Should Genetic Testing Be Forbidden?--Posner

Congress is on the verge of passing a bill that will forbid employers to discriminate against employees (including applicants for employments) on the basis of the results of genetic tests, and forbid health insurers to deny insurance or charge higher premiums on the basis of such results. (Actually, the bill tightens up an existing law that was designed to do the same things but turned out to have loopholes.) The stated rationale of the bill is that it will encourage people to obtain such tests and use the results to seek treatment or make other decisions, such as deciding whether to have children. That rationale is dubious for several reasons. First, people who suspect they have a gene that causes or predisposes them to a serious disease have a strong incentive to be tested (especially if there are treatment options), an incentive that will often override the possible adverse effect of a positive test result on employment or insurance. Second, in the absence of the law, employers and insurers could make such testing a condition of employment or insurance. Third, persons who are confident that they do not have a genetic defect have an incentive to test voluntarily and disclose their negative results to employers or insurers--and some of these persons will be mistaken and discover that they indeed have such a defect. So while some people are doubtless deterred from testing by concern with the effect on their employability or insurability, on balance it is unlikely that there will be more testing by virtue of the new law. In a strict efficiency analysis, moreover, even if more people who are likely to have genetic defects will test for them as a result of the law, this would not necessarily be an argument in favor of the law. There is no increase in efficiency when a person conceals information (or avoids obtaining information that he fears he would have to try conceal if he did obtain it) in order to obtain a benefit that he would not obtain if he disclosed it. This would be obvious if a person who knew he was deathly ill bought a huge life insurance policy, concealing his illness from the insurer. The situation is no different if the person knows he may be deathly ill and decides not to verify his suspicion lest the confirmation of it prevent him from obtaining the insurance policy. In either case he is shifting his own expected costs (whether reduced longevity or medical expenses) to unconsenting others. Analysis is complicated, however, by the possibility that a failure to test brought about by fear of the consequences for insurance or employment would impose costs on other people. That would happen if a prompt diagnosis would enable treatment of a genetic defect at a lower cost, assuming that treatment expenses are paid for in part at least by third parties. Then those third parties would be better off if the person tested. Suppose for example that had the person tested positive, she would not have had a child; instead she had the child, and it is badly deformed, requiring enormous medical expenses paid largely by third parties. That would be a genuine externality, whereas if the cost of a medical treatment is merely shifted from the individual to his employer or insurer (which means, of course, to the other insureds of this insurer), the externality would be merely pecuniary. That is, it would be merely a transfer of wealth rather than an avoidable investment of scarce resources, as in the example just given where a medical expense is incurred that would not have been incurred had it not been for the failure to test. But transfers often and here are likely to have such effects, and not merely to alter the distribution of wealth. The cost of health insurance will rise if the new law goes into effect, and that rise will increase the number of persons who do not have health insurance, and their lack of insurance coverage may cause them to forgo tests and treatments that may, just as when a genetic test is forgone, avoid costlier treatments and other adverse consequences later on. Employers' labor costs will rise too, resulting in lower net wages; and health is positively correlated with income, so again the transfer will have secondary effects in the form of more ill health. So even if the new law led to more genetic testing--which probably it would not do, for the reasons stated at the outset--its social costs, from the standpoint of economic efficiency, would probably be negative. The law might seem defensible on noneconomic grounds as a form of social insurance, since persons who test positive for genetic defects may be unable to obtain private health insurance. The broader point is that the more that science reduces uncertainty about individuals' health, the less risk pooling there will be and the greater, therefore, the demand for social insurance. In the limit, if everyone's health prospects were known with certainty, there would be no market for health insurance at all and this would exacerbate the effects of differential health on equality of wealth; no longer would the healthy be paying to insure the unhealthy. If social insurance is desired, the question becomes whether to finance it through taxes or, as under the proposed law, to compel private industry to provide it. The major difference is the identity of the "taxpayers": it is federal taxpayers in the first case and the members of the private insurers' insurance pools in the second. The allocative effects of the social insurance "tax" will differ because higher income taxes do not have the same behavioral effects as higher health-insurance premiums. The higher premiums cause people to leave the insurance pool; given current political concerns with the number of people who do not have health insurance, placing the "tax" on those who do have such insurance is questionable. Eighty percent of Americans tell pollsters that they do not think that health insurers should be allowed to deny coverage or charge higher premiums to people with genetic defects. This is an example of Americans' economic illiteracy.

