Insurance and genetics

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?

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4 thoughts on “Insurance and genetics

  1. Love the post: fame of nationalization of healthcare.

    My perspective on your closing question is this: yes, people are acceptable with innate discrimination. History justifies my views. Racism, sexism, classicism ( 😉 ), and as many other isms as can be configured exist in every society. I would categorize these as innate discrimination: just like genetic discrimination they too are based on things generally out of the control of victim. As a society, people always accept innate discrimination as long as the majority, in terms of those who have power, is favored by the innate discrimination.

    Once again, love the post: it makes me think.

    • Thx for the comment. Not quite sure I agree I don’t think we are ready to accept innate discrimination, if anything we are growing more and more against it. It used to be human’s killed weak babies(spartans), it also used to be that we had slaves(blacks), and even had abortions when they were scanned to be females(china). Though the third one is still happening, its happening less and less every year, “equal opportunity” is a very powerful motto. I’m personally leaning towards the government solution as the most probable.

  2. Great post. Whilst I relate to ChurchMountain’s comment, I agree with diomavro as well. My viewpoint is a middle ground between the two views presented. This is so because I believe that initially, the masses tend to accept innate discrimination because it almost always is the easy and convenient way. The ones that get affected by the discrimination rarely have a voice to be heard. There is a reason that I say initially however. As the few with the power to make a change start acting, these, for lack of a better term, unethical actions, seize to exist. It is a question of whether to do the right thing or doing the things right. From a capitalist view, doing things right would be to generate as much money by exploiting every situation. On the other hand, doing the right thing, would be to engage in an ethical manner. If you will bare with me, I’d like to relate this to the convergence theories that exist relating to the developed and developing countries. Lucas’ paradox predicts that within this century the developing countries, more specifically African nations, will catch up with the developed countries of the world. This has been predicted before but it still is not the case. With the introduction and development of the technology, it would seem likely. One still cannot ignore the corruption and unforeseen factors that prevent the development of these nations, along with their debts. If I may predict, that if there is no government intervention, the mountainous difference in the case of these nations may become a reality for different classes amongst a population. Nonetheless this is a outstanding post.

    • Great comment! I know I learned something new! The market is a very influential and complex force and capitalism is a great system to show us optimal efficiency but there is a very powerful critique to be made indeed. Why is liberty the only value that matters? If we are to remain ethical the market must be accepted as an information mechanism and not an almighty omniscient being.
      Though I do agree that it’s hard to tell what the future holds, I recommend you read Dani Rodrik’s “Unconditional Convergence” which in fact demonstrates as far as manufacturing is concerned that no matter what policies are implemented the developing world is catching up.

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