The March of Science and Health Care Reform

On a Planet Money podcast two weeks ago, economist Charlie Wheelan weighed in on the significance of genetic testing – the advancing ability of science to determine your genetic makeup, including your propensity to develop various serious or costly illnesses. This really crystallizes one dimension of the health care debate.

If insurers know what your projected long-term health care costs are, because they can read your genetic code, then they are going to price accordingly – and that’s exactly what insurers should do in an unregulated market. This produces the dystopian world where not only are some people unlucky because their genes make them more likely to suffer in various ways, but on top of that they can’t get health insurance and therefore health care.

The first-order solution is obvious, and it’s a part of every health care reform proposal: prohibit insurers from engaging in medical underwriting. As is also generally understood, this means that insurers will have to overcharge healthy people, which creates an adverse selection slippery slope – especially when healthy people have scientific evidence that they are, in fact, healthy – that ends when insurance is very expensive, and only rich sick people have it – that is, today’s individual market. So it has to be accompanied by a mandate, to force healthy people to buy insurance and thereby subsidize the sick.

Wheelan points out that there’s a second-order problem, which is that if insurers have to charge everyone the same price, they will compete by marketing to the healthy and trying to hide from the sick. The insurance exchange(s) should limit this problem, but may not be able to eliminate it, since people will have choice on the exchange, and are free to choose the plan that successfully markets itself as the plan for healthy people. Eventually you get to a point where insurers cannot compete on price, and they cannot compete on risk selection, and they start to look a lot like regulated utilities. That’s not terrible – they can still compete on cost – but it’s what happens when you harness the private sector to do something that is essentially redistribution.

In any case, the other lesson is that widespread genetic testing will only make the unfairness of unrestrained competition in the health insurance sector even more glaringly obvious, since it will increase the divergence between rates for sick people and healthy people. And no one will be able to blame the difference in rates on anyone’s “lifestyle.” Which is another reason why we need to reform our health care system, and establish the principle that everyone deserves a basic minimum of care regardless of their genes, before things get much worse.

By James Kwak

40 thoughts on “The March of Science and Health Care Reform

  1. Health is one thing among many dependent on genetics, and then only partially…

    Height, on the other hand, is almost totally dependent on genes. And all available evidence suggests that, on average, tall people are wealthier, more successful, etc. Shouldn’t we be taxing height? If not, why not?

  2. The answer is simple, community rating, ie everyone pays the same, and everyone has to have insurance. The insurance companies don’t care as long as they get their 20% (the remaining 80% being what’s called the medical loss ratio). This is the deal every large company has with their health insurance companies. You never hear of a 55 year old executive of a large company with serious health problems being denied the same coverage that every other employee has, do you!

  3. As a metaphor for the importance of community rating and mandates this is characteristically elegant and spot-on. It’s worth pointing out, however, that the genetic example is misplaced since this activity was already federally banned in 2008. See “Genetic Information Nondiscrimination Act — A Half-Step toward Risk Sharing” New England Journal of Medicine July 24, 2008, which makes very similar points.

  4. Unfairness? Would it have been “unfair” for a mortgage lender to turn down a prospective mortgagee with no evidence of income or history of creditworthiness? It seems to me to be unfair to ask private insurers to assume these risks and thus the burden of redistribution.

  5. You can’t compare a home mortgage to a health insurance policy. Whether a home buyer is a good credit risk or a defaulter in waiting is very much in his control. Whether a prospective buyer of health insurance will end up costing the insurer medical losses or live to 90 paying his premiums regularly… is much less so.

  6. I used to be a semi-truck driver years ago. I know the trucking industry has been talking about using people’s hairs to take drug tests on. Of course the trucking industry is trying to weasel the government to pay for it. Apparently it’s one of those things the trucking companies think the government can do well if the government foots all the bill.

    With your hair (maybe a single strand, I don’t know how much they need) they can see over a period of weeks what drugs you have taken into your system. It would help eliminate the tedious urine tests and be a more accurate and less random way to see if drivers were breaking the rules. They had a truck-driver recently was driving drunk and killed 10 people on a turnpike in northeast Oklahoma.

  7. Which is part of the reason why private health insurers shouldn’t exist at all. They are existentially “unfair”.

    That’s the point of the post – it’s a perversion to drag basic human rights into the world of mercenaries and “markets”.

  8. establish the principle that everyone deserves a basic minimum of care regardless of their genes,

    How inspiring. How about, everyone deserves the best possible care that is available ?

