The value of genetic information in health insurance market

Abstract

With the coming prospect of genetic testing a lot of problems will arise. In the health insurance market there are concerns that the insurers will misuse the genetic information for risk classification and the problem of genetic discrimination will come out. Many countries have made policies to limit the insurers to get access to genetic information.

But there is another problem that the consumers on the other hand have the freedom to choose to be tested or not. They will judge whether it is valuable for them to accept the test and whether to reveal the testing results to the insurers. It is about the value of genetic information.

In this thesis I pay special attention to the private value of genetic information. That is, the ex ante value of genetic information to the individuals and their choice to be tested or not. I think it is of primary importance because if the individuals do not accept the testing, then there is no significance of setting policies limiting the insurers to use it for underwriting purposes.

In the introduction I give some concepts clarification such as adverse selection, risk classification and genetic testing. Then I make literature review as to the researches done in this field. Third I introduce the structure of this thesis.

The main body of this paper is devoted to the private value of genetic information. The analysis is extended from three perspectives: public/private information; prevention unavailable/available; information cost zero/positive. But the third point is just touched but not analyzed adequately because of the unavailability of enough information on this point.

In section 2 the situation of public information is analyzed. First a case of no prevention and costless information is given as a benchmark for further analysis. The result is that for risk-averse individuals the value of genetic information is negative and they would remain uninformed and accept the uniform contract for all people. Secondly the prevention is taken into consideration and still with the assumption of costless information. A simple model is given for the value of information with insurance coverage and prevention cost as variables. Then the conclusion is that the value of genetic information is ambiguous with the prevention available. It depends on the comparison of positive value of prevention and negative value of risk classification. If the latter has greater influence then the value will be negative. Otherwise the value will be positive.

In section 3 the situation of private information is considered. Firstly it is still assumed that the prevention is not available. Much has been drawn upon the paper written by Doherty and Thistle (1996) as background for my analysis. Then with the price-quantity mechanism and self-selection constraints as tools for analysis, several circumstances are considered one by one. First, it is assumed that the risk type is private information but the information status of the individuals is known to the insurer. Then it is shown that the value of genetic information is negative. Second, it is assumed that informational status is private information as well as risk types. In this case, the value of genetic information is non-negative. Third, it is assumed that the consumers can choose to reveal negative results and conceal positive results. Then the value of information is positive. In the end, the effect of positive information cost was considered. Secondly it is assumed that the prevention is available. For simplicity the prevention cost is set to be a fixed number. And it is assumed that the prevention is socially efficient for the high-risk individuals. Two circumstances are considered. First, the informational status is private information. Then it was derived that the value of information is positive. Second, the individuals can choose to reveal good risks and conceal bad risks. In this situation the value of information is also derived to be positive.

In section 4 the social efficiency aspect of the genetic information is investigated. But there is no formal analysis. Some of the conclusions given by other researchers are introduced here. After that some policies are introduced and some suggestions on the avert of adverse selection after genetic testing are given.

In the last section 5 some concluding remarks are given.