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

[Christina]

As someone who spent quite a few years without health insurance, I can say with conviction that lack of health insurance does not doom one to poor health, or even poorly administered health care. It just means that at the end of the day, you are stuck with the bill. Certainly it means that you are less likely to use the doctor for minor issues, but it does not prohibit you from doing so.

But to revisit Posner's closing line, charging 80% of Americans with economic illiteracy, he is of course referring to the most basic and most common flaw in typical non-economic thinking: the belief in a free lunch.

Laws cannot change underlying reality, despite earnest hopes and good intentions. Scarcity exists, so we either ration by price or by other means. Insurance companies may be amoral, but they aren't stupid. They will get their money, and those of us stuck paying artificially high premiums thanks to government-imposed mandates will be screwed big-time. Thanks Democrats!

[n.e.hat]

Christina, There's a flaw in your rational in blaming the Democrats. :) They've been out of power in the Congress for the last twelve years, over which the health care and insurance issues developed and came to the forefront. Talk about the "kettle" calling the "pot" black. The reason we have this and many other problems confronting the Nation, is that the Republicans, instead of dealing with and solving them as they have come up, they have resorted to name calling and blaming someone else in order to maintain their tenous hold on power and obscrue the real issues. Especially, when their "free market" model and paradigm fails in the real world.

Perhaps Keynes was right and Smith wrong in some cases.

[Alp]

Posner: In the limit, if everyone's health prospects were known with certainty, there would be no market for health insurance at all.

This is not true. The plausible limit case is one in which science will know very well an individual's probability of getting sick in the future. There will still be uncertainty about whether and when the individual gets sick. As long as there is individual uncertainty that is greater than the aggreagte uncertainty, there is room for insurance. In fact, better knowledge about probabilities will make the insurance market more efficient (as Posner also points out).

[Haris]

"Posner: In the limit, if everyone's health prospects were known with certainty, there would be no market for health insurance at all.

This is not true. The plausible limit case is one in which science will know very well an individual's probability of getting sick in the future."

The limit is obviously theoretical. It's clearly not plausible that science will ever be so certain as to eliminate the market. The basic point is that without uncertainty there is no market.

[dWj]

I'm a little suprised that (unless my reading has been careless) nobody has mentioned the problem of overinsurance here.

Current problems with the healthcare system result in significant part to the excess incentive provided on the insuring of individuals through their employers. The ban on the use of genetic information by health insurers provides a subsidy to people with genetic predispositions to bad, expensive diseases -- but *only* if they buy health insurance. These are the people for whom moral hazard is likely to be worst; allowing costs to appropriately encourage them to adapt to the fact that they have such a predisposition or choose a cheaper but less complete treatment if the value to them of the more expensive treatment is not worth its added expense is in fact at its most valuable for exactly these high-expense individuals.

In fact, the classic classical-economist improvement on the proposal is "give each person with a genetic defect a lump-sum that would exactly compensate them for the added cost of insuring themselves, and keep their marginal prices the same". There are, no doubt, problems with this -- wealth effects come to mind first -- but they aren't, in fact, as bad as what this law would do. Ideally, you want carriers of genetic flaws to face an incentive to procreate that differs from that faced by noncarriers by the cost that is being externalized here, but that starts to make things ever more complicated, so I'll drop that here.

A couple other points, though, that I'll make with reference to some of the comments: 1) While current problems result in significant part from over-insurance, there may be even more contribution from this "healthcare is a right" -- or, more to the point, "healthcare is not an economic good, but is immune to things like differing consumer preferences (both within this catch-all "healthcare" and between it and everything else) and real trade-offs involved". If more people were more sober about buying healthcare the way they buy shaving cream a lot of problems would be quite reduced. 2) The comment about "if healthcare prospects were known with certainty" is, in fact, a useful pedagogical tool; it helps distinguish between what part of the discussion is actually "healthcare" and what part is "insurance". Disentangling these issues at first is clarifying, so you can see how they interact. He's not suggesting it's realistic; it is, however, a useful analytical device. 80% of Americans, though, are too thick to handle abstraction. It's a scientific fact.