  9. I think this post touches a fundamental issue which is, strangely enough, almost absent in the discussion and very few comments mention it. The issue is whether healhcare is a commodity or a human right. This has to be clarified before the cost of healthcare is brought to the discussion. If healthcare is a human right then some kind of public option is mandatory as the government is by definition responsible for protecting the rights of its citizens. Any public option will necessarily work on the basis of redistribution. If healthcare is a commodity then you (I’m not american) will have to accept that it will be inevitably rationed on the basis of income through some kind of regulated insurance market (some variation of what happens now). The technical details will have to be discussed after this fundamental decision is made. Most of the discussion revolves around trying to make healthcare a human right without stopping treating it as a marketable commodity – an intractable problem. I think that one major problem is that such ideological discussions will necessarily invoke concepts like “socialism” a word that is synonym to “Evil” in US culture.

  10. Thanks, Kyriakos, you analyze the dilemma and the ideological contradiction well.

    It seems obvious that ensuring decent basic health care is one of the core reasons for having a society in the first place. Otherwise why bother? If we’re going to be Hobbesian barbarians here, then where could we not legitimately be such barbarians?

    “Luxuries” could be a different story, and where the line is between basic rights and frills is, as you say, a technical detail. The point is the principle.

    Only the parasitic barbarians of rent-seeking dispute this.

    (Although after asking a thousand times I’ve still never gotten an answer to the question, how do they expect accumulated wealth and property to exist at all in their lawless every-man-for-himself might-makes-right wasteland? I’d happily place just them there so the rest of us could watch and find out. I bet it wouldn’t go very well for them.

    That’s why their every word is a lie. They say “markets” and “capitalism” but really mean the rigged markets of corporatism, and they say “liberty” but really mean the brutal dictatorship of wealth and property.

    They do want big, aggressive, violent government, but only as their hired thug.)

  11. “prohibit insurers from engaging in medical underwriting”

    How is it that proponents continue to use the term, “insurance,” for the product that remains when the essence of the concept of insurance is made illegal? This matter is complicated enough without creating an antagonym. Different concepts demand different words.

  12. “How inspiring. How about, everyone deserves the best possible care that is available ?”

    And the best car and the best home and the best education and nice vacations and all the toys and goodies.

  13. I am unaware that genetics can predict falling off a ladder, or any other kind of accident – might people want insurance to cover such contingencies? Also, I have read dozens upon dozens of review articles on genetic screening, and most of them conclude that genetic markers are of such dubious value that they are not cost effective for any public health concern. We already know what percentage of people die of cancer and heart disease. There is no genetic test that outperforms the knowledge one gets from how someone’s parents died.

  14. …or a long, happy, pleasant life is better than a nasty, brutish and short life. What a horrible assumption.

  15. The world is degenerating into collection of rival criminal enterprises. 1000 years of struggle for civilization down the drain.

  16. More successful and wealthier people are already being taxed more. Since taller people are statistically more successful and wealthier, obviously height is already being indirectly taxed. This is right!

    At birth, we are all blessed or handicapped differently. Some example of winning the lottery of birth includes being born rich, smart, artistic, supportive family, and etc. The losers included: poor, low IQ, bad family environment, and etc.

    The blessed ones will most likely consume many times more from life compared to the handicapped ones due to the compounding of their advantage in a life time.

    A civilized society should redistribute wealth to even out the gross unfairness due to luck.

  17. Kyriakos, a good analysis.

    Here is what Canadian Senator Hugh Segal said when he defended universal health care in Canada after it was attacked by an American senator. Segal is a member of the Conservative Party of Canada.

    Quoting from memory, Segal said: Conservatives in Canada and the United States agree on issues like free trade and lower taxes. Canadian conservatives like their American counterparts do not believe in equal distribution of wealth. But Canadian conservatives believe in equal opportunity, and the provision of universal health care, provides Canadian citizens with an equal opportunity to reach their potential, so they are not burdened by illness, or the cost of treating illness, so they have an equal opportunity to contribute to society and to make our country a better place.

    Perhaps one day, American conservatives will come to view health care in the same way as their Canadian counterparts, as so eloquently expressed by Senator Segal.

    At a practical level, people cannot work or take of their families, when they are ill or dealing with an untreated illness on a longterm basis, so this is bad for the economy.

    What many Americans do not understand is a socialist party has — never — formed government at the federal level in Canada. Furthermore, as others have noted, Bismarck instituted national health care in Germany. So the attack on universal health care as “socialist” is fear mongering. It is calculated disinformation that forwards the agenda of the American health insurance business.

