The Impact of Genetic Testing on Healthcare Insurance

Abstract

The article discusses the potential impact of the diffusion of genetic testing on healthcare insurance markets. It refers to the theoretical approaches respectively proposed by Rothschild and Stiglitz (1976) and Wilson (1977, 1980) about insurance market equilibrium with adverse selection due to asymmetries of information about individual risks. The article shows that, in such contexts, a market equilibrium can be reached either on the basis of separating contracts discriminating between risk levels or of pooling unique contracts based on the average risk in the population, and that the choice of this alternative depends on an empirical parameter: the effective proportion of “high-risk” individuals in the population. An application to the case of genetic risk of breast cancer, the most emblematic advance in practical application of genetic testing in recent years, confirms that, due to the limited incidence of the gene mutations associated with a higher risk in the general female population, a pooling equilibrium would be obtained. These results suggest that current alarmist claims that diffusion of genetic tests in medical practice will inevitably increase adverse selection and inefficiencies in health insurance systems if the use of this information to establish insurance contracts is banned (either because compulsory universal health insurance excludes separating contracts by essence, or by current legislation banning the use of genetic testing by private insurers) are rather overstatements.