Explain government run health insurance plan contract

I see this contract is very low (20%ish), but the news is full of optimism that a health care bill will pass. Is this discrepancy because:

1. A bill will probably pass but probably not until after Dec 31?
2. A bill will probably pass but it won't include the features that would fulfill the contract? Is a public option necessary to make the contract expire at 100?
3. A bill will probably not pass and the news is full of bs?

1. I'm confident they'll vote on it this year. It will be a major blow to Obama if they can't get it done by this year. They rather vote a POS than wait and wait.

2. Yes. Public option is necessary to set 100 expiry.

3. The public option however is unlikely

The senate finance committee rejected it by 15-8 vote

How much money goes toward those 5 democrats who vetoed the bill? 19 million. It is estimated more than 300 millions are going to lobby the senate. I believe they have like thirteen lobbyist for EACH senate.

Now if you think about it. This thing is dead UNLESS Americans state a major protest ... rally... sudden movement or something. Which is terribly unlikely.

The market is for the establishment of a government run health insurance plan, otherwise known as the "public option".

If such a plan is passed into law before the date on the contract then the contract will expire at 100, if not then it will expire at 0.

The contract is not for the passage of a health care reform bill, but only for the creation of a "public option".

http://www.redstate.com/erick/2009/10/07/breaking-senate-gop-folding-over-health-care-reform/

I would put PO at about 40. What if it's passed through reconciliation?

I would not put it anywhere near 40. There is talk of Republicans voting for a public option trigger. But if you look at the rules, this means the contract would expire at 0.

The Option - Defined
It's pretty clear to me, based on the rules, that the contract envisions what is otherwise known as the robust public option -- variants of which exist in England and Canada.

This would involve health care (or insurance) available to all citizens and provided by the federal government, unconditionally.

Effect of Senate Idiosyncrasies
While it's certainly likely that majorities in the house and senate are in favor of this, the nature of the senate is such that each individual member has extraordinary power to force compromise legislation. Even minor compromise amendments, be it through adding triggers, negotiated health prices (vs. setting prices 5% above medicare rates), etc. can easily weaken the option to the point that it loses much of its key characteristics.

Personally, I see this contract as boiling down to whether one believes Harry Reid can get all the center-right and blue dog democrats to agree not only to vote for cloture (i.e. not filibuster), but also do so in exchange for nothing in return (at least as far as health care is concerned). Securing their agreement by allowing amendments to water-down the legislation won't work because it emasculates the robust public option.

An Exercise in Statistical Prediction
Hypothetically, suppose that he needed to pressure 5 conservative dems to play nice and not filibuster a robust option. Suppose also that any one of those dems has a 75% chance of playing nice (which is awfully optimistic). Presuming he needs all 5 of those votes to break a republican filibuster, the odds of all five playing nice are .75^5=23%.

Arguably, he needs more than 5, and each of them are less than 75% likely to play nice by not watering-down the robust option with amendments. Thus, as I see it, the proper value of the contract is quite low. On top of that, realize that at least 40% of the senate is intent on dragging the process on as long as possible. Every deadline set by the senate and/or Obama to date has been missed; Republicans would likely still consider it a minor victory if they kept this thing from passing until 2010, even if a robust option passed then.

I suspect that the only reason this contract isn't trading around 10 is because some think the odds of getting a robust option through reconciliation are significant.

First, thanks to all for this thread.

Fartman2, I agree completely with your assessment that it now appears clear that this contract refers to a "robust public option" providing unconditional federal insurance or care to all U.S. citizens.

HOWEVER, that was not at all clear to me when the contract began trading. Nor was it even clear to me, after the first revision of the definition to exclude co-ops, that the "trigger" option would be excluded. Now the contract has been revised a third time to limit its scope. As Senate Democrats continue to weasel their way into a broader definition of "public option", Intrade has now made fairly clear its intention to remove any ambiguities in the contract by narrowing its scope. If they had just told me that up front, then I would have shorted this contract with every penny in my account!

