Genetic Testing: Further Debate with Richard Epstein

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5 Responses

  1. meep says:

    Perhaps a little off-topic, but there’s a problem with genetic testing and insurance:

    I go through a hypothetical example, with numbers, about what the impact of anti-selection is (that is, those who know they’re at a high predisposition for certain conditions take advantage of policies that work in their favor… this is what happens when one doesn’t price for known risks.) I don’t see this is necessarily a problem for employers, other than anti-selection of this kind might make certain generous benefit programs go away, as employers are under no obligation to keep a particular benefit plan — of course, the employers (or the insurance company providing group benefits) won’t find out about their extra risk until the condition actually occurs (though, of course, it may never occur.)

    As for employers being more able to absorb the risk – well, even small businesses do a better job than the individual (as there’s more people to spread the risk over) – but why should it be a function of the employer? Why not a function of the government or private market at large? I don’t get car or home insurance through my employer, for example — I go and buy my own in the private market. These risks are something that could also be borne by my employer, as the company I work for is larger than just me and could spread risks. But they don’t bear those particular risks, and nobody complains about that.

  2. geoff manne says:

    This seems crazy:

    With insurance, there’s the issue of how equal a risk distribution one wants to achieve. We could have health insurance, for example, that is prohibited from charging people extra based on pre-existing conditions. In other words, we all bear the cost of health insurance equally. Another model is for those who are more at risk to pay higher premiums and those who are less at risk to pay lower premiums. I generally support insurance that is more equal – even if that means I pay more. The primary benefit of insurance, I believe, is to spread risk throughout society so as to eliminate certain contingencies in life. Society as a whole absorbs these losses, rather than particular individuals. Unfortunately, insurance only partially functions in this way today

    The errors of economic logic in this one paragraph (to say nothing of the others) are pretty serious.

    For starters: We could have insurance that is prohibited from charging a market-clearing price (it’s called price controls). The effect is not, however, simply a re-spreading of risk. Insurance will become a losing proposition for the insurers (and, of course, the low-risk insureds) and they’ll go out of business. Insurance won’t function as insurance — it’ll just be cumbersome and limited redistribution.

    What most amazes me is the statement that the purpose of insurance is to spread risk through society. In what world? Insurance is a private decision (except where it is offered or mandated by the government) and its “purpose” is to make money for the insurers and to smooth income and consumption for insureds. It’s true that insurance companies (or other effective insurers like large corporations, etc.) are better risk bearers than individuals in part because they can aggregate risk across a larger population. But this isn’t even close to what you said. Insurance is not a giant redistribution scheme. It’s not about “equalizing” risks or protecting the uninsurable. That’s just wishful thinking on your part.

    In the end, any of your suggestions for distorting insurance markets would be just that — distortions. Each intervention will beget further interventions to correct the prior distortions until you’re left with a hollow shell of an effective insurance market. If you’re bothered by genetic inequality, the way to correct it is not by crushing the insurance markets. Try basic income redistribution or insurance vouchers or some other mechanism for subsidizing the unluckys’ participation in a functioning market rather than eviscerating the market itself.

  3. Bruce says:

    “It’s true that insurance companies (or other effective insurers like large corporations, etc.) are better risk bearers than individuals in part because they can aggregate risk across a larger population.”

    OK Geoff, engage in a little charitable interpretation here and assume Dan meant just that. The issue is how genetic testing alters the existing dynamic which I assume most people are comfortable with. You argue a slippery slope will occur if the insurers are prevented from genetic testing by law, but I’m not sure that the slope is all that slippery. One can easily conceptually distinguish between disclosure of existing medical conditions and habits and undergoing genetic testing (or disclosing the results of such tests) for predispositions that have not manifested themselves. A genetic predisposition is something that, at least at present, is entirely beyond individual control (I suppose there’s a middle ground for genetic predispositions that only manifest given certain behaviors, but let’s just admit for now that that’s going to be the hard case). At present, given the limited information available through genetic testing, both individual and insurer are largely ignorant of the risks. As a result, those with higher risks are essentially “subsidized” by the insurance premiums paid by others (which I think is what Dan was getting at). Why not preserve this status quo, which is not currently “eviscerating the market”?

  4. Paul Gowder says:

    Stuart Buck just posted a link to this paper, which apparently (I haven’t read it yet) argues that statistically-based discrimination is likely to impair market absorption of more individualized information, at least when the statistical information applies to skill. To the extent that some of this genetic discrimination goes to skill-relevant factors, this might be an interesting contribution to the discussion. (I’m not sure that it would be generalizable to likelihood of death.)

  5. Geoff, pardon the fact that I’m not an economist or an expert in insurance, so I don’t speak the lingo or have an extensive background in the functioning of insurance markets.

    On the insurance front, when I was speaking about “insurance” I wasn’t just referring to private insurers, but of the larger concept of distributing the risk of loss. This isn’t the goal of private insurers, to be sure, but I was speaking in terms of larger societal goals. Perhaps national health insurance will achieve these goals better than the current system. Perhaps these goals are the wrong normative aims. I didn’t want to have a debate over the nature of insurance, and I regret using the term. I wanted to have a debate over which risks were appropriate to be distributed and which risks were not.

    For every risk that can be knowable, the question arises whether or not insurers should be permitted to use information about that risk in calculating insurance premiums. Some risks are just unknowable as of now, and so they are not taken into consideration in calculating premiums. Other risks are knowable from certain information or factors, but the law may not allow insurers to use the information and factors.

    Suppose that for Disease X, there’s no good factor or test that will help assess the risk for developing the disease. As a result, insurers treat everybody as having an equal risk of developing Disease X. Now suppose that suddenly a test is developed that can predict with a great degree of accuracy whether a person will develop Disease X. With this test, those at risk for Disease X now are suddenly disadvantaged. Before, there wasn’t information to reveal their risk factor; now there is, and if insurance companies can use it to calculate premiums, then the losses for this disease can be shifted from everybody to those at risk for Disease X.

    Is such a development a good thing? What if nearly all diseases followed this trajectory? What would become, then, of health insurance?

    I’m not an insurance expert, so I don’t know the answers to these questions. But there is a larger normative question at stake that is raised by this hypo and by genetic data — to what extent should we allow better information about assessing risk (as it becomes available via genetic testing or other developments) to be used by insurers?