Health Futures Markets
Location
Nineteen summers ago, Massachusetts Governor Michael Dukakis bashed Wall Street in his acceptance speech for the Democratic presidential nomination. He contended that the election was “not about insider trading on Wall Street, but, rather, “about creating opportunity on Main Street.”
In light of the convictions of corporate chiefs over the past few years, Dukakis’ words seem to ring true today. However, bashing Wall Street is easy. Instead, progressives should think about borrowing one of corporate America’s most cherished compensation packages to bring to fruition the opportunity Dukakis championed in 1988: stock options. If used by the government, options or futures markets for certain policies might be a way to bring long-term thinking back into the legislative process and insure good government in the health care arena.
Such an incentive system is perhaps what government needs: by developing futures markets for health outcomes and then investing public resources in them, market forces would help keep government’s interest in line with those of the nation.
All else equal, most of us agree that running huge deficits is not a good thing. Some on the right may question the degree that CO2 emissions are linked to global warming, but we all agree that if true, global warming is undesirable. Child mortality is another universal bad. Longer life expectancy is generally seen as a pretty good thing. While highly desired, these ends are not easy things to legislate as they are affected by myriad policies and processes.
About You
Location
Project Street Address
Project City
Project Province/State
Project Postal/Zip Code
Project Country
Your idea
Focus of activity
Policy/institutional change
Year the initiative began (yyyy)
2007
Positioning of your initiative on the mosaic diagram
Which of these barriers is the primary focus of your work?
Monopolies of knowledge
Which of the principles is the primary focus of your work?
Democratize access
If you believe some other barrier or principle should be included in the mosaic, please describe it and how it would affect the positioning of your initiative in the mosaic:
Name Your Project
Health Futures Markets
Describe Your Idea
Nineteen summers ago, Massachusetts Governor Michael Dukakis bashed Wall Street in his acceptance speech for the Democratic presidential nomination. He contended that the election was “not about insider trading on Wall Street, but, rather, “about creating opportunity on Main Street.”
In light of the convictions of corporate chiefs over the past few years, Dukakis’ words seem to ring true today. However, bashing Wall Street is easy. Instead, progressives should think about borrowing one of corporate America’s most cherished compensation packages to bring to fruition the opportunity Dukakis championed in 1988: stock options. If used by the government, options or futures markets for certain policies might be a way to bring long-term thinking back into the legislative process and insure good government in the health care arena.
Such an incentive system is perhaps what government needs: by developing futures markets for health outcomes and then investing public resources in them, market forces would help keep government’s interest in line with those of the nation.
All else equal, most of us agree that running huge deficits is not a good thing. Some on the right may question the degree that CO2 emissions are linked to global warming, but we all agree that if true, global warming is undesirable. Child mortality is another universal bad. Longer life expectancy is generally seen as a pretty good thing. While highly desired, these ends are not easy things to legislate as they are affected by myriad policies and processes.
Innovation
Define the innovation
Nineteen summers ago, Massachusetts Governor Michael Dukakis bashed Wall Street in his acceptance speech for the Democratic presidential nomination. He contended that the election was “not about insider trading on Wall Street, but, rather, “about creating opportunity on Main Street.”
In light of the convictions of corporate chiefs over the past few years, Dukakis’ words seem to ring true today. However, bashing Wall Street is easy. Instead, progressives should think about borrowing one of corporate America’s most cherished compensation packages to bring to fruition the opportunity Dukakis championed in 1988: stock options. If used by the government, options or futures markets for certain policies might be a way to bring long-term thinking back into the legislative process and insure good government in the health care arena.
Such an incentive system is perhaps what government needs: by developing futures markets for health outcomes and then investing public resources in them, market forces would help keep government’s interest in line with those of the nation.
All else equal, most of us agree that running huge deficits is not a good thing. Some on the right may question the degree that CO2 emissions are linked to global warming, but we all agree that if true, global warming is undesirable. Child mortality is another universal bad. Longer life expectancy is generally seen as a pretty good thing. While highly desired, these ends are not easy things to legislate as they are affected by myriad policies and processes.
Context for Disruption:
I propose the creation of population health futures markets in order to monitor, evaluate, and incentivize positive public health outcomes with multifactorial causes. Markets for "infant vitality" futures, for example, will hold policy makers accountable and bring private capital into the social sector.
One progressive critique of government is that officials often fail to prevent the collective resources from being plundered by private interests. However, if corporate donors currently lobby for looser environmental restrictions, lower taxes and weaker public investment, then populists need to fight big money with big money of their own. Imagine the pressure on Congress to strengthen the Clean Air Act, expand CHIP, or to fix the Medicare prescription drug benefit, if there were futures markets in emissions levels, child health, or elder life expectancy, respectively. If government were forced to buy options on the futures itself (say, investing the social security trust fund in them), then this investment would create an economic incentive to make them pay off.