    In Canada our businesses and corporations are more efficient and competitive because we have universal health care. IMHO the attack on universal health care by American conservatives is a disservice to business, and a self-inflicted injury to the American economy.

  18. But you do get the sense that companies take plausibly deniable actions to preferentially move 55 year-olds out of the pool to replace them with 25 year-olds. Part of this is natural process and has to happen eventually, but until the pool is defined broadly enough that it is indifferent to age there will always be a rational incentive here as clearly increasing age correlates well to increasing health costs. What pool is broad enough to make this happen? Well characteristics would be that you are in the pool at birth and only leave the pool when you pass on. Single-payer?

  19. Yes, and once you ask the right question, the answer is perfectly obvious. Except to those determined to profit from obfuscating it. After all, if government is so incompetent, why are we willing to entrust it with our physical safety? Why not private police forces, and armies (oh, wait a minute, we have those now, don’t we)?

  20. I’m not sure who “they” are, but I would say that most wealthy people I know understand that the structures promoting social stablity – like public health, police, courts, schools – serve to protect their larger than average stake in the aggregate property of society and are willing to put more into these areas than would fall to them on a strictly per capita approach to taxation. But there are a whole host of areas where it is not obvious their property wealth gives them a bigger stake in collective solutions than someone of much more modest means. A wealthy individual can suffer arthritis just as a poorer person can – but they can’t suffer 10 times as much simply because they are 10 times wealthier. So I think it is socially reasonable that everyone gets into the same health insurance pool, but at the same time it is unreasonable that anyone other than the absolutely destitute get a subsidy to pay the necessary premiums to provide for the coverage. If good health is critical to quality of life, why should it need to be subsidized? It is more important than a new suit, a new car, a cable TV package, a better cut of meat, a more frequent haircut….if it is about the best expenditure that a person can make, people of all means should be happy to cut back elsewhere in order to pay it.

  21. I should also point out many human traits such as hard work, focus, self discipline, intelligence and etc. are determined by

    1) genetic (nature)
    2) the family environment (nurture)

    No one choose their genes or their parents. Therefore, regardless of your accomplishment, a very significant component of it is simply pure luck. It is not much different than being born rich.

    The ability of a person to consume many times more than another in life is largely not earned.

    A civilized society should redistribute wealth to even out the gross unfairness due to luck

  22. Again, what’s the purpose of society itself if people should have to “cut back” all the way to bankruptcy in order to receive basic decent health care?

    Really, if someone can’t even get that, what’s his stake in society? In that case why shouldn’t the poor just kill the rich, so at least they wouldn’t have to endure the indignity of having such “luxuries” as basic health care flaunted in their face?

    Either way they’re not getting the care themselves, right? But at least the latter way they wouldn’t have insult added to injury.

    (That’s the same point I’ve never understood about the “Too Big to Fail” protection racket.)

  23. I think that the ability of genetics to predict your health care consumption remains to be seen. Yes, there are some relatively rare genes that are associated with outsize risks of some particularly nasty diseases. But this is a very small piece of the pie for the population as a whole. The common diseases have enormous environmental and behavioral components, and even their genetic components are for the most part complex beyond our ability to understand, let alone use for predictions in the foreseeable future. The whole “paradigm” of genetic prediction and “personalized medicine” is more of a marketing campaign to pry research funding from Congress than real science at this point. (Don’t get me wrong, I’m not opposed to putting reasonable amounts of research funding into this area–it seems likely it will pay off in important, and mostly unsuspected, ways. But the idea that we’ll be predicting people’s health expenses from their DNA any time soon is just nonsense.) Maybe that’s why it was so easy for Congress to ban health care underwriting based on DNA: they knew it wouldn’t matter much anyhow.

