OVERVIEW
As the cost of genetic testing continues to drop and people gain more widespread access to information about their individual risk for serious health conditions, policymakers will need to weigh whether prevailing laws are adequate to protect consumers’ private health information while also preventing a disruption of health and life insurance markets. 

Richard Peter, an assistant professor of finance at the University of Iowa Tippie College of Business, has examined the implications that enhanced genetic testing technology and availability will have on insurance markets and consumer decision-making from a variety of angles. 

A study conducted by Peter with two fellow researchers that was published last year in the Journal of Health Economics concluded that allowing insurance companies to use the results of genetic testing under a “consent law” approach would provide the best social benefit out of four potential levels of disclosure that were evaluated.

METHOD
A German native, Peter began the study while he was a junior professor at Ludwig-Maximilians-Universität in Munich, where he earned a doctorate in finance in 2013 before coming to the University of Iowa in August 2015.  

Insurers are already observing a tendency toward “adverse selection” by individuals due to more information from genetic tests, Peter said in a telephone interview. For instance, people who have tested positive for the gene that causes Alzheimer’s disease are five times more likely to purchase long-term care insurance than those who have not been tested, according to research studies. 


Conversely, consumers with a family history of a genetic disease who test negative for that gene may seek to use that information to secure a better insurance rate. At the same time, consumers who may benefit from genetic testing may hesitate to have it done if they fear that insurers could use the data to deny coverage. 

“Entire genome sequencing is now available for less than $1,000,” he said. “To the extent that consumers have more information, might that undermine certain insurance markets? … I anticipate it’s an issue that’s going to come up within the next five to 10 years as it becomes more of a mainstream thing.”  

The study modeled an insurance market operating under four different types of legislation: 

• A duty to disclose, where individuals are obligated to disclose the results of any genetic test taken.

• A code of conduct principle, where an individual must disclose that a genetic test has been taken, but not the result.

• A consent law, where an individual may disclose the results of a test that has been taken. 

An information ban, where individuals may not disclose that a test has been taken, nor the results. 

The criteria used to evaluate each policy came from a social welfare model that assumes that consumers are rational decision-makers, Peter said. “We model an insurance market where we look at risk-averse consumers.” The study looked at how the availability of a genetic test affects both the supply and demand sides of the market to determine how consumers would be affected. 

“Public policy can either exacerbate or mitigate the resulting adverse selection problems and has therefore a major impact on the efficiency of insurance markets and social welfare,” the researchers wrote.

RESULTS
A ban on the use of genetic tests by insurers seems to be the most widely adopted policy, according to the study. In the United States, the Health Insurance Portability and Accountability Act (HIPAA) of 1996 and the Genetic Information and Nondiscrimination Act (GINA) of 2008 together effectively prohibit the use of genetic information, including family health history, in determining coverage or premiums for both group and individual health insurance for people who haven’t been diagnosed with the condition.  

One potential value of operating under a consent law is that uninformed individuals are treated by the insurance company as if they were high risks, because they cannot provide verification of a negative test result, the study concluded. Consequently, a positive test result cannot make an individual any worse off. As the study states, “From an economic rationality perspective, the best course of action would be to allow insurance contracts to reflect that information because it would encourage consumers to test more efficiently.” 

However, there is some evidence in the study that shows people might be susceptible to behavioral biases that would cause them to not act in their own best interest, Peter said. For instance, a person who has been tested or could be tested for a genetic-related disease that runs in his family may not want to know if he has the condition, even though it could help him to make better health care decisions.  

Peter is currently working on additional research related to genetic testing, including a look at the effects of improved disease prevention technology and how it may change the role of genetic information. Another study he’s working on examines the extent to which individuals’ risk perceptions may prevent them from pursuing optimal strategies for treating diseases. 

“If they misperceive the likelihood of certain diseases, it could explain why people have a hard time doing the right thing for their health,” he said. “There may be a follow-up project where we collect data to this [hypothesis] related to their health.”

TO LEARN MORE
Read the study: 
- https://www.sciencedirect.com/science/article/abs/pii/S016762961630248Xrose