[Jack]

DWI I guess your "over-insurance" vs "buying" helps to point up that those who get in the risk pool via employment have no problem while those shopping around on their own or as part of a very small pool of small biz folk are likely to be screwed and pay a premium, IF they can get "insurance" at all?

"discussion is actually "healthcare" and what part is "insurance". Disentangling these issues at first is clarifying, so you can see how they interact."

....... hmmm, perhaps you're the guy to help me disentangle the two? Now I DO have the abstract reasoning powers to understand the claimed "overuse" by those going to a doc for every little cold. But having noted how much expense is due to the poor and mostly under-insured not getting pre-natal care, proper diabetic care, missing cancer diagnosis until it's "too late" and other preventative care that adds considerably to major medical costs that would be insured.

....... BTW for the "overuse" part WERE we able to crack into the AMA Union a bit, I'd propose more use of para-medics as seems to work quite well for our military and the VA. It doesn't need to be a budget busting event to take a sick kid to see someone and perhaps ease his symptoms, screen for more serious issues, as well as console a young mom who's been up all nite, is unsure, and very likely having to leave for her day job.

...... You're aware that in many areas of medicine and health we're lagging most of the developed world and barely make the top twenty on a number of indices?

[Bernard Yomtov]

Posner writes,

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.

Aside from my other objections to Posner's post, I would call attention to his two uses of the word "probably" in this sentence. I see nothing in his arguments that justifies the use of that word.

In the first case he identifies factors that suggest there would be lots of genetic testing without the proposed law. But where is the support - logical or empirical - for the proposition that these factors are likely to lead to more testing than the proposal would?

In the second he mentions a possible problem created by the new law. Insurance rates will be higher, hence some individuals will not buy insurance, hence some individuals, who would be tested if insured, would not be tested under the new law. Now this is pretty tenuous, but even granting that some individuals will be affected this way, there is nothing in the argument to show that this effect outweighs the social benefits of increased testing induced by the law.

In short, I think Posner's objections, to the degree they are based on his assessment of the relative probabilities he mentions, are unsupported by his arguments.

[Jim H.]

Not every decision about law needs to be filtered on the basis of economic utility theory. With a foundation precept of everyone being created equal, a political decision to implement blinders on the results of a health test, is both wise and just.

[Haris]

"Not every decision about law needs to be filtered on the basis of economic utility theory. With a foundation precept of everyone being created equal, a political decision to implement blinders on the results of a health test, is both wise and just."

Aye, another all too common misconception. A political decision that results in such a law would result in higher premiums for all of us. What if paying those extra premiums means that people who would have otherwise been able to take better care of their children can no longer do so? What if for every life saved, many more are lost because we choose to redistribute the health care burden? How is that "wise and just"? How is it fair that children whose parents, forced to pay higher premiums, can no longer afford to pay for the health and safety they wish to, and as a result these innocent children die? Think about this when you say that the proposed law is wise and just. Simply passing the law doesn't change the underlying realities. The law would simply pass the costs to someone else. Think about if it is wise and just to pass these costs to someone who did nothing to warrant bearing these costs.

[Jack]

Hmmmm, What are your general feelings on individual privacy?

And what are your thoughts on corporate privacy? Perhaps if you favor our lives and all about us being open to them that we should know a lot more about them too? Margins? Actual costs of covering those of higher risk? Could the most costly of "genetic flaws" be that of CEO's who won't come to work unless they're paid more than the combined salary of 100 US Presidents?

