October 21, 2003
Genetic Insurance Is Not A Solution To Genetic Testing Problems

Alex Tabarrok of Marginal Revolution argues for genetic insurance instead of denying insurance companies the ability to use genetic test results in setting premium levels.

Genetic insurance is a better way of handling the problems brought on by genetic testing. Genetic insurance would pay out depending on the results of a genetic test. If you turn out to have a gene implying a higher risk of heart disease, for example, then the test would pay you enough to cover your now higher health and life insurance premiums and perhaps also something to cover the possibility that you will have a shorter working life.

The basic problem this proposal is trying to solve is that if people have genetic defects that predispose them toward various kinds of diseases and if medical insurance companies are allowed to ask for and know genetic test results then some will find medical insurance too costly or not available at all. The denizens of the US Senate, in their infinite lack of wisdom, want to prevent medical insurance companies from knowing genetic test results. But such an asymmetry of available information would cause high risk people to sign up for more insurance while low risk people decided to sign up for less. Revenues would go down while costs rose for the insurers. That is not a sustainable state of affairs.

Tabarrok's proposed solution will only work for a short period of time at best. The problem is that genetic testing costs are inevitably going to fall so far that everyone will have their DNA entirely sequenced either at birth or while developing as an embryo. There is not going to be a period of universal ignorance about each person's test results during which genetic insurance could be purchased.

A variety of techniques promise to drive down the costs of DNA sequencing by orders of magnitude including microfluidics (see here and here and here) and nanopore technology (see here). Leroy Hood predicts $1000 per person DNA sequencing within 10 years. Whether DNA sequencing becomes cheap enough for the masses in 10 or 20 years that day is coming.

Also, even genetic test insurance invites cheating with secret tests done in advance of official tests. Unscrupulous people (of which the world has no shortage) could get their DNA tested by, say, a lab in another country and get the results back secretly before deciding what genetic insurance to buy in advance. Plus, the size of the pay-out for such a policy would be hard to choose. How big would it need to be to pay higher medical insurance rates for, say, 20 or 30 years? Kinda depends on whether treatments are developed in 10 or 20 or 30 years that can fix the problems that a particular genetic variant causes. Picture a gene therapy, for instance, that programs the liver to lower blood cholesterol or to make blood cholesterol molecules larger. How long will various types of genetic risk factors remain risk factors? Actuaries are not going to be able to make a decent guess.

The very learned and clever LSE graduate Mick Jagger opined 30 years ago in Fingerprint File "These days its all secrecy, no privacy". Mick has definitely been a man ahead of his time. I constantly see signs that privacy is going to be impossible to maintain for everything from personal DNA sequences (see, as a good starting point to my previous posts on the subject: Easy Method To Extract DNA From Fingerprints) to who one is or where one is (see my entire Surveillance Society archive). More information will be available because all kinds of information will become cheaper, faster, and easier to collect, store, and sort through.

Update: Alex has responded to objections I've raised to his argument. He argues that the danger of people getting their DNA tested before they buy genetic insurance is a minor problem easily solved by a contract clause in insurance contracts forbidding previous testing. However, I do not think that in the long run a contract clause will be sufficient to deal with the problem. It will eventually become too easy for a single person to find out their own DNA sequence without anyone knowing that they have done it. Once DNA sequencing devices become operable by an unskilled individual anyone will be able to find out their own DNA sequence. Also, anyone who finds out the genetic sequences of their parents will have useful information about their own risks. If one of their parents is homozygous for some harmful dominant mutation they can be assured that they also have that risk factor. But my bigger objection to the problem remains that future generations will find out our genetic risks at too early of an age for there to be a previous point at which to buy genetic insurance.

There is one other problem with genetic insurance policies as a solution: the need to convince insurance companies to offer them in the first place. Genetic insurance policies could, in theory, be sold now since genetic testing is still fairly rare. But how to write such a policy in advance of various risk factors being identified? One big problem is that we don't know how much of the difference in total disease incidence will turn out to be a function of genetic variations. Keep in mind that some risk factors are of the sort that if you have the risk factor you have X percent increased chance of a disease before age Y. But other risk factors of the sort that you have an X percent of a disease before age Y if you also do A and B and you don't do C. An insurance company writing a policy now would have no way of knowing when factor genetic X will become testable or when the dependence of factor genetic X on behavioral or environmental factors A, B, and C will become known or how difficult it will be for people to avoiding doing A and B or start doing C.

Another problem is that we don't know to what extent people in the future will tend to behave in ways that make their genetic risk factors more or less of a problem. For instance, suppose there are genetic risk factors for type II diabetes (I'd personally be willing to bet serious money that there are several). Well, obesity is a major risk factor for type II diabetes and the incidence of obesity is rising rapidly.

The proportion of Americans with clinically severe obesity increased from 1 in 200 adults in 1986 to 1 in 50 adults in 2000—growing twice as fast as the proportion of Americans who are simply obese, according to a RAND Corporation study published today.

