Did Congress Just Kill Private Health Insurance?
As you may have heard, the U.S. Senate passed the Genetic Information Non-Discrimination Act yesterday. Once through the house, President Bush is expected to sign it. The law will have a huge effect on private health insurance—and may even hasten its demise.
The Genetic Information Non-Discrimination Act, 10 years in the making, is meant to encourage people to use genetic screening in order to detect latent medical problems, before they become more difficult to treat. The new law says that employers and insurers cannot deny employment or insurance to anyone who has opted to take a test, regardless of what the results show.
What does this mean for private insurance?
The adverse selection problem becomes huge. In the context of insurance, adverse selection describes a situation where, as a result of exclusive information, one party (either the insured or the insurer) has an advantage, and uses that advantage to the detriment of the other party.
Here’s an example of adverse selection will work under the new law:
If you, Joe Sixpack, get genetically tested and the results reveal that you’re predisposed to a bunch of different medical conditions, you’re likely going to run out at buy as much insurance as you can, and this new law will enable you to omit mention of your test results.
Insurance is something that people buy because they can’t predict the future. But in the case of genetic testing, a consumer can, to a certain degree, predict his future.
So, this is the nightmare scenario for private insurers:
- Everyone gets genetically tested.
- Every sick (or soon to be sick) person buys insurance, and subsequently racks up gi-normous medical bills.
- Insurers pay through the nose and are forced to raise premiums for everyone.
- Healthy people, feeling the sting of higher premiums, drop their coverage. (Their genetic crystal ball says they don’t need health insurance, anyway.)
- Insurers are left with a bunch of sick (read: expensive) policyholders (and are forced to keep enrolling them).
- Private health insurance goes belly-up.
Anyone have a more sanguine scenario to share?
Comments
Ignorance is bliss. I like the unknown. I would not want to walk around the rest of my life knowing that I have the potential for disease with little or no chance of surviving. Every year we pass the anniversary of our deaths without knowing what day that is. It is the great unknown. It’s the whay it should be. There is something very “Soylent Green” about knowing one’s own demise.
I also doubt that Joe Six Pack has the time, money and/or inclination to have some genetic testing done.
The Insurance companies have the time, money and incentives to prescreen their applicants genetically. The Insurance companies will most likely put their lobbyists to work looking for ways around this law and somehow to their advantage.
Most likely the insurers will allow potential candidates to prescreen themselves by submitting to insurance company sponsored genetic testing. Lower rates and better coverage will be the inducement to act. The application will contain wording as to waiving ones rights under the Genetic Information Non-Discrimination Act and the insurance company will promise not to discriminate against the applicant. Maybe even guarantee placement of insurance for anyone who is willing to submit to insurance company sponsored genetic testing.
However, guaranteed placement will translate to “High Risk” individuals being priced accordingly. “High Risk” applicants will charge that the insurance company’s rates are discriminatory. The insurance company will say that they are just taking rate for the risk and have the data(and lobbyists) to back their argument.
What will happen in the end is that the “ High Risk” individuals who need the insurance the most will not be able to afford it and the insurance companies will be left with mostly healthy individuals.
The Insurance companies will be just fine. My father said “if you want to make money you will have to work for a company that has money. There are only two types of companies with money. Banks and Insurance.” Lately, the banks are not doing as well as the insurance companies.
Private health insurance will not go belly up. It will be harder to get if you need it.
Posted by: Greg | April 28, 2008 09:21 AM
Greg:
Thanks for the thoughtful (if cynical) response. :)
I think that you've got a good point—when dealt lemons, insurers have a good record of making lemonade. (Pardon the cliche.)
In any case, it will be interesting to see how things play out! It's definitely an uncertain time for insurers, what with elected officials feeling more pressure than ever to come up with a reform proposal that lowers health care costs and extends coverage to more people ...
Posted by: Jeb | May 7, 2008 03:43 PM