We already have a natural system in place like what I am proposing: It’s called the bond market. This keeps the Fed honest when it comes to monetary policy and is also affected by fiscal (i.e. tax and spending) policy to a certain extent. When the Federal Reserve changes rates, or even hints at it, we see ripple effects through currency valuations, short and long term interest rates (and by extension bond prices), and even in the stock market (as an alternative investment vehicle to the bond market). The longer-term the interest rate—for example the rate on 30-year fixed home mortgages—the “clearer” the window into the future. So why not try to implement a similar economic gut-check for education, health, and the environment? Let’s learn to love markets and make them do as much “work” for Main Street as they currently do for Wall Street.
Delivery Model
How an option works is this: Say you were working for Google before it went public. The pay may have been low, but to make up for that—and the long hours—you might have been offered a package of stock options. That is, you may have been promised the right to buy 1,000 shares of Google stock—let’s say—two years hence at the initial IPO price of $85 per share. That price guarantee holds no matter what the trading price of Google shares are at the option’s maturity date. So, if they are $417—as they were recently—then to cash in, you would be spending $85,000 to get $417,000 worth of stock. A future is a different contract in which you are betting on the future price of the stock or commodity.
For example, right now, if Bush says that we will balance the budget by 2012, everybody knows that he might as well have promised us that pigs will fly to Mars by 2015; promises that extend beyond his time in office (particularly for a second-term lame duck) are as good as, well, you know—the paper they aren’t printed on. But what if there was a way to make a market in political promises and long-term common goals?
So once there is a market for “child vitality” futures (i.e. the opposite of child mortality)—say, structured as an option that pays only if we reduce the child mortality rate to less than 5 per thousand live births by 2020, then we have a metric by which to gauge lots of policies. If the EPA is about to quietly rewrite emissions regulations to be more pro-business, and this may adversely affect child health, then that policy proposal (or actual change) should depress the price of the child vitality future. Clean air can be made into a future; so can racial equity in health care; even population rates of cardiac arrest can be made into a financial instrument.
Key Operational Partnerships
Depending on the scale and scope different partnerships are required: Merely to set up a market, all we need is to team up with an off shore website and financial institution to manage this (see, intrade.com for an example). However, to get the government to use the market indicators as a policy tool requires a long term process of changing U.S. policy. This administration, however, does seem open to market-based solutions.
Impact
Financial Model
Eventually, when brought to market, the markets may be self-sustaining with a small charge (less than one percent) on futures contracts. This is the model that intrade uses.
What is your annual operating budget?
%100
What are your current sources of revenue? (please list any sources that are foundation grants)
None. This is the first source of funding we are seeking.
Effectiveness
None: Has not been implemented yet.
Which element of the program proved itself most effective?
Markets have been long shown to be effective mechanisms for aggregating (hidden) information. See intrade.com for an example of futures markets in non-traditional "goods."
Number of clients in the last year?
None.
What is the potential demand?
Hard to know. Depends on the capitalization of the market and its appeal through viral media.
Scaling up Strategy
It is, by definition, a national (or international) maket. I
Stage of the initiative:
0
Expansion plan:
First, a website needs to be created. Then a market needs to be capitalized.
Origin of the Initiative
Actually, it started with the story of Enron's collapse. I began wondering how their devious (but ultimately flawed) brillance that was aimed at electricity futures and moneymaking might be harnesses for social good.
This Entry is about (Issues)
Sustainability
What are your two main challenges to finance the growth of your initiative
1. Gaining the trust of individuals to "bet" on such futures. 2. Getting policy makers to pay attention to the "price" of the health futures indicators.
How did you hear about this contest and what is your main incentive to participate?
I heard about this through the Foundation Center's weekly announcement. In inviting "enterprising thinkers to recast patients as consumers and propose innovations that put consumers in an active role" the RFP seemed tailor made for this idea.
The Story
Do you have an annual financial statement?
No.
Do you currently have an annual financial statement that tracks profit/loss?
0
Please describe the amount (and/or type) of funding you need to implement your initiative, at year 1 and at year 5.
 | Deb said: I love this idea! To turn things upside down by monetizing good health. Why not add education? Our society is so skewed that health and ... about this Competition Entry. - 1674 days ago read more > |
| daltonconley said: The idea is not to price -- or buy or sell, for that matter -- lives and health status of individuals. The bond market is not buying or ... about this Competition Entry. - 1679 days ago read more > |
| skrelnick23 said: Dear Dr. Conley, There were some additional points that my colleagues have brought up and I am sharing their questions with you. ... about this Competition Entry. - 1681 days ago read more > |
| daltonconley said: Well, politicians naturally follow polls (probably to a fault). More recently, candidates are following the election markets (which are ... about this Competition Entry. - 1698 days ago read more > |
| skrelnick23 said: Dear Dr. Conley: This is indeed a revolutionary idea, but my question lies in the implementation side of things. I see that it is at ... about this Competition Entry. - 1701 days ago read more > |
Comments
Dear Dr. Conley:
This is indeed a revolutionary idea, but my question lies in the implementation side of things. I see that it is at a nascent stage and I would love to get more info on what your plans are to get the government to actually buy into the market scheme. I suppose I am questioning the government's incentive to buy into a certain type of policy when we are facing transitions in Congress now on a fairly regular basis. I would love to hear more, I think there is a very interesting idea here and I would like a bit more meat on what your team will do to make it happen.
