Is there a pink slip in your genes?

• Position: Is There a Pink Slip in Your Genes? Genetic Discrimination in Employment and Health Insurance - Transcript

Actually, at my age and my genetic predisposition, I can't see my nose. With the introduction, I obviously am supposed to be an insurance company person here, but I have to put my economist hat on as well, so I'll try to play both of those roles.

On the insurance company side, it's clear that insurance companies are not well loved by folks. They're not even supposed to do that. At one point after a company had approached QualChoice and told us not to tell the enrollees something that, in fact, had been a policy decision by the company, I was suggesting that perhaps we should change the name to the company to the "Scapegoat Insurance Company," since that really was what we were being paid for, and I think in this argument that may be part of the issue here.

I was also thinking of the analogy for how to structure my comments, and Kathleen [Engel] did an excellent job. I'll build on some of what she has said, and the analogy that I thought of was really profound, a metaphor for our times, Harry Potter and the Sorcerer's Stone. (2)

Now, since you have no reaction to that, probably most of you have not seen Harry Potter. You probably think it's a kid's story instead of a metaphor for life as we know it.

Harry Potter was a poor orphan who had this great power but didn't know it and had to contend against forces of evil to try to obtain the Sorcerer's Stone, which was a source of great power, and the reason he was able to obtain this stone is that he intended to protect it but not use it for his own gain.

So the question is who gets to play Harry Potter in this little drama. First of all, it is surely not the lawyers. We know that. It's not the insurance companies either.

So part of the question I want to ask is who is Harry Potter? The forces of evil are, most of us would like to believe, or many of us might believe, the insurance companies, but let me argue that's probably not the case. It's more of a system issue.

The stone, however, of great knowledge and power is genetic information in this analogy. That the potential for very good things or very bad things clearly rests in terms of this topic for the day. Let me tackle five different things in the time I've got. One is, what is it that makes health insurance work? Kathleen [Engel] has made a good job of introducing that and I'll just pick up on a couple of more points.

Secondly, what do insurance companies need to do deal with the issues, to deal with the pitfalls in particular?

Third, how can genetic information change all of this?

Fourth, how does this, in fact, threaten, I would argue, the very basis of health insurance? So we need to think about it. And fifth, what do we do about all of this?

Well, first of all, this seems self-evident when you think about it, but insurance companies have to, insurance events have to be random among individuals, but predictable on average. If you think about it, that's obviously what insurance has to do. So we have to have random events.

Predictability however has to be good enough to avoid excessive premiums for risk bearing, that the amount the insurance company charges beyond the underlying costs is a function obviously of how much risk there is, and to the extent that we make them bear more risk, it costs. So there's an issue of predictability.

Third, that enrollees need to match the general population or we have the problem she's mentioned of adverse selection or positive selection if it's the other direction.

The actions of the insured, fourth, need to not be biased by the fact they have coverage. That's a concept of moral hazard, which hasn't been mentioned this morning, but is a fourth issue you need to worry about.

And fifth, that parties have to have access to the same information to make a market work, the market-based concept here.

By the way, I have to throw in parenthetically, Kathleen [Engel] is married to an economist who is one of my colleagues at the Weatherhead School, so I am very impressed with your economic information. I think that being with Jim so much has clearly rubbed off, you should know. When you would actually use marginal costs and marginal return, I was very impressed. I wouldn't even do that in this...