To be classified as severely obese, a person has to have a body mass index (a ratio of weight to height) of 40 or higher—roughly 100 pounds or more overweight for an average adult man. The typical severely obese man weighs 300 pounds at a height of 5 feet 10 inches tall, while the typical severely obese woman weighs 250 pounds at a height of 5 feet 4 inches.

This illustrates an important question: what do you call a genetic risk factor in the first place? If someone has a genetic risk factor for eating too many sweets and that makes them fat and they evenutally get type II diabetes as a result then should the insurance policy pay out? If it does pay out does it pay out when the risk factor for eating sweets is identified? Or when the risk factor for type II diabetes is identified? Or when type II diabetes develops? Or should there be different payouts for different combinations of these events?

One can imagine variations on genetic insurance policies. For instance, one variation could be that you get paid out only if you A) have the risk factor and B) get the disease. There are already disease-specific insurance policies though. So would such a policy add anything of value?

Update II: There is one other bone I want to pick with Alex: how can he claim that most people do not have serious genetic defects?

We should also remember that genetic insurance will be quite cheap because most people do not have serious genetic defects.

To put it another way: what is a defect? Many of the genetic variations that shorten life were selected for and have benefits in spite of their effects upon longevity. Some genetic variations that lengthen life never got selected for strongly enough to become widespread and so not everyone has them. If you lack some life-extending genetic variation does the variation that you have instead constitute a defect? Suppose you lack the genetic variation in Cholestryl Ester Transfer Protein (CETP) that makes cholesterol molecules bigger and extends life as a result. Well, are you defective? Certainly it would make sense for a life insurance company to treat you differently if it knew your CETP alleles. There will probably turn out to be thousands of genetic variations that influence life expectancy and the incidence of disease. Some of those variations will turn out to even improve our chances for some diseases while making our chances worse for getting other diseases. Some of the costs and benefits will be very complex to describe. So how can a policy be written to account for all of this?

Another excellent example is the question of what is a mental defect. Robert Plomin argues that most genetic variations that cause learning disabilities are not abnormal variations but rather just collections of normally occurring variations that were selected for. The people who have learning disabilities are not, in many cases, suffering from a mutation or other developmental defect that occurred in them. They just happened to get a collection of alleles from their parents that cumulatively lowered their intellectual abilities to the point where people today would consider them learning disabled.

Share |      Randall Parker, 2003 October 21 05:07 PM  Biotech Society

frank said at October 22, 2003 12:53 AM:

I think the soultion to this problem is to eliminate any genetic predisposition to diseases altogether. I guess that means genetic engineering. I know there's a lot of contraversy surrounding that issue, but really... if the technology to create better people becomes available, shouldn't we use it? Yes of course there is potential for the technology to be misused, very much like there is potential for nuclear technology to be misused. We just have to accept it, and hope that whatever governing body that exists to keep these things in check does a good job. But, that won't be for a while at least. In the meantime, I think that "have nots" will continue to get screwed by the machine. That seems to be the pattern in capitalism.

Patrick said at October 22, 2003 1:50 AM:

"I think that "have nots" will continue to get screwed by the machine. That seems to be the pattern in capitalism."

That's absolutely true. Pity there is no known alternative system that isn't worse.

But the point is that there will be a lag. During that time (and it may be decades) we will be able to detect the problem, but not cure it. The question is what do we do now?

David said at October 22, 2003 7:08 AM:

Genetic Insurance is still the way to go... but it will only work if an individual purchases it before a child is conceived so there's no possible asymmetry or secret tests.

Of course, if you have a geneticist assist in a conception so there isn't much risk in conceving a child with genetic problems, then you'll pay little or no Genetic Insurance, which one could argue is either a bad or a good thing. But once you start properly (eg. no information asymmetry) applying insurance to any problem, there is going to be a formal applying of brainpower to figure out how to reduce risks. So it may be inevitable that insurance encourages GM babies.

Randall Parker said at October 22, 2003 12:15 PM:

David, Parents who have had their own DNA sequenced will each know their own genetic risk factors before they conceive a child. The ones with higher risk factors will want to buy more genetic insurance.

Alex Tabarrok said at October 22, 2003 7:59 PM:

Thanks for the further comments, Randall. But remember that insurance companies in effect already offer gene insurance but it is bundled with health and life insurance. Note that insurance companies offer life insurance today despite the many unknowns about life expectancy. Gene insurance offers fewer difficulties in this regard than most new insurance because of the massive databases that are quickly being developed.

Most people do not have serious genetic defects in the sense that most people have some good and bad genes and the net effect neither greatly increases nor decreases life expectancy from the average. In other words, from an insurance point of view genetic insurance will be like fire insurance - a lot of people pay low premiums and in return the unlucky few who have fires receive big payouts.

Alex Tabarrok

Randall Parker said at October 22, 2003 8:25 PM:

Alex, The problem remains that the unknowns are going to decrease. You can shift it all the way back to pre-conception and yet prospective parents will be able to get themselves sequenced to know how big the risks are for their offspring.

I disagree about what you think is the genetic risk distribution. I've asked biogerontologist Aubrey de Grey if he would care to comment on this point. If he does I'll let you know.

