genomics and insurance The upcoming movie Minority Report is (I'm told) based on a Philip K Dick story wherein murders are prevented by seeing into the future and pre-emptively arresting people. Being a nerdy economist, I think a more interesting movie would focus on the breakdown of the insurance industry under such a scenario. I've actually been thinking about a similar issue the last couple of days -- the use of genetic tests for health insurance purposes. While they won't be able to see into the future, it seems likely that genetic testing will soon allow doctors to make detailed predictions about your risks for certain diseases and conditions. As Paul Orwin observes,

It no longer is an economically viable model to charge everyone the same rate over a large (say, company/industry/statewide) population, when you have solid knowledge about who is a high risk.

But is this a problem? We have a very peculiar relationship with health-care. For instance, the idea that bad drivers (those most likely to have accidents) should pay more for auto insurance is relatively unobjectionable, while the idea that the genetically unhealthy (those most likely to have illnesses) should pay more for health insurance is held mostly by heartless economist-types like myself. This is partially because bad driving is "your fault" whereas genetic makeup isn't, and it's "unfair" [I have a long post in me about "fairness"] to penalize people for things that aren't "their fault." And it's partially because of the somewhat prevalent view that "health care is a right." (This also drives some of the near-religious support for pharmaceutical patents -- that we as a society need life-saving drugs, no matter what the cost.) However, most insurance companies won't cover pre-existing conditions -- once you have cancer, it's hard to get someone to insure the costs of treating it. It's not clear why insurance companies should be forced to ignore someone's 90% likelihood (based on, say, genetic testing) of developing cancer, but are free to take into account someone else's 100% likelihood (actual incidence) of cancer. Similarly, I pay less for health insurance than I would if I were a smoker, presumably because smokers are at higher risk for developing certain diseases. But no one objects -- possibly because smoking is a choice, and possibly because smokers are our designated pariahs. As Ron Bailey points out, forcing insurers to ignore genetic information creates all kinds of adverse selection problems:

In essence, genetic privacy laws allow high-risk insurees to lie about their health in order to get more money. This means that healthier customers will have to be charged more to pay for their high-risk counterparts. This situation can set off an adverse selection spiral in which low-risk clients flee the higher premiums and high-risk clients flock to buy the insurance. As premiums rise to cover the unhealthy clients, fewer and fewer people can afford insurance.

I agree that, with genetic screening, those with "unhealthy" genes would likely have to pay more for health insurance. But unless you trot out the "fairness" card, it's not obvious that's a problem. Orwin argues,

Of course, it could be that drug companies will invent a cheap pill for every condition, but even then, wouldn't you rather insure only the people who didn't have to take it?

The answer, of course, is that I'd want to insure everyone for whom it was profitable for me to do so. And to the extent patients have easy access to their genetic profiles and information about the consequent risks, it's seems likely that only with genetic screening CAN insurance companies profitably insure everyone.