Insurance has two main concepts moral hazard, an effect that is present after signing up to insurance and adverse Selection one that is present before you sign up; the latter is the one that interests me today. What Adverse selection means is that people who feel they are more likely to fall ill will more likely go insure themselves and those who face less risks will not (related to the “it won’t happen to me” human failure). The case for government running insurance schemes is the ability to spread risks on a massive scale (the whole country) which can overcome adverse selection (which might draw in risky immigrants, so eventually this should be done on a global scale), simple enough.
The next point… is well…those of us who have seen the movie Gattaca are probably very aware of the social risks that could arise as scanning genetics becomes increasingly more available. Clinton signed a bill in 2000 to ban such discrimination, essentially capping the information which insurers can use to accept or reject someone. It’s easy to ignore the big picture and merely accept that the threat is gone, ignoring the fact that this gave birth to a very real danger for market failure.
Not allowing for such information disclosure would be fine as long as both parties had an equal amount of information. But the fact is there is a very strong information asymmetry case to be made, where people are much more aware of the genetic or otherwise risks they face. As years go by an increasing proportion of us will know the genetic risks we face through medical tests(which we won’t share with insurance). This information asymmetry problem becomes more prominent every year and adverse selection is on its tracks. As the pool of people who sign up for insurance becomes increasingly more skewed, either the insurance industry will raise their premiums(if this happens gradually enough) and deter people with good genes completely or an inevitable collapse for the health insurance industry, unless of course black market for genetic information is created.
So we will eventually have two choices, nationalizing, (better yet… globalizing) all of health insurance or allowing for discrimination. Just like always, the government solution will benefit the weak (genetically) by allowing them to pay a standardized (average) premium just like everybody else and the private solution will benefit the genetically gifted by charging low risk individuals lower premiums… a true return to the “survival of the fittest”.
Most of us have grown to accept the idea of choice discrimination (like smoking or drinking) but will the human masses really be able to accept innate discrimination?