A Welfare Analysis of Genetic Testing in Health Insurance Markets with Adverse Selection and Prevention

David Bardey and Philippe De Donder

Working Papers from HAL

Abstract: Personalized medicine is still in its infancy, with costly genetic tests providing little actionable information in terms of efficient prevention decisions. As a consequence, few people undertake these tests currently, and health insurance contracts pool all agents irrespective of their genetic background. Cheaper and especially more informative tests will induce more people to undertake these tests and will impact not only the pricing but also the type of health insurance contracts. We develop a setting with endogenous prevention decisions and we study which contract type (pooling or separating) emerges at equilibrium as a function of the proportion of agents undertaking the genetic test as well as of the informativeness of this test. Starting from the current low take-up rate generating at equilibrium a pooling contract with no prevention effort, we obtain that an increase in the take-up rate has first an ambiguous impact on welfare, and then unambiguously decreases welfare as one moves from a pooling to a separating equilibrium. It is only once the take-up rate is large enough that the equilibrium is separating that any further increase in take-up rate increases aggregate welfare, by a composition effect. However, a better pooling contract in which policyholders undertake preventive actions (and lower their health risk) can also be attained if the informativeness of the genetic tests increases sufficiently.

Keywords: Adverse selection; consent law regulation; discrimination risk; person- alized medicine; pooling and separating equilibria; Wilson anticipatory equilibrium. (search for similar items in EconPapers)
Date: 2024-04-18
New Economics Papers: this item is included in nep-cta, nep-hea and nep-mac
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Working Paper: A Welfare analysis of genetic testing in health insurance markets with adverse selection and prevention (2024)
Working Paper: A Welfare Analysis of Genetic Testing in Health Insurance Markets with Adverse Selection and Prevention (2024)
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