Genetic Testing and Adverse Selection

Richard D. MacMinnIllinois State University

andPatrick L. BrockettUniversity of Texas

Asia-Pacific Risk and Insurance Association

BangkokJuly 2003

American Risk and Insurance Association

DenverAugust 2003

European Group of Risk and Insurance EconomistsZurich

September 2003

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)

Genome Database

1 3 5 7 9 11 13 15 17 1921 Y

0100200300400500600

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nu

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chromosome number

genes assoc iated w ith geneticdisorders

mapped genes

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

Concerns:Should 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?

Why should insurers care?

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.

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.

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.

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.

Regulation

United Kingdom Europe United States Asia

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.”

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.

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))

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

Europe

Voluntary code Finland, Greece, Ireland

Other Italy, Portugal

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.

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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Legislation by year

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.

Adverse Selection

Literature MacDonald, NAAJ, 1999 Subramanian, et. al., JRI, 1999 Lemaire, et. al., NAAJ, 2000 Boyer

To insure or not insure Pooling Separating

Adverse Selection Market Equilibria

Life Health

Demand Supply Equilibria

Demand

Equilibrium

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

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