Comments

[Jack]

Jack
Catastrophic health care claims belong in the biggest pool available, something similar to what Kerry proposed during one of the most mis-managed campaigns ever. But The problem is how to define "very costly." To use Kerry's example, let's say claims of over $50,000 shift to the government. That creates great incentives for every incident costing upwards of $30,000 to be made more expensive so that the government, rather than individuals or private insurers pay. [I won't even try to define "incident."] That's what drives me even more towards universal coverage.

....... Right On!! Finance writer Andrew Tobias wrote and lobbied for a "pay at the pump" means of paying for auto insurance. The plan has a host of advantages, including NO uninsured motorists, that you'd have a choice of having any number of vehicles and pay insurance only when you gas up and hit the road. You can see advantages that because the variable cost of driving would rise while the fixed cost would drop of driving the most efficient car of your fleet, and extra incentives to leave it home. Naturally this would require a "no-fault" approach which in itself saves money. But, as you mention, so far no state has a true no-fault with MI having the closest, but it's no-fault up to $4,000 or so which gives exactly the incentive you mention to push up the amount of the claim. (It takes a small book to consider the whole scheme but it would be VERY beneficial to nearly all Americans other than those selling insurance on commission and the Bar Assn.)

Because there seems no way around the adverse selection problem I conclude the pool must be universal. Once that bridge has been crossed, the next may be that of the contractual agreement and there's bound to be a tug of war of some sort.

But I keep bringing up that single payer systems have many pitfalls [what's the average wait for an MRI in Canada?] and someone smarter than I should figure out how to avoid them.

......... There I think we can learn from them and do something uniquely American. What occurs to me is "single payer --- multi-supplier"....... with a number of HMO's PPO's or other groups vying for customers by competing on service and providing more than what might be specified in a basic coverage contract. (There's a flaw in my approach as there will be in any approach, in that the amount the single payer voucher would have to be set by a political process...... but I think the savings of NOT paying insurance cos, lawyers and all the related drags on our existing mess would mean we could cover all of our people for less than the current 16-18% of GDP (plus court costs??) and approach the 8-10% of GDP spent by nations with universal care.... in short there's plenty of money to fix people up bet we're wasting 50% arguing about who pays.

Also, I do favor a cost v. benefit analysis. Remember that every resource spent on someone's health could be used for someone else's health.

......... yes... and a sticky problem it is too. We know that in some venues they do a LOT of invasive and very costly heart surgeries while others do many less and appear to have similar outcomes. (Tough to measure though, eh? as one might live as long without open heart surgery, but have to live with angina? and fear to go five miles from the hospital?)

If we want to extend and improve lives, shouldn't we improve as many as we can for the same price?

......... Yup! And I think the VA may save money on caring for their patients by insisting on regular check-ups and freely encouraging those "at risk" to take flu shots etc. With computers I think we could find out even more than we do, for example a mammogram might have no copay at all or even, if one woman will coax her friend to go too perhaps they'd both get a coupon for lunch or some such small incentive.

Also, the tying of employment to insurance and the problems with that have been amply documented. I'm with you there, especially on the mobility effects.

......... Yes! and all the "futurists" predict a speeding up of job changes during one's career. It just ain't WWII anymore!

........ as I consider a voucher system, in essence creating something of a fixed price competition by the various providers (though in a more detailed look, the voucher for a 25 year old would be less than that of a 50 year old) I'm reminded of the pre-dereg competition among airlines. While it (apparently) didn't do all that well at driving down costs they did compete on service. In fact, I guess there are other similarities, as even in today's cut throat airline competition they aren't allowed to "compete" down to the point of not maintaining safety standards (I hope!) and still make quite an attempt to maintain their on-time record. Then while its most profitable for them to fly full, they have to weigh giving up market share by being too booked up.

Anyway, from what we agree upon, if we COULD tie our insurance hors to the mast and apply several layers of duct tape to mouths of our barristers I think we could design a system FAR better than the mess we've inherited and most likely better than that of the 30 other countries offering universal health care and where "medical bankruptcy" is not often heard.

[Haris]

Other than the stab at lawyers, I think we got something here.

[Haris]

Jack
You'll notice you listed industries that are characterized by extensive government intervention. Licensing requirements, patents, and the nature of resource exploitation etc all open up opportunities for cartels, which lead to the ills of monopoly/oligopoly. I'm still not sure why people are allowed to trade price for quality in everything, except god forbid they chose to go to a nurse rather than a full-fledge doctor, or a paralegal rather than a member of the bar. Loosening the barriers to entry would probably go a long way to breaking up the government-enabled cartels.

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