John Moore (Useful Fools) said at October 23, 2003 12:20 AM:

There are three fundamental problems in free market "health insurance:"

1) Adverse selection. People not buying insurance until they get sick or old.

2) What I call "perverse selection" - Insurance companies refusing to issue insurance to cover any pre-existing condition or refusing to issue policies in general to those at risk. This is primarily in response to #1.

3) Intergenerational wealth transfer. Young people cost little to insure. Old people cost a lot. Insurance which cannot mix a pool of young and old people will be financially impossible.

In the US, These problems are all handled (for most people) by employer sponsored health insurance. The employer prevents adverse selection by buying health insurance for all employees. It handles perverse selection by contract - the insurer is willing to accept the risk without medical underwriting (looking at individual history or in the future, genetic codes) if the employee pool is big enough.

Of course, this leaves out small employers (where each employee is individually insurable or not). It also leaves out those who are unemployed or self employed. For those folks, the system works as follows:

If you buy insurance and have no known problems, you are fine... as long as you renew your premiums on time every month until you are old enough for medicare or poor enough for medicaid. If you get sick, the insurance company may find a way to dump you (there are many tricks to do this), and then you are screwed.

Because of hospital economics, the uninsured pay a retail rate far greater than the wholesale price paid by insurers - sometimes as much as five times as much!

Furthermore, the employer-paid system is breaking down due to a new practice called "lasering." At policy renewal time, the agent says... hey, if you drop Fred and Tanya, I can get you a good rate, but if we have to insure them, you rate will cost every employee an extra $25 per month. This means that medical underwriting is being applied to an ever larger group of people.

Furthermore, employers are loath to hire people over 50 years old (and are good at getting around age discrimination laws) because those folks cause their insurance premiums to rise.

What this means is that medical underwriting, whether it is merely by age, by medical history, or by (in the future) genetic testing, is going to destroy what is left of our tattered medical insurance system. Put another way, without substantial government intervention, private health insurance for individuals is going to be useless except for the most healthy (it is almost that way already). Corporate health insurannce is going to quickly reach the same state (and it already strongly encourages age discrimination). Hence the issue of genetic privacy, regarding health insurance (I am ignoring life insurance, which is a much better functioning market) is going to be moot.

Politically, as more boomers run into this, the situation will be removed from the hands of the market and given over to the government in one form or another, because there will be too many legitimately scared people.

Personally, I am a boomer. I am employed in the health insurance industry itself, and I took the job only to get health insurance. Otherwise I would have partially retired and become a part time contractor. I am one corporate bankrupcy or 18 months of post-termination COBRA away from losing all medical insurance, which in the event of medical emergency, would result in losing all I have saved as an entrepreneur who participated in the creation and sale of three companies.

My recommendations are totally anti-libertarian but more conservative than Hilary. They have as a goal the provision of critical health insurance (not extravagant coverage) to the entire population. They also have a goal of using private companies as much as possible and government as little as possible to achieve this social goal. I believe this would probably be beneficial economically because irrational incentives that now exist would be removed, because of the labor freed up (lots of folks who would do entrepreneurial stuff if they could get insurance), and because it reduces the risk of losing all your savings, which increases the incentive to invest.

The recommendations are:

1) Require everyone over a certain (young) age to purchase insurance from private companies.
2) Require insurance companies to have no restrictions on who is able to buy their insurance, and require that they provide certain levels of coverage, and that they charge the same price to everyone who elects a certain policy, regardless of medical history or genetic profile.
3) Make it illegal for employers, unions and other third parties to provide insurance (this to remove the current third-party-payer distortions and to encourage insurance consumers to shop appropriately, bringing market forces into play, and to be able to choose options where their behavior affects their costs).
4) Provide appropriate funding from the government to those who cannot afford to purchase insurance (as we already do for the lowest income folks through medicare).

As an individual, I would be selfishly happy if I could just buy into the same insurance that Federal employees have, at full cost! But to fix the system, a lot more is needed.

Notice that, in the area of health insurance, again this approach removes the genetic privacy issue.

I am sure that there are some more details needed, but the current approach that I have seen from the right is ignoring the elephant in the tent (uninsurability due to age/history/genomics - something that Medical Savings Accounts simply don't address), and the left wants to turn the whole thing into one gigantic, corrupt, and ineffective federal bureaucracy.

I believe that without these measures, or someting like them, the polity will ultimately elect Hilary or somebody like her who will create a single payer (government) system, a monstrous bureaucracy, and the kind of inefficiencies and rationing that we see in Canada or England.

More on this here and here.

JMTAK said at February 4, 2004 10:41 AM:

There are groups of investors now studying the offer of pharmagenetic insurance for individuals that would speed the piercing of this arena into the mainstream health care network. Problems abound - but this is one way to expand the research - at least for the wealthy which hopefully will trickle down to the rest of us.

Micha said at February 19, 2004 5:59 PM:

>>>Require everyone over a certain (young) age to purchase insurance from private companies.

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