Let me be clear that I did read rule 1.7 before purchasing this or any other contract. I'm not posting this to try to weasel my way out of losing a few bucks (which I admit that I have). My concern is that this seems to have illustrated a major potential pitfall in Intrade contracts. Of the many contracts I have followed in the 6 years I've followed Intrade, this is the first I've seen that was so ambiguous that it needed to be redefined every month. Each of these redefinitions has had a substantive, and possibly decisive, effect on the value of the underlying contract.

My first concern is that it seems to me that bills in the U.S. Congress are a class of event prone to this problem. It's not just that the contract had to be redefined. It had to be redefined repeatedly based on finer and finer rhetorical hair-splitting. I have trouble imagining that this kind of problem would arise on 95% of Intrade contracts, but is it really a stretch to imaging a similar series of non-obvious contract re-definitions becoming necessary for, say, the "Cap & Trade" contracts? the EFCA contracts?

The problem is exacerbated by the lack of detail provided about Rule 1.7. "The Exchange" re-defines the contracts in its sole discretion, of course. If they took a vote among members, some people might be a bit biased.

Alas, there is no assurance that whomever decides for "the Exchange" themselves lacks bias. Were the 3 re-definitions of this contract prompted by foresight of Intrade employees, or did an Exchange member who owns contracts in this event lobby for a clarification? Considering that Intrade lacked the foresight to clearly define the contract initially (despite the fact that co-ops and the trigger option, at least, were already being discussed), it seems more likely that someone who owns these contracts wanted to know whether or not to sell them.

That scenario brings me to my principal complaint, which is that the timing and notification process for contract revisions needs to be improved and spelled out. Although Intrade regularly posts "News" about new contracts, they evidently make no attempt whatsoever to inform anyone, including members who own affected contracts, when they change the definition of existing contracts. Thus someone who happens to check the "Contract-Specific Rules" sooner than another member has a huge advantage. Worse yet, someone who requests and receives a clarifying change in the contract knows in advance to keep an eye out for this. Hmm, maybe I should ask now if

It would cost Intrade nothing, and might even slightly increase transaction volume, to announce all revisions to contract definitions in the same way that new contracts are announced. I frankly don't understand why this isn't already done. Does the Exchange not want to bring attention to this ambiguity problem? Sending out notifications of such changes to anyone holding the contracts seems to me to make sense, as well. Ideally, the contact should be temporarily halted until some time after everyone had been notified of the change. That would avoid providing an undue advantage to whomever checked their email first, e.g. because of the time zone they reside in.

Although these simple proposed changes would substantially improve the situation, the very existence of this thread provides evidence that this type of contract is inherently more prone to ambiguity than the vast majority of contracts offered on the Exchange. In addition to the above changes, my suggestion would be to avoid such contracts in the future. If one reasonably anticipates that more than one "clarification" will be necessary during the life of a contract, Intrade would be better off not descending into the rhetorical bullshit of, for example, the U.S. Senate, in order to make a few bucks.

There's really no way to guess how a ruling is going to go. It's basically however Carl Wolfenden feels on the day a question is asked.

Okay, I can understand the ruling on a co-op, because that would not meet the definition in the original contract of a "US federal government run health plan." Same for a trigger, because in all likelihood the trigger would never be used. But an "Opt Out" plan still wouldn't cause an expiration at 100? It's a health plan run by the federal government. There's no requirement in the initial text of the contract that the plan be available to all states. That was made up out of thin air.

Intrade -- remember the Guantanamo closure contract? Remember the -10%.GDP.CUM disaster? And now health care. Every time someone gets an arbitrary ruling against them, it sours them on Intrade. You guys need to fix how contract writing and interpretation works, or you're going to alienate your entire customer base.