    While I’m here, let me touch on the issue of basic health care vs. the best possible health care. I think one of the problems with our culture is that people think there’s a huge difference between these. I think, to the contrary, they are close, if not identical. The tacit assumption in our culture is that more and more expensive procedures are better. But there is no evidence that this is so. In fact, in the US, the regions that spend the most on health care do not have better health outcomes–to the contrary, they have worse health outcomes. The most commonly accepted estimate is that at present about 1/3 of all health services provide no benefit. (Personally, I think it’s higher, but let’s stay with that.) Now, if they don’t provide any benefit, they are actually a negative. Even if we didn’t pay any money for them, every health service carries a definite, knowable rate of adverse events associated with it. People have been seriously injured or killed during MRIs when a metal object in the room got launched at them when the magnet turned on, or when the strong magnetic fields dislodged internal metal clips from previous surgery! It doesn’t happen often, and with caution the incidence can be held to a minimum. But why should it ever happen if the MRI wasn’t going to provide useful, actionable information in the first place? There are cheap generic drugs that can be used to treat high blood pressure (aka hypertension) and are effective in about 95% of all people with that condition. Well designed studies have shown clearly that these drugs not only lower blood pressure as well as the new, expensive brand name drugs, but they actually perform better in terms of the real goal of treating high blood pressure: preventing strokes and heart attacks. That’s right, the old cheapie drugs are actually proven to work better than the shiny new ones that industry promotes. Yet due to the disinformation campaigns we antiseptically call marketing, nearly all patients and many doctors labor under the mistaken belief that the new, patent, expensive pills are better. It’s almost considered axiomatic.

    Much of the 2/3 of health services that have not been classified as useless is in that grey area where there just isn’t any real evidence whether its harms or benefits are greater. A health care system that fully utilized the treatments that really prolong or improve the quality of life, and discarded those that are known not to, would be a much better system than what we have today. But would this be “basic” health care or “the best health care available?” To my mind, it would be both at once.

    In modern health care, less truly is more.

  24. I agree with you, but don’t you think it’s useful to be able to select better courses of treatment by using genetic markers?

  25. Oh, it depends. If the genetic markers really do predict meaningful differences in response to treatment, and if testing for them can be accomplished at a cost that is proportional to the usefulness of that prediction, then we definitely should use them.

    My point is not that this shouldn’t be done–I’m just saying that we won’t really be able to do this in the near future. It is a research program that may or may not bear fruit–it is not currently a mature technology. We have only a handful of truly useful genetic markers at this point.

  26. The poor killing the rich is why I suggest that the wealthy are willing to pay more for policing, courts and the like. As for bankruptcy, isn’t that the functional equivalent of destitute? Yes, subsidize the destitute. But why subsidize people of some means who are choosing, for example, to retain their season’s ticket package to the local NFL team (even if it is just the Bengals)? No Russ, I don’t accept that health care is advanced to the status of a human right, but that its value to the individual or family, as implied by a heavy subsidy structure, is less than the monthly cable TV package, the kids’ soccer team cookie bills, the dog or cat food consumed by the pet and a very long list of typical expenditures by individuals and families who stand to be subsidized. If people are unwilling to spend their own income on health insurance premiums, just how important is it anyway?

  27. It’s hard to imagine how a family of 4 earning $2000 per month wouldn’t want to spend $1000 or $1500 per month on health insurance.

  28. Yakkis: if it is just a matter of what people want to spend their money on then I ask again: How important is health care really? I agree that some level of subsidy is socially sensible, but the proposals are far to high into the income distribution. One of the cardinal principles of this whole reform effort is that health care is incredibly important to our citizens, so why shouldn’t people leap joyfully to buy their insurance in place of a vacation to Disneyworld for the kiddies? It isn’t that I hate Disneyworld, but why should I ask other people to subsidize it? And if you subsidize health insurance premiums for folks who are left with enough cash to go to Disneyland, that’s exactly what you are doing. It would make social sense if we agreed that Disneyland is at least as important as health care, but the entire discourse seems to be that it isn’t.

  29. The nature of true health insurance is that it’s insurance against a catastrophic loss. The concept of the risk pool. With a risk pool in any type of insurance most people are going to pay more in insurance premiums that they would in actual medical or other costs, for the certainty that if their costs are high they will be absorbed.

    In a free market system of insurance, at lower income levels people are going to stop paying for insurance anyway. They will gamble that they’ll be in the majority that doesn’t have high medical costs. Due to the disparity between individual and group insurance, if they aren’t part of a group the coverage may not be that affordable anyway.

    So for the people who forgo insurance, they are going to either get charity ER care, which they are not paying for, or they go bankrupt, where they still do not pay for their care, or they die.

    The first two groups are not going to be paying for their care anyway. I’d like to avoid the third scenario. I don’t see where subsidizing premiums is any worse of a system.