[n.e.hat]

Haris, As someone once said, "Are we not our brother's keeper?" In a purely theoretical realm, it's easy to apply a given model to a set of circumstances. In fact, I can even use it too justify the extermination of race or a socio-economic class in the interest of the "greater good", you included. Things are much more complex and sticky in the real world. Even Adam Smith, recognized that fact and included a theory of "Moral Sentiments" in his economic works. Once again, I ask, "Are we not our brother's keeper?" ;)

[Haris]

NE
Not really sure what you're getting at. I'm not advocating not taking care of others. I'm just saying that for everyone we help now, we could be hurting others who are equally deserving of our help. Just because an action helps a certain group doesn't make it wise or just or fair by default. I'm just trying to people to acknowledge that there is a cost to every nice thing we do, and sometimes the choice is between keeping one brother over another.

PS: I know you were only trying to make a point, but I, for one, could never justify the extermination of a class for the greater good. That's the one benefit of being called a libertarian - at least the world knows we're nonviolent.

[Bernard Yomtov]

Think about if it is wise and just to pass these costs to someone who did nothing to warrant bearing these costs.

Well. OK. It's worth thinking about. But let's also think about the fact that the person with the genetic defect "did nothing to warrant bearing these costs." So if the basis of your logic is personal responsibility for the consequences of one's behavior, it really doesn't apply here.

[n.e.hat]

Haris, In Ethics and Morality, the sin is the same, whether due to an act of commision or omission. According to your logic, we may be harming someone else (like the insurance co. and employers and and other individuals by having to make them pay a little more) so let's do nothing and let the "invisible hand" take the blame. Yet, we are still too blame. The same also applies to the use of violence and force.

[Haris]

"So if the basis of your logic is personal responsibility for the consequences of one's behavior, it really doesn't apply here."

I agree, it'd be pretty hard to blame a genetic defect on "personal responsibility." But the larger point, which you correctly noted, is that someone who did nothing to warrant bearing certain costs will end up bearing them. My instinct is to do less rather than more, especially when it comes to genetic endowment: we all have to deal with our height, skin color, hair color, and other genetic predispositions, so the 'natural' position is to not interfere.
That said, I certainly don't think people with genetic defects or certain predisposition should be left to their own devices because their condition is "not our fault." But to be truly fair, we have to remember the impact our help to one group is having on another.

NE: I'm getting more confused. Omission doesn't happen without a duty to act. So, for a sin of omission, someone must assume [or, more often, be assigned] a duty to act. Are you justifying hurting the few for the benefit of the many?

[Bernard Yomtov]

I don't understand. We agree that the cost of a genetic defect will inevitably be borne by someone who is not responsible for it. The question is who.

Now you say that those with such defects should not be left to their own devices. Good. But that doesn't seem to square with your previous position. As for the "natural" predisposition not to interfere with say, hair color, that hardly seems to apply to matters of physical wellbeing.

[Haris]

"But that doesn't seem to square with your previous position."

Not leaving people to their own devices is perfectly compatible with being aware that costs are born by people who bear no responsibility. I'm siding with those who favor some sort of social insurance. I'm just saying that the costs of social insurance must be balanced against the benefits. The particular law that is under consideration, which would prohibit a sort of genetic discrimination by private insurers, seems to be quite possibly the worst way address the situation.

[Jake]

Speaking as a casual observer of this very useful blog, why is it that Judge Posner's posts seem to draw many more comments than Dr. Becker's posts?

Are Judge Posner's comments more controversial?

Are Dr. Becker's comments more irrefutable?

Do Judge Posner's comments appeal more to outspoken people?

[Haris]

Jake
Is it really Posner? I always thought that whoever has the top post of the two gets all the comments.

[Jack]

I think one of the best aids to considering any public policy is to consider the proposal as if you did not know your own position in that society might be. Often that's the case anyway as those who might have favored legislation favorable to the well-off may lose that status.

Perhaps this perspective is useful in the area of genetic testing (which is largely positive) and allowing "insurance" companies to use the data to cherry pick the members of their "risk" pool. The exercise is simple. Before you have yourself or other family members tested THAT is the time to decide whether there are any societal benefits to casting those who "fail" out of the pool.

