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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?

Categories: healthcare
  1. Edward
    March 11, 2012 at 9:47 am

    Your assumption is that with advances in new Technology gene sequencing that healthcare cost will go up. It will go up because patients with high risk genes the insurance companies won’t cover.

    Your totally incorrect on so many levels on your attack against capitalism:

    1. It’s government involvement in the healthcare market that makes the cost spike. My evidence is look in any other industry where government is not heavily regulated and look how cheap things are. The Internet is pretty close to a laissez faire capitalism (a true free market where consumers regulate it themselves).

    2. There will be gene sequencing as well as gene therapy which will make Healthcare cost go down. Government will always come up with new regulations to make the price spike up.

    3. You don’t understand what a regulation does to the market that causes prices to spike. Look no further than the new banking regulations the government passed last year. The smaller banks could not keep up with the new regulations so they became not as competitive or they were bought out by the bigger banks. Than came the new bank fees. Prices spike.

    Under a true free market the consumer regulates the market. The companies that do the the consumers harm loses there customer based to a company that serves the consumer better or they go under and get bought by a better company. Under this gov-capital market the companies that do the consumer harm usually get bailed out or regulations are added to protect them from the consumer.

    • March 12, 2012 at 6:44 pm

      I don’t see any reason to think that gene sequencing or therapy won’t lead to higher healthcare costs (at least in the short and medium terms), but you’re welcome to make the opposite case.

      I’m not attacking capitalism. Market forces can’t work on the healthcare industry in the same way they do in other industries because most people, rightly, think it’s immoral to let someone stay sick and die if they can’t afford care. Granted, market forces might be able to help with some routine medical issues, but as the graph in my post illustrates that’s small change. I don’t see how a free market helps someone with a chronic condition. Direct costs on consumers would certainly get them to seek less care and would “control costs”, but a lot of the care they’d cut back on would be necessary care. I suppose it’s easy to control costs if you don’t care about the well-being of people. The difficulty is balancing those two desires.

      Furthermore, it’s not evident that more government involvement necessarily leads to higher spending. As you can see from this graph, US spending is growing much faster than countries with more government intervention.

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