Insuring Amy, Beth and Cindy

Amy carries the BRCA1 gene, which is associated with an elevated risk of breast cancer. Beth has an aunt and a sister who had breast cancer. Five years ago, Cindy had breast cancer, which is now in remission. What these three women have in common is a much higher risk than the average woman of one day developing breast cancer. Should a health insurer be allowed to charge them higher premiums, or deny them coverage altogether, as a result?

Thursday, the Senate passed the Genetic Information Nondiscrimination Act (GINA), which prohibits insurers and employers from discriminating against individuals on the basis of their genetic makeup. Sponsors expect the House to follow suit and President Bush to sign the bill quickly. GINA offers protection for Amy and Beth but not for Cindy. As such, it takes two steps in the right direction, but it is still inadequate.

There is no getting around the fact that, from an actuarial point of view, Amy is more expensive to insure than the average woman. If the premium she is charged is not commensurate with this risk, the cost must be shared by others: her fellow workers, if Amy is fortunate enough to have employer-based insurance, or the rest of us, in the form of higher insurance premiums or taxes. In a just society, we would all share the risks of ill health that are beyond any individual’s reasonable control, such as one’s genetic makeup. Because GINA promotes this result, it deserves applause.

Beth is also more expensive to insure, and GINA deserves credit for requiring that her costs be spread across the entire insurance pool. The new law characterizes family history as “genetic information,” even if it is unknown whether the increased health risk associated with Beth’s family history is attributable to genetic inheritance, shared environmental exposures or a combination of the two. Insurers no longer will be allowed to seek such information or use it in coverage or pricing decisions should they have it.

But if Amy and Beth should not be charged insurance premiums that reflect their true risks of illness, why is Cindy less entitled to protection? She’s not any more at fault for the possibility that she will suffer a relapse than Amy and Beth are responsible for their risk profiles.

Even worse, by prohibiting insurance companies from charging higher prices or refusing coverage altogether to Amy and Beth but not to Cindy, GINA increases insurers’ incentives to discriminate against individuals who have modest health problems that are only weakly related to possible future illnesses. For example, what if Debbie, who has no family history of cancer, has a colonoscopy that finds a benign polyp, which is weakly associated with a heightened risk of colon cancer? She might find herself subject to increased discrimination because insurers will be prevented from seeking information that would be more relevant to evaluating her actual risk.

The only way to solve the problem is to extend federal law to ban what is known as medical underwriting -- basing coverage and pricing decision on any indicators of health status -- and instead require what is called community rating of all people within the same age category. Exceptions should be permitted to allow insurers to surcharge customers who engage in risky activities within their individual control, such as smoking.

How would this expansion of the law affect premiums? For those with individual policies, it would reduce premiums for people who have a medical condition, like Cindy; it would raise them for people who have no medical conditions, like Emily. If they have group insurance through their workplace, extending the law would reduce premiums for everyone in Cindy’s employment group but increase them for everyone in Emily’s. Is this fair? Well, yes. The purpose of insurance is to share the risk. Cindy’s arbitrary bad luck shouldn’t subject her to higher prices. And there is certainly no reason that a co-worker should pay more for his insurance because, by happenstance, Cindy sits in the next cubicle rather than Emily.

One valid fear is that without medical underwriting, more healthy people (and small businesses with healthy employees) would choose to go without coverage rather than pay the added costs to subsidize the less healthy. But the data indicate the choice to go without insurance has far more to do with income than health status, suggesting that relatively few people are likely to game the system in this way. Most who are tempted to go without coverage are adults in their 20s, and their premiums are unlikely to increase much under an age-based community-rating system because the vast majority of them are very healthy. In any event, it would be better to have a few more healthy people choosing to go without insurance than many people with serious or even very modest health issues unable to afford it or find it at any price.