From there we might move on to consider the utility of insurance companies or other forms of risk pooling who are using the testing data to go through the deck looking for the cards that will make up their most profitable hand.

Then, since "insurance" companies have costly overhead and profit margins why would those who are healthy, have been tested and have a brighter than average outlook, bother to pay them? Next? of course some of them will be wrong and have costly medical emergency and have little choice but to file bankruptcy. Meanwhile, down the street those who've been excluded from the pool are also having their, predictable, expensive emergency. All but a few of them soon join the healthy set in bankruptcy court.

Perhaps those who voiced an opinion not "doing something nice" for the sick or lame will finish there thought and tell us what they would do with them?

[n.e.hat]

Haris, You're getting confused? Good! Things are not so black and white when moral sentiments come into play, the confusion is the beginnings of revelation and enlightenment. ;)

[Bernard Yomtov]

I'm siding with those who favor some sort of social insurance. I'm just saying that the costs of social insurance must be balanced against the benefits. The particular law that is under consideration, which would prohibit a sort of genetic discrimination by private insurers, seems to be quite possibly the worst way address the situation.

I see. You endorse the objective, but think this specific mechanism is undesirable. Sorry. I misunderstood your position.

Still, as you point out, there will be costs and someone will have to pay them. That will mean either higher taxes or higher insurance premiums, either of which may have the consequences you describe.

What sort of system would you prefer to deal with this problem?

[Haris]

Bernard
I'm afraid I can't answer your question intelligently at this point. The theory depends on costs and benefits, and I don't even have a ballpark idea of costs and benefits of any program. How many people have genetic defects, how many of them will get sick, what percentage of the population do they constitute, what is the average cost of early treatment vs. late treatment, what is the alternate use of the social insurance funds, what are the distortionary effects on cost of a third-party payer? I'm sure we can get at least some rough numbers on this before we have to make a decision. If pressed, I'd favor a social insurance paid for by a very broad tax, like the income tax; it'd be something akin to extending Medicare to everyone. The reason I favor that is that it places an explicit figure into the federal budget that lets everyone know who's paying for this insurance and how much, rather than hiding it by passing it to private insurers and insurance buyers. Since I don't know the details of the genetic tests or the associated diseases, I'd be hard-pressed to define what the social insurance would cover and how to contain costs. It's obviously not an easy problem, else someone on this blog would have solved it by now. What bothers me is that I don't see a sustainable middle ground between universal insurance [with all its inefficiencies] and pure private markets [efficient, but 'unfair' in a very specific sense].
I apologize for the long and probably incoherent post. The overarching point is that without some numbers, I can't really make an intelligent policy decision. But the framework for the analysis is in place.

[Jack]

Haris... Well, I think you tacked your way to a viable conclusion. Perhaps get rid of your concern as to the cost of caring for those with "genetic defects". (I like to put that term in quotes, you know, so as to hint that most of us share some of those, be it a predilection for early heart trouble, sickle cell, diabetes, serious allergies and the rest of a very long list.) Or, if you think policy should pivot on "cost" please indicate how the very costly individual cases SHOULD be handled?

BTW I find it interesting that Posner "the Libertarian" ends up favoring taxation as the means of burden sharing. I join with him, but while he hangs his hat on the marginal case of higher health care premiums adding yet a few more to the 45 million who can not, or will not pay for health insurance; I hang mine on the fact that low income groups can NOT afford medical insurance and that spreading the risk via taxation is the only viable means of paying the costs.

Thirty other countries have adopted some version of "all IN the risk pool", how long are we to pretend what we have offers any "market based" advantages, and waste our resources fiddling with "covered" "pre-existing" and increasingly playing more cat and mouse with the results of genetic testing?

BTW....... how many "libertarians" here note and oppose the clearly market distortive effects of health care benefits operating as leverage to enslave those who might otherwise benefit themselves and our society by applying their talents elsewhere?

[Haris]

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

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.