Best regards,
Tyler Ahn
Changemakers
Well, politicians naturally follow polls (probably to a fault). More recently, candidates are following the election markets (which are published daily on Slate.com) and, of course, the stock and bond markets. My hope is that these market indicators will be another key datum to which they are slavishly devoted.
A second answer is that if we can get big money in the markets, then, of course, they will get lots of attention. There are two types of big money, private and public. If pension fund managers or hedge fund managers, for instance, start putting funds there as an investment, then the pols will pay attention pretty darn quickly. Also, if ths U.S. does end up going the route of Chile in privatizing the pension system (or investing public funds into the private market), this might be a worth-while investment of public funds. In fact, it can be seen as a compromise position between those who want the Medicare and social security trust funds invested in private markets (by individuals or by the government itself) and those who care about progressive causes. Hope this addresses your concerns... Happy to answer more, though you were right in pointing out that this is at a very nascent stage... Thanks for your comment
Dear Dr. Conley,
There were some additional points that my colleagues have brought up and I am sharing their questions with you. Please take a moment to provide us more information.
Do we really want to monetize lives and health status like this to be traded on the open market? How exactly does the rise and fall of these futures actually incentivize governments to act? And how do we know that these actions work, as opposed to some other confounding effect?
The example of Enron is ironic – they played the market and lost billions of dollars selling futures. Unsure if they provide a strong track record, even if people currently sell weather and disaster futures on the open market (a true fact).
We thank you in advance for your response!
The Changemakers Team
The idea is not to price -- or buy or sell, for that matter -- lives and health status of individuals. The bond market is not buying or selling productive activity in the economy. The yield curve (the plot of various bond interest rates by length of bond term), for instance, is read as an indicator of the robustness of the economy. The fact that there are financial instruments that trade on the direction that bond yields will go sums the knowledge of the financial marketplace in this area. So, I am not advocating monetizing individuals' lives and health statuses. Rather, I am proposing that there be established a market in predicting population health. All this does is provide more information.
Governments (and private investors) will be incentived to act in two ways...(Pasted from my earlier response)
Well, politicians naturally follow polls (probably to a fault). More recently, candidates are following the election markets (which are published daily on Slate.com) and, of course, the stock and bond markets. My hope is that these market indicators will be another key datum to which they are slavishly devoted.
A second answer is that if we can get big money in the markets, then, of course, they will get lots of attention. There are two types of big money, private and public. If pension fund managers or hedge fund managers, for instance, start putting funds there as an investment, then the pols will pay attention pretty darn quickly. Also, if ths U.S. does end up going the route of Chile in privatizing the pension system (or investing public funds into the private market), this might be a worth-while investment of public funds. In fact, it can be seen as a compromise position between those who want the Medicare and social security trust funds invested in private markets (by individuals or by the government itself) and those who care about progressive causes.
The point about knowing whether these actions work: Of course, establishing pure cause and effect in any realm of social life is fraught with difficulty. However, markets have long been shown to be better prediction mechanisms than polls, experts or other forecasting tools. They do this by aggregating "hidden" information . So, if the price of a "child vitality" future rises, a politician may take credit for its rise when she had nothing to do with the effect. Let them. I am not proposing to end politician's false-credit taking!
Enron is another case entirely. It was a single company trading electricity rights in quasi-monopoly fashion. And was committing accounting fraud. While fraud is always a bad thing, the consequences of Enron going belly up would have been less severe if 1) there were stricter rules in place about how much of a company's pension fund can be invested in itself --meaning that they can't put such a high percentage in their own stock or company options (something that I have advocated elsewhere). Then, the workers would not have lost their life savings since the 401k would have been--by law--diversified. 2) If there were many players in the futures market, then they would not have been able to arbitrage in the way they did.
As much as Enron is an example of corporate abuse, there are energy futures being traded all the time. Airlines buy feul futures contracts to stabilize their fuel costs in order to make budget projections in a world of highly volatile oil prices.
I love this idea! To turn things upside down by monetizing good health. Why not add education? Our society is so skewed that health and education are about the only two things not monetized right now, and therefore, unfortunately, not valued.
More research on this groundbreaking idea would be wonderful.
Best of luck, Deb
Deb Levine, Exec. Director
ISIS, Inc.
www.isis-inc.org