Genetic Testing and Adverse Selection

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Genetic Testing and Adverse Selection

• Richard D. MacMinn
• Illinois State University
• and
• Patrick L. Brockett
• University of Texas

Asia-Pacific Risk and Insurance Association BangkokJuly 2003 American Risk and Insurance Association Denver August 2003
European Group of Risk and Insurance Economists Zurich September 2003 European Group of Risk and Insurance Economists Zurich September 2003
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Timeline

• The initial planning process culminated in 1990
  with the publication of a joint research plan,
  "Understanding Our Genetic Inheritance The U.S.
  Human Genome Project. The First Five Years FY
  1991-1995 and the 15 year Human Genome Project
  Began
• 26 June 2000 - International Human Genome
  Sequencing Consortium Announces the Working Draft
  of the Human Genome
• 15 February 2001 - Complete human genome sequence
  announced in the two leading scientific journals
  - Nature (NIH/DOE) and Science (Celera)

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Genome Database
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Quotes

• Genetic testing has the potential to
  revolutionize medicine. But revolutions can have
  casualties.
• Francis Collins, Director of the Human Genome
  Project, Newsweek, 1996
• All progress is precarious, and the solution of
  one problem brings us face to face with another
  problem.
• Martin Luther King

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ConcernsShould regulators care?

• Should insurers be able to underwrite using the
  results of genetic tests? Under what conditions?
• Concern about discrimination creating a class of
  uninsured risks
• Will there be a repeat of the industry exit such
  as occurred in Washington DC?

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Why should insurers care?
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Why should regulators care?

• A Texas woman who was turned down for life and
  disability insurance because her doctor had noted
  on records that her mother might have died of
  Huntington's disease. Her mother, however, had
  never been diagnosed.

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Fear of losing insurance

• In April 1996 two US Marines were court-marshaled
  and ultimately discharged from the Marines for
  refusing to provide a DNA sample. The Marines
  feared that information might leak from the
  government storehouse and others might eventually
  be able get access to their genetic sample. They
  feared that they could experience genetic based
  discrimination in employment or health insurance
  after they left the Marines.

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Example "discriminating" based on genetic
information

• A California man was denied health insurance when
  he changed jobs because he had the gene for
  neurofibromatosis, even though he no signs of the
  disease.

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Fear of losing employment

• Burlington Northern Santa Fe Railway
• In a case that sends a strong signal discouraging
  employers' use of genetic testing, Burlington
  Northern Santa Fe Railway Co. agreed to pay
  2.2 million to 36 employees to settle a landmark
  Equal Employment Opportunity Commission lawsuit
  over the controversial screening.

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Regulation

• United Kingdom
• Europe
• United States
• Asia

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United Kingdom

• Previously industry was regulated by the ABI code
  of conduct
• According to the code, insurers could not require
  genetic tests.
• Now there is a five year moratorium
• from 1 November 2001 insurers will not take
  genetic data into consideration when evaluating
  premiums unless the government's Genetics and
  Insurance Committee has approved the test and the
  policy is a life policy exceeding 500,000 or
  another policy, for example long-term care cover,
  exceeding 300,000.
• So far, the only test the committee has approved
  is for Huntington's disease, but it is also in
  the process of reviewing whether tests for a
  hereditary form of Alzheimer's disease, as well
  as breast and ovarian cancer, can be included.

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Europe

• Council of Europe
• Convention on Human Rights and Biomedicine (1997)
• Chapter IV Human genome
• Article 11 Non-discrimination - Any form of
  discrimination against a person on grounds of his
  or her genetic heritage is prohibited.
• Article 12 Predictive genetic tests - Tests
  which are predictive of genetic diseases or which
  serve either to identify the subject as a carrier
  of a gene responsible for a disease or to detect
  a genetic predisposition or susceptibility to a
  disease may be performed only for health purposes
  or for scientific research linked to health
  purposes, and subject to appropriate genetic
  counselling.

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Europe

• Legislation prohibiting access
• Austria (The Gene Technology Act, 1994)
• Belgium (Law on Terrestrial Insurance Contracts,
  1992)
• Norway (Act Relating to the Application of
  Biotechnology in Medicine, Law n. 56 of 5 August
  1994)
• Sweden (Law 114 of March 1991 on the Use of
  Certain Gene Technologies within the Context of
  General Medical Examinations (1993))

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Europe

• Moratorium prohibiting access
• France (French Federation of Insurance Companies,
  1994, 1999)
• Germany (German Insurers Association, 1999)
• The Netherlands (Verzekeraars verlengen
  moratorium erfelijkheidsonderzoek, December 1990
  (1995))
• Switzerland

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Europe

• Voluntary code
• Finland, Greece, Ireland
• Other
• Italy, Portugal

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Asia

• China
• Almost unanimously - by 91 - the scientists said
  that couples who carried the same disease-causing
  genetic mutation should not be allowed to have
  children.

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United States - Health

• Early regulation in 1975, 1978, 1982 prohibited
  denial of health coverage or charging higher
  premiums for those with the sickle cell trait.
• 40 of the 50 states have regulations covering
  genetic testing.
• The regulations generally prohibit cancelling,
  limiting, denying or establishing differentials
  in premium rates based on genetic test results
• California, New Hampshire and New Jersey prohibit
  the use of family history in setting rates
• Concerns
• Can self-insuring employers limit coverage? Yes
• Can employer see results of genetic tests? Yes

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United States - Life

• Existing state law on life insurance can be
  categorized as follows
• (1) those that require that life insurers obtain
  the applicants informed consent for genetic
  testing or use of genetic information, e.g., AZ,
  CA, MA, MN
• (2) those that require that life insurers use
  genetic information only in an actuarially
  justified manner, e.g., MT, NJ, NM and
• (3) proposals to prohibit the use of genetic
  information altogether or for policies below a
  certain dollar amount, e.g., AZ, CA, NY, Oregon.

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Adverse Selection

• Literature
• MacDonald, NAAJ, 1999
• Subramanian, et. al., JRI, 1999
• Lemaire, et. al., NAAJ, 2000
• Boyer
• To insure or not insure
• Pooling
• Separating

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Adverse Selection

• Market Equilibria
• Life
• Health
• Demand
• Supply
• Equilibria

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Demand
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Equilibrium
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Concluding Remarks

• Is there concern of adverse selection in the
  insurance industry? -- yes -- death spiral
  concerns -- Are they exaggerated -- possibly
• Is there a need for regulatory oversight? --
  possibly, with restraint and rational approaches
  that respect market economics

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Precautionary Quote

• "Our society went into the age of nuclear energy
  blindly, and we went into the age of DDT and
  other pesticides blindly. But we cannot afford
  to go into the age of genetic engineering
  blindly. Instead we must move into this exciting
  new era with an awareness that gene therapy can
  be used for evil as well as for good. As we reap
  the benefits of this technology, we must remember
  its pitfalls and remain vigilant."
• W. French Anderson, Scientific American, 1995