I agreed with the co-op and trigger contract revisions when they happened, since either of these compromises would mean that a government run health insurance plan had not actually been enacted. But the latest revisions re: opt-out are outrageous. The original wording of the contract never hinted that such a plan would have to be nation-wide. This ruling seems highly arbitrary. Maybe some Intrade official had it in his or her mind that the plan would be national when the contract was designed, but nothing in the actual text of the contract would lead a reasonable trader to believe so.

I had been an excited participant in some of the current events and political contracts until now, but having experienced this level of arbitrary and misguided treatment at the hands of Intrade, I think I'll scale back on my trading and stick to real bets with people that I know.

Now that I've thought about some of the other ambiguities in public option (PO) contract, I'd like to see Intrade come out with revisions specifying whether the PO would have to be open to all citizens, or only a subset?

For instance, would it a PO open only to some (i.e. people meeting certain income requirements, or people who could not otherwise obtain insurance through existing programs or from their employer, or people meeting certain age requirements) vest at 0 or 100?

And if the answer is that some eligibility restrictions are acceptable in a PO that vests at 100, then I'd like an explanation for why ineligibility by reason of geographic location is unacceptable, but ineligibility by reason of other demographic traits is perfectly OK.

FWIW it's my opinion that this contract will expire at 0 unless there is a robust public option. To help add to the thread here though, here is a copy of a recent email I received from Carl Wolfenden in response to a question on the public option:

Q: One of the current compromise proposals being discussed would be a national plan that would allow states to opt-out. What is the timeline based on your rules for a state to opt-out. For example...if Obama signs a national public option into law in say...December...but then in January ten states decide to opt-out, what would the expiration be?

A: (from Carl Wolfenden) Thanks for your enquiry. We would not consider this to be a government run health care plan on a national scale. If such a plan was established the contract would not expire at 100.

I think that Intrade needs to set up an opt-in email list that will send out alerts pertaining to the addition of new contracts and the modification of any existing contract rules.

MMB,
Thanks for sharing the email. It's clear that Intrade will have an extremely narrow definition of "public option." It's very very unfortunate that this is absolutely unclear from the original terms of the contract. An opt-out plan would probably result in 35-45 states joining the public option, covering 90%+ of the population.

An opt-out public option would certainly fulfill the definition given in the original contract:

"This contract will settle (expire) at 100 ($10.00) if a US federal government run health plan (a public option) is approved in the United States before midnight ET on the date specified in the contract.

The contract will settle (expire) at 0 ($0.00) if a US federal government run health plan (a public option) is not approved in the United States before midnight ET on the date specified in the contract.

A federal government run health plan will be considered approved once legislation establishing the plan has been passed into law. Expiry will be based on the passage of the required legislation into law, as reported by three independent and reliable media sources.

This contract covers only the creation of a government run health insurance plan that is an alternative to private health insurance. It does not cover existing health insurance programs such as Medicare or Medicaid, or any changes made to these programs or the cover they provide."

Is an opt-out plan a "federal government run plan?" Yes.
Is it an "alternative to private health insurance?" Yes.
Is it merely a change to Medicare, Medicaid, etc.? No.
Is there any requirement in the original rules that the plan be nationwide? No.

This ruling needs to be reversed.

JohnRemington wrote:

It's clear that Intrade will have an extremely narrow definition of "public option." It's very very unfortunate that this is absolutely unclear from the original terms of the contract.

In defense of Intrade, contracts based on the enactment of conceptual legislation are probably VERY difficult to fully articulate. There will always be ambiguities, unforeseen alternatives that subtly alter the original, political redefinitions of terms, etc.

As a general rule of thumb, I think it's pretty appropriate to resolve ambiguities using the understanding of terms and conditions that existed popularly (not in any single individual's mind) at the time the contract sprung into being.

In this case, when this contract started, there was no weak public option, triggered public option, opt-in/out public option, or even a "robust public option" designated as such. There was just THE public option popularly understood to be comparable to nationalized health care offered in places like Canada.

