Mark Thoma has an interesting post up Tuesday from Arin Dube which examines the reactions of various markets to the president's statement that he may be open to the idea of health care co-ops:
Exhibit A shows how investors in the Intrade prediction market reacted to signals from the Obama administration on Sunday August 16 that they are willing to ditch the public health insurance option. In the market’s assessment, the likelihood of a federally administered health plan passing fell from around 35% to around 20%, the biggest one-day drop since the prediction market started in June.
So as the public option’s condition went to critical, and “co-ops” started looking increasingly likely, how did investors in the top 4 private health insurance companies react? As exhibit B shows, champagne bottles were popped.
On a day when the broader stock market took a hit (dropping 2.2% at the time of writing), these four companies with a combined market cap of $80 billion saw their prices rise an average of 3%. Actually, if you dot the i’s and cross the t’s in calculating “abnormal returns”...for these four companies, it comes to be 5.8%. All in all, statements by the Obama administration over the weekend helped investors of private health insurance markets make around $4.6 billion.
Two quick points. One is that spending a few million dollars on contributions to swing senators seems to have paid off nicely for insurance companies. Another is that the president doesn't seem to be entirely powerless in this debate over the public option. He seems to have single-handedly diminished the odds of passage of a reform bill with a public plan from 35% to 20%, so far as market participants are concerned. This would seem to provide some evidence that had the president made inclusion of a public option an absolute sticking point, the Congressional dynamics would be different, and passage of a public plan would be more likely.
Perhaps wayward Democratic senators are simply reacting to the signals and priorities that appear to be emanating from the White House.
This article originally appeared on The Economist.com