Genomics Will Transform Health Care Insurance – Will Business Models and Algorithms Need to Align Outside of Risk Management Forecasting Only As Used Today?

This is an interesting opinion piece which carriers some merit with some new observations about risk management and how individuals with an entire sequencing could stand to change the picture, although we are a bit away from having this available to all citizens in the US. Again, it all revolves around having the availability of more information from the start, thus less speculation in theory, in other words the ability based on our genes to perhaps better enable us to understand the cards we are dealt from the start. The article speculates on smarter distribution of funds to allow a process that in fact could cover all, again, based on information secured up front and without penalization for those who have been not lucky in the “good gene” department, something we are now working with to understand and utilize as far as information up front is concerned and perhaps having greater knowledge in time up front on which treatments and drugs would hold the best end results. BD

TW: Buiter makes a fairly simple point but one that has tremendous implications. As technology makes it increasingly feasible to forecast an individual's future health, the entire concept of health insurance will be turned on its head. Through genomics a person will no longer be a 25 year old who smokes but rather a 25 year old with DNA or other attributes that make her pre-disposed, in fact likely to suffer from, leukemia or breast cancer or heart disease or none of the above.

The reasons insuring a large group of folks rather than an individual has always been driven by the need to spread risk. Healthy folks who pay insurance inherently subsidize those less healthy or lucky folks. But as the ability to forecast who will be one or the other increases the insurance market will be transformed.

The rise of genomics - the branch of genetics that studies organisms in terms of their full DNA sequences or genomes - will in the not too distant future kill off most private health insurance. That’s probably a good thing, for two reasons. First, because of asymmetric information, when there is risk and uncertainty about a person’s future health, health insurance markets are badly affected by adverse selection and moral hazard. Second, because the private health insurance industry is a monument to inefficiency everywhere and, especially in the US, a rent-seeking Leviathan whose ruthless lobbying efforts corrupt all it touches.

Either you leave those with poor health prospects to their own devices (the ‘tough luck’ approach) or you turn health insurance into interpersonal redistribution of income, that is, you socialize health care funding. This redistribution is from those with above-average health prospects to those with below-average health prospects.