Wednesday, September 30, 2009

More Evidence: Global Warming is a Hoax

Senate Stooges Boxer and Kerry have unveiled the latest strategy to get the ill-conceived cap and trade bill passed, despite the fact that Obama's Treasury department has concluded that it will cost American households more than $1700 a year! (That's the equivalent of an annual 15% increase in the federal income tax!) So, what's their grand scheme? Change it's name: Instead of calling the legislation "Cap and Trade", they've decided to start calling it "Pollution Reduction and Investment", or PRI. So, we'll just dress it in some new clothes to cover up the smell.

New clothes indeed, considering that Steve McIntyre over at Climate Audit presented a recent report which effectively puts to death the famed "hockey stick" graph that is a perennial bad penny that keeps popping up in any climate change discussion. AJ Strata, in his analysis of the findings, is pretty direct in his conclusions:

The real professionals ... have discovered that the source of all the recent global warming is not CO2, but bad data used in climate models which forces the models to show recent warming – where OTHER DATA shows there is no recent warming.

Let me repeat this. The statistical models used by the High Priests of Global Warming are using a newly identified and specific data set which wrongly produces decades of warming where none exists in the raw temperature data 0r other data sets.


I will let the authors be more reserved, but I find the results damning. To summarize, the infamous Hockey Stick (HS) warming trend that supposedly shows man made CO2 forcing the Earth’s temperature higher is in fact an artifact of one set of bad data.

These guys are going to have to do more than just give the policy a new name to sell us on it. To paraphrase Shakespeare: "A pile of horse manure by any other name is still just as smelly." It'll take more than just a new name to make this bad policy come up roses.

Saturday, September 26, 2009

Health Care: Insurance is the Problem

The current debate regarding the future of our health care system in America is inherently flawed. Many of our politicians and the public at-large seem to be overlooking the biggest contributor to escalating health care costs, and as a result, the proposed solutions (from both sides of the aisle) utterly fail to address the source of the problem. Current attempts to reform health care focus on decreasing the cost of insurance* (or changing the source of insurance). But they fail to recognize that, in general, insurance is the problem! A system driven by insurance is a classic example of a Third-Party Payer System. If you're not familiar with the term third-party payer, let me explain:

A Third-Party Payer System exists any time a person paying for a product/service is different from the person who gets (or demands) it. Health insurance fits this definition nicely: After you purchase insurance, you can go to the doctor and pay some pre-arranged co-pay (or percentage of the cost of the office visit). The insurance company pays the remaining cost of the office visit. Thus, the insurance company is the third-party payer. Now why is this a problem? Well, consider the classic Supply/Demand curve from ECON 101. I've prepared a sample for you if you don't remember the beastie:

From the graph, we have this scenario: The insurance company covers your doctor's office visit for a $10 co-pay. At a cost of $10, you would demand 90 "units" of service. If you were paying the full amount for those "units" of service, you would have to pay the doctor $90. Yet, the doctor probably won't get $90. They'll probably accept some reduced compensation (because of a reduced rate negotiated by the insurance company), say $75 -- your $10 co-pay, plus $65 from the insurance company. Yet even at a rate of $75 in compensation, your doctor is only willing to provide 75 units of service -- not the 90 units you demand. Overall, the system is out of equilibrium (if it were at equilibrium, the quantity supplied would be equal to the quantity you demand, which would be 50 units, and you would pay $50 for it.) Because the system is out of equilibrium, and demand exceeds the supply, the price level increases in an effort to reach equilibrium.

Take this to its logical conclusion: because the price level for health care increases, the price level for health insurance is also rising. (The insurance company pays more money out in benefits, so they have to recoup those costs somewhere, typically in premiums.) Thus, we have an expensive cycle of increasing health care costs, and increasing health insurance costs.

Based on this evidence, I believe that Insurance is the biggest reason for the increase in health care costs. When people pay less than market-value for any service, they'll demand more of it, pushing the price up. (This is a principle that is widely accepted among economists.) Only by making the party who demands services also pay for those services (and giving them a means to do so) can we begin to apply downward pressure to the price level of health care (without compromising quality or rationing care). If we can do this, we will have a true market-based solution to the problem.

What do you think? Is my analysis correct, or is there another cause for high health-care costs? Is there another "elephant in the room"? Let me know your thoughts -- I'm interested in having a constructive discussion of the issue that can lead to solutions.

* Note that I am using the word "insurance" which would generally include all types of insurance policies. The astute observer would realize that my argument really only applies to health insurance policies with very low deductibles, or those whose first dollar of coverage begins with little or no out-of-pocket expenses. While I'm using the all-encompassing word, I mean to refer to the aforementioned insurance policies. For purposes of my argument, the term "insurance" does not include plans that have a high deductible (like catastrophic coverage).