Private Healthcare’s Flawed Genetic Code
Ezra Klein has an insightful piece about the New York Times’ report that gene sequencing will soon become much more affordable. He argues it will sort purchasers of insurance into high cost and low cost groups too efficiently. Since insurance companies can’t discriminate based on genetic information by law, it will cause an unsustainable spiral.
Eventually, genomic testing will be a powerful predictor of future illness. And it raises the potential that young people will get themselves tested and then purchase insurance based off the result. So those with a clean genomic result might go for a cheap catastrophic plan, while those with a high risk of developing pricey illnesses will opt for more comprehensive insurance.
The result would be, in insurance terms, an “adverse-selection death spiral,” as the healthy opt out of expensive insurance, the sick opt into it, and premiums spin out of control.
Undoubtably, Klein is correct. But I’d like to point out that this is already a flaw in a private insurance markets. Private insurance companies have no incentive to cover high-risk or sick people (unless under totally unaffordable and unrealistic rates). That’s why anyone that thinks insurers should cover people with pre-existing conditions must favor government intervention that requires healthy consumers to buy in and spread the cost out.
As the graph makes clear, the majority of healthcare spending comes from patients with chronic conditions (half of total spending comes from only 5% of the population). Unless the government covers those patients directly or spreads the cost out to the healthier population through mandates, we won’t have a workable healthcare model for treating the people who need it most. Well… unless you think charities can make up the hundreds of billions of dollars in shortfall?