  30. Employer Tax Deduction for Employee Health Insurance Must End

    There is one issue in this health care debate that has gotten almost no press. When the issue of the HIGH COST of health insurance and the high cost of health care and drugs are discussed there is never any mention of the employer tax deduction for employee health insurance. My understanding of the effects of this tax deduction is that this is the primary cause of the high cost of insurance and care. The fundamental reason is that the individual citizen (i.e. the employee) is separated from his health care dollars. Each employee is not allowed to “vote” with his dollars for the most cost-effective health insurance, and indirectly health care, that meets his/her needs. Because of this there is no market place for health insurance. Instead the health insurance companies have complete control of the health insurance market through employer paid health insurance, which is subsidized by taxpayers through this tax deduction. Health insurance companies, and American Big Business in general, do not want an active, critical, citizen/employee-based, market place. When someone else (i.e. taxpayers) is paying part of the bill there is no reason for the purchaser (i.e. the employer) to strike the very best bargain.

    Without this tax deduction there would be no reason for employers to provide health insurance. Without this tax deduction we would have a true health insurance market place at the citizen level. As long as this tax deduction is in place there will be no significant improvement in the cost of insurance and care. I do wonder why economists do not focus on this tax deduction in their many analyses of the economics and cost of health care. My speculation is that conservative economists don’t mention it because they believe eliminating this tax deduction would be bad for health insurance companies, and American Big Business in general, while liberal or progressive economists don’t mention it because they believe that eliminating this tax deduction would work against the individual employee/citizen because they believe the employer would not increase wages by their current cost of health insurance. So what I suggest we have here is a case of a very unhealthy co-dependency on a tax deduction that has driven health insurance and care costs to their highest possible levels. A co-dependency not unlike a drug-centered co-dependency. And of course there is the co-dependency between members of Congress and the health insurance industry.

    I’m well aware this is not a trivial issue. The employer tax deduction for employee health insurance is the single largest tax deduction, significantly larger than the tax deduction for home mortgages. A solution would be for Congress to eliminate this tax deduction by reducing the deduction by an equal amount over five years. This would allow employers, health insurance companies, and employees/citizens to develop a new cost-benefit equilibrium over the next five years. Of course members of Congress currently receive considerable sums from the health insurance industry. Eliminating this tax deduction would serve to reduce those campaign contributions and lobbying efforts considerably since the health insurance industry would no longer have to “protect’ this tax deduction. In summary, we currently have high cost health insurance and care and drugs because Congress has given away, and continues to give away, tax-payer dollars via a tax deduction. This would constitute REAL CHANGE in our political and corporate cultures.

    I am in support of a single-payer non-profit health insurance company. If that is not politically possible, then I am in support of a public non-profit health insurance company to compete with for-profit health insurance companies. Under NO circumstances should there be a law REQUIRING every citizen to purchase health insurance, which I think would be UNCONSTITUTIONAL.

  31. There is no real dispute. I keep making the point that we already are subsidizing the people who blow their money on other things, and then show up in an emergency room getting the most expensive kind of free care for non-emergencies. This is why we need to force them to pay their own way in some fairly apportioned system of taxation and let them go to see primary care doctors when they get sick.

  32. “As is also generally understood, this means that insurers will have to overcharge healthy people, which creates an adverse selection slippery slope –”

    It may be “generally understood”, but it’s also wrong. The “slippery slope” is just not slippery in simulations with reasonable parameters. “Demand elasticity, risk classification and loss coverage: when can community rating work?”

  33. This is disingenuous on two fronts.

    First, the wealthy have been–through free trade policies, open immigration, lowering the most progressive tax rates such as estate and capital gains taxes, buying off legislatures and board of directors–returning us to the gilded age, without *ever* suggesting it’s gone too far; Bill Gates Sr.’s, Warren Buffett’s and others statements about the necessity of estate taxes make the silence from the rest of the wealthy more deafening.

    Second, health care suffers from so many market failures and is so expensive that many simply cannot afford it. In particular, as long as insurers have a choice who to insure, those with poor health (preexisting) will not get care. You cannot rely on (life-) long-term contracts to take care of this.

    Isn’t it clear that the overwhelming success of single-payer health care worldwide is evidence enough? Quarrel with the details, fine. Give universal vouchers with every insurance company required to take all comers, OK. Or best of all–single-payer.

    I am afraid the worst is coming up: the bribery will win out and the President will punt. Just like in the financial sphere where no reregulation is likely to come about despite the crisis, the concentrated interests of the industry are going to win out over the good of the nation.

  34. Thank you, Tippygolden. Beautifully put.

    The fearmongering is, unfortunately, winning the day. “Take your &^*$%# government hands off my Medicare” is representative; but we should also be making crystal clear–to blue-dog constituencies above all–that many things they trust and rely on and have a high regard for and personally identify with–roads, police, military–are government run.

Comments are closed.