Good Intentions, Bad Consequences: A Recurring Theme For Lawmakers

Lawmakers tomorrow will pass the Genetic Information Nondiscrimination Act. As its name implies, the bill would make it illegal to discriminate against people with genetic predispositions. Health insurers would be barred from requesting or using genetic information to adjust premiums, and employers could not use genetic information in hiring and firing decisions.

This bill is a disaster waiting to happen.

Politicians have been using the rising costs of health care as a talking point for quite some time now. While presently DNA testing provides limited information, there’s reason to believe that with time doctors will be able to more accurately diagnose future health conditions and preemptively mitigate their cost of treatment. Don’t get too excited though, because Congress’ decision to interfere will actually lead to higher insurance premiums.

Imposing an informational disadvantage on insurers and forbidding them from adjusting premiums on the basis of DNA tests to more accurately reflect their costs, will place them in financial distress. Actuaries’ ability to discriminate between high and low risks is critical to insurers’ solvency. If DNA testing becomes more accurate, those who are revealed to be healthy and at low risk will rationally adjust the scope of their health coverage downward, while those at higher risk will adjust it upward. In other words, those who would cost insurance providers the most would purchase more coverage on the cheap, while the least costly would purchase less. After all, there’s no reason to opt for a more expensive comprehensive plan if you know in advance that you face reduced risk.

The increased payouts to the less healthy, compounded with reduced revenues from the more healthy which are needed to subsidize the risk pool, would result in a negative cash flow. Since they’d be prevented from discriminating against those whose DNA tests reveal a higher risk of disease, insurers’ only recourse to stave off insolvency would be to indiscriminately increase premiums across the board for everyone. This would price out those who are already struggling to afford health insurance.

In short, a bill passed with noble intentions will result in a perversity. Luckily for the politicians who vote for it, the short-term memory and economic illiteracy of the general public will insulate them from blame. Lovely, isn’t it?

~ by Alexi on April 23, 2008.