Data Dives

These Health Law Bets Aren’t A Figure Of Speech

By Jay Hancock

May 8th, 2012, 11:24 AM

The stakes are high in the Supreme Court’s consideration of the 2010 health law, as countless commentators have observed. In some circles, however, the gambling metaphor has been pushed to its logical conclusion.

Illustration by Svadilfari vi Flickr

Bernstein Research stock analyst Ana Gupte laid 50 percent odds recently on chances that the court will strike down the Affordable Care Act’s individual mandate along with strict coverage requirements. Over at Intrade, a “prediction market” for current events, the betting Tuesday morning gave chances of about 58 percent that the court will disallow the mandate, which requires people to obtain health coverage or pay a  fine.

On the FantasySCOTUS Web site, 54 percent of an audience composed largely of law students and clerks predicted the mandate will be thrown out.

Declaring Vegas-style odds on court rulings isn’t the norm for Wall Street analysts such as Gupte. But the Supreme Court decision, expected to be announced at the end of June, is critical for the health-insurance stocks she covers. She puts low probabilities — 15 percent in each case — on chances that the court will uphold the entire law or strike the whole thing down.

Predictions about the act’s ability to survive whole grew more pessimistic after March’s oral arguments from lawyers on each side. Many analysts believed questions from key justices such as Anthony Kennedy and Chief Justice John Roberts betrayed an inclination against the mandate.

At Intrade, bettors raised the odds of the mandate being ruled unconstitutional from less than 40 percent before the arguments to more than 60 percent afterwards. In recent days, however, they’ve backed off. Intrade deals pay off at $10, and at this morning’s prices you could buy a contract on a negative Supreme Court decision for the mandate for $5.76. Buying a chance to win $10 for $5.76 amounts to laying 58 percent odds on your bet.

At FantasySCOTUS no money changes hands. Winners get “bragging rights,” said Corey Carpenter, director of analysis for the Harlan Institute, an educational nonprofit affiliated with the site. Predictions on FantasySCOTUS of the mandate’s demise saw little increase following the arguments, perhaps because the site’s audience pays more attention to legal logic than media coverage, Carpenter said.

The biggest bets on the Supreme Court decision come in the stock market. Insurance companies gained billions of dollars in market value after the oral arguments on expectations of a favorable outcome for the industry. But their prices have drifted back down.

Insurers worry that the court could block the mandate but uphold a separate requirement that they accept all members at a uniform price regardless of pre-existing illnesses. Such an outcome would deprive the companies of billions in new revenue while at the same time assigning them expensive liabilities.

After analyzing the oral arguments, however, Gupte said there’s a 50 percent chance that the court will toss the coverage requirements and the mandate at the same time. That’s the “most likely” outcome and would raise insurer profits by 7 percent on average, she wrote. Partly as a result, she’s bullish on several insurer stocks, including UnitedHealth Group, Cigna and Aetna.

Not all oddsmakers believed the oral arguments occasioned a new betting line. Andrew Cohen, a CBS News legal analyst and contributing editor for The Atlantic, promised to update his odds, set last fall on The Atlantic’s site, on how individual justices would vote.

“Having picked [the] wrong horse in last five Kentucky Derbys,” he told KHN via Twitter, “I decided not to chance it.”

One Response to “These Health Law Bets Aren’t A Figure Of Speech”

  1. It appears that the health care industry cost reduction and quality enhancement features contained in the Affordable Care Act are gaining a strong following at the urging of employers and others who can no longer tolerate serial increases in cost. They will likely survive a SCOTUS decision in some compelling form with or without the Act itself. A perfect solution would eventually approximate 30% of the present cost of health care (and Medicare).

    The other major cost factor is public participation in preventive medicine and wellness programs. The best program I can think of to meet all parties objections, needs and ambitions is to open up Medicare to all, support it with a tax (this is acknowledged by all parties to be constitutional), make the coverage 60% (comparable to the “bronze” category of coverage under the Act) and make the other 40% of coverage available through verified participation in preventive medicine and other wellness programs. For example: no smoking, excessive drinking or use of other addictive substances (10% additional coverage); participation in a nutrition program prescribed by a certified nutritionist and approved by the insured’s MD (another 10%), participation in an exercise program adapted to one’s physical condition (another 10%), The final 10% – all of the above plus no misdemeanors for 6 months. Those who chose not to participate would be left to purchase the missing 40%. This should take care of the wish to reduce the federal government average cost commitment from its present $13,000.00 per Medicare participant to $7,000,00 under the Republican budget plans of the last two years.

    Substitute private insurance coverage would be available to all through the existing subpart C of the Medicare law (popularly known as “Medicare Advantage”). Since the wellness program described has been well tested (e.g. http://www.lincolnindustries.com) and shown to be worth a return on investment of 5:1 with full participation in wellness, it is unlikely that private programs that tried to give competitive coverage without requiring preventive medicine and other wellness participation could compete on cost. Recall that those who did not participate in wellness would have to pay for their insurance or go without. Since full coverage would be available to all without out of pocket cost other than the tax, tolerance for no coverage could be limited to those who are unable to participate.

    Savings: Employers would be relieved of the burdens of providing insurance. The cost of the insurance would be a tax; presumably of the same type as the present Medicare tax which is presently not tax deductible. But note that there would be no premiums or out of pockets to pay by employers or insureds that are not a matter of choice.

    Opening Medicare to all would presumably reduce the average cost from Medicare’s present $13,000 per participant plus participant out of pocket costs to the national average of health care of $8,000. Reducing coverage to 60% of cost would reduce the public cost to $4,800. The cost of the Wellness programs would presumably increase this by 20% of the difference between $4,800 and $8,000 or $640 to make he average cost of health care to the taxpayers under this program, $5,440. Under this program, replacing Medicaid with Medicare for all would reduce Medicaid by comparable amounts, thereby providing a substantial budget reduction.

    Insurance is not included in computing the average cost of health care. It is included in the costs of the Affordable Care Act. Insuring through a tax based Medicare program would save about 10% in private contractor administration and profits on what, after all, is a tax based public cost. Thus replacing private insurance (to be subsidized under the Affordable Care Act) with Medicare would reduce the average cost of insurance administration from 13% to 3%.

    Other savings are achievable by dealing successfully with the malpractice/defensive medicine equation, dentistry, long term care, and the need to modernize the practice of medicine by doing away with prejudices against Chiropractic, meditation, naturopathy, nutrition and other forms of well established and well proven preventive health behaviors and healing. These are reported to be making inroads via the Veteran’s Administration, the military and the American College of Physicians recommendations.

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