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