Banning Genetic Tests For Insurance Poses Threat For Consumers

Some time ago my wife and I
learned one of us might have inherited a genetic disease. Our biggest
concern was for our newborn daughter — might she be afflicted? If so,
could the results of genetic testing be used to deny her or us insurance?

Governor John Engler’s promise
in the State of the State address to prevent insurance companies from
requiring patients to take genetic tests struck a special chord with us
because it is such a misguided solution to the problem.

Insurance companies are the
target of choice for politicians. As Republican State Senator (and surgeon)
John Schwarz of Battle Creek told the Detroit News recently, “There are
members of the legislature that are too cozy with insurance companies.
This ought to be a no-brainer. We don’t want insurance companies denying
people coverage based on genetic disposition.”

The problem with this view
it represents a fundamental lack of understanding about how insurance
companies work and as a result poses a long term threat to the very existence
of private insurance.

Insurance policies for life
and health insurance first came into widespread use with the advent of
modern statistical analysis. Such methods give us important but incomplete
information about risks. Today statisticians can predict the general risk
of heart disease for a male nonsmoker in his 40s, but no one has the ability
to determine which particular men will get heart disease and which men
will remain free of heart problems.

Insurance companies distribute
risk by charging rates that adjust for this incomplete information. Those
who never suffer heart disease end up subsidizing those who do, but the
cost of insurance is spread over many individuals so the cost remains
relatively low.

Ironically, genetic testing
provides information that makes it extremely difficult to efficiently
distribute risk.

Imagine scientists discover
a gene that increases the risk of heart disease three-fold. All other
things being equal, men who test positive for this gene will load up on
health and life insurance and gravitate toward plans with the largest
benefits, while those who test negative will tend to reduce the amount
of health and life coverage they buy and gravitate toward plans with fewer
benefits and lower premiums.

As the role genes play in disease
becomes clearer, the result of this trend will be for health care costs
to rise dramatically for insurance companies as people whose genetic tests
reveal serious future health problems buy far more insurance than they
normally would and those who hit the jackpot with relatively healthy genes
buy far less insurance than they would have without genetic tests. The
insurance industry gets squeezed at both ends and may have trouble remaining
solvent even with extremely high premiums.

Isn’t there anything that can
be done to protect both the insurers and the insured? Andrew Tabarrok,
an assistant professor economics at Ball State University, suggests an
alternative solution that benefits all parties — require people receiving
genetic tests to purchase genetic insurance.

The logic behind Tabarrok’s
proposal is similar to the justification for mandatory automobile insurance
— the knowledge gleaned from genetic tests potentially imposes very large
costs on individuals and the rest of society (when individuals can’t afford
the costs of their health care.) Genetic insurance would cover just those
additional costs.

Unlike the Governor’s proposal,
which risks ballooning insurance premiums, Tabarrok’s idea might actually
lower costs in the long-term.

Since the cost of genetic diseases
is already included in current health care costs (people are already dying
from genetic diseases, after all, even if our ability to detect such diseases
is only in its infancy), Tabarrok’s proposal merely separates current
insurance policies into genetic and non-genetic components — the cost
of the combination would be no greater than the current cost of health

Since neither patients nor
insurance companies get short changed if policy holders test positive
for disease-causing genes, it is in the insurance companies’ interest
to encourage people to get genetic tests. People who test positive for
a heart disease gene, for example, could begin a low-fat diet and regimen
of exercise early in life thereby increasing the probability they will
avoid heart disease altogether. This benefits both parties by potentially
extending the life of patients and helping the insurance company to reduce
the costs spent treating disease.

The main defect of this system
is that it doesn’t lend itself very well to sloganeering. When Governor
Engler or some other politician says he’s going to solve a problem by
slapping another requirement on insurance companies, that’s a lot easier
to understand than Tabarrok’s somewhat counterintuitive (but effective)
scheme. Those who propose a more indirect route such as genetic insurance
risk being labeled as being “too cozy” with insurers.

It is quite clear, however,
that various mandates handed down to insurance companies in the past few
years are causing insurance premiums to rise dramatically, threatening
Americans’ ability to find affordable insurance. The new mandate Gov.
Engler proposes would only serve to needlessly exacerbate this trend.

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