Foundation analysis, 530,000 COVID-19 hospitalizations of unvaccinated Americans, at an average $20,000 per hospitalization, cost the U.S. health system $5.7 billion. Updating that figure for early September brings that figure closer to $7.2 billion.

But the direct costs of COVID-19 to the health care system are dwarfed by the likely effects of the pandemic on the overall economy. We have developed an econometric model to gauge how the evolution of the COVID-19 pandemic affects economic growth. Using projections for pandemic deaths constructed by the Institute for Health Metrics and Evaluation (IHME), we compared projections for U.S. GDP based on the IHME’s recent forecast of pandemic deaths to GDP projections based on IHME’s forecast released in late June, before the full eruption of the delta variant. The difference between our two GDP forecasts is a rough measure of the economic impact of the delta variant, which is gaining so much traction because of the presence of so many unvaccinated Americans.

The bottom line? The delta variant is projected to claim 120,000 American lives over the second half of this year, and this surge will reduce the annualized rate of GDP growth by one percentage point. Overall, U.S. GDP in 2021 will fall by around $70 billion. This represents a very small share of the United States’s $23 trillion economy, but it nevertheless dwarfs the direct hospitalization costs of the delta surge, and represents an implicit tax of about $210 for every man, women and child in the country.

As for home insurance, all those homes that burned, blew over in tornadoes and hurricanes or flooded out must be funded. Once again, the onus is on those who purchase insurance. As climate triggers more and more wild weather, expect rates togo up to cover insurance claims.

Finally we have been warned by the gas companies that supply and demand will fuel rate increases this fall: From Mid-American Energy:  

DES MOINES, Iowa – (October 12, 2021) – MidAmerican Energy is alerting its customers that higher natural gas prices will impact most monthly heating bills during the upcoming winter season.

Natural gas market prices have more than doubled from this time last year, as increased global demand coupled with both limited production and inventory have heavily increased the cost for MidAmerican to purchase the natural gas it delivers to its customers.

“We’re not seeing signs of supply challenges this winter, but we do expect to see higher customer bills because of higher commodity prices,” Peggi Allenback, MidAmerican vice president of market operations and supply, said. “We don’t mark up what we pay for natural gas, rather the cost of the commodity is a straight pass-through to customers. We purchase a portion of gas in advance at the best possible price, and in warmer months, when gas is generally cheaper, we store it for use in winter to help protect our customers financially. Despite these efforts, though, we want our customers to understand that natural gas bills will still be higher this heating season.”

The higher market prices will affect a customer’s gas supply charge, which is the cost of the natural gas the customer uses. Market price fluctuations do not affect rates, which include fixed administrative costs, as well as costs associated with maintaining infrastructure and ensuring safety.

Actual bill impacts will vary by customer due to usage as temperatures get colder and market prices continue to fluctuate. But, based on the market prices for natural gas over the last month, residential customers in MidAmerican’s service area can likely expect their total bills to increase by 46-96%. The heating season runs from November through March.

Unfortunately, for fear mongers and liars like Ashley Hinson and Mariannette Miller-Meeks, the price of natural gas has nothing to do with the Biden presidency. Sure wish they would help Iowans instead of creating false stories that do nothing to help Iowans deal with problems.

About Dave Bradley

retired in West Liberty
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2 Responses to Sticker Shocks Coming?

  1. My economist friend has been trying to explain externalities to me. The anti-vax and the anti-mask crowd, including our own governor and some of the people I work with, are pushing costs on to us.


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