In that sense, where the contract terms are silent or ambiguous as to a characteristic of this public option insurance, the safest interpretation (apart from seeking clarification from Intrade) would be to assume the legislation refers to what was popularly understood at the time. Intrade's subsequent clarifications have only confirmed that this interpretation is correct.

I'm not disputing that the original terms should have been better defined, and that the contract's silence as to other material points ought to have been stated clearly from the start. But that's why one can (and absolutely should) ask for clarification before investing. Intrade can't be expected to foresee all possible developments better than the sum of its investors could.

I do believe Intrade IS learning on this front, though. We are still months away from legislation passing. It's good that Intrade is offering clarity to the rule as soon as it becomes clear that clarity is needed rather than AFTER the contract expires. This way, people still have an opportunity to react to unfavorable rulings and cut losses/turn a profit.

JohnRemington wrote:

An opt-out plan would probably result in 35-45 states joining the public option, covering 90%+ of the population.

34-45 state involvement wouldn't fulfill the September 8 revision requiring 100% national involvement. When you ask that the last clarification be reversed, you're effectively suggesting throwing out not just the last rule clarification, but throwing out clarifications that have been in place for over a month.

JohnRemington wrote:

Is there any requirement in the original rules that the plan be nationwide? No.

It's true that there was no explicitly stated requirement. But the original rules don't state that nationwide coverage isn't required, either. There is silence on this issue. Most likely because the popular understanding of the time took for granted the national-character of the option.

I agree it's quite a challenge to deal with all the vagaries of the real world. Intrade can't be expected to see in advance everything that might happen. But they can be expected to make their clarifications fit as closely as possible with the original terms of any contract. They have failed to do that here.

In this case, when this contract started, there was no weak public option, triggered public option, opt-in/out public option, or even a "robust public option" designated as such. There was just THE public option popularly understood to be comparable to nationalized health care offered in places like Canada.

That's factually incorrect. The public option was *never* meant as a Canadian-style single-payer system. It was always styled as a government-run alternative (rather than replacement) to private insurance plans.

where the contract terms are silent or ambiguous as to a characteristic of this public option insurance, the safest interpretation (apart from seeking clarification from Intrade) would be to assume the legislation refers to what was popularly understood at the time.

I disagree. Contract expiration should be based as closely as possible on the letter of the contract. That's what Intrade did in the case of the North Korean missile test contract a few years ago. If you weren't around then, there was a contract on whether North Korea would launch a test missile before a certain date. The contract terms required that the missile launch be confirmed by the US military. North Korea launched a missile, but the US military refused to comment. Intrade expired the contract at 0. I think that was the correct call -- they went by the exact letter of the contract. They should do that here as well. This contract should expire at 100 even if the government plan only covers 50 people.

Right or wrong, Intrade made a strong statement with that ruling that they would follow the letter of the contracts, rather than a "common sense" interpretation. Now they're changing that policy to "we'll add whatever terms we feel like." If Intrade ever wants to be taken seriously, and handle more than a few thousand bucks on a bet, they need to fix this.

But that's why one can (and absolutely should) ask for clarification before investing.

I would love to have known Intrade's decision that this must be a national public option before I invested, but they made the clarification after I had a position.

I do believe Intrade IS learning on this front, though. We are still months away from legislation passing.

I wish that were true. This is the third case this year where Intrade has made a questionable ruling. Check out this thread on Guantanamo and the original US Depression contracts, where Intrade made highly questionable rulings.

You're right, it's impossible to know what kind of wiggly compromise or unexpected turn of events will come. Which is why Intrade needs to make a strong statement about exactly how they issue clarifications. Here's the thing: The legislation that ultimately gets passed will probably have some new kind of compromise that hasn't been publicly discussed yet. And no one here knows or can even guess how Intrade will rule on it.

It's annoying, but its not that bad. CUM -10% GDP, now that was interesting. I think it's pretty clear why intrade will never have an update or log of its revisions.