Adverse selection occurs when one party has an information advantage over the other party. In the case of insurance, people taking out insurance know more about their health and lifestyle than the insurance company. Therefore, in order to reduce information asymmetry, the insurance company asks prospective customers to complete a medical questionnaire and/or submit to a medical examination. Knowing the health risks associated with the people taking out insurance allows the insurance company to better adjust the premiums that it charges. For example, the premium for smokers is higher than for nonsmokers.
Some people are subject to genetically inherited health problems, such as Alzheimer’s disease, ALS, and Huntington’s disease. Huntington’s, for example, is an incurable degenerative brain disorder that affects about 1 in 10,000 people. Children of a parent who has Huntington’s have a 50% chance of inheriting the disease.
Legislation in Belgium, Denmark, Fin-land, France, Norway, and Sweden make it illegal to discriminate against people who may have inherited diseases. Similar legislation was enacted in the United States in 2008, where the Genetic Information Nondiscrimination Act prohibits employment and insurance discrimination simply on the basis that a person has a genetic predisposition to developing a disease in the future.
There is no such legislation in Canada. But in February 2010, Member of Parliament Judy Wasylycia-Leis tabled a private member’s bill against genetic discrimination. She was opposed to genetic discrimination for three reasons. “One is that people who carry genes that code for particular diseases may or may not eventually develop them. The second is that some people may not want to be forced to take a test because they don’t want to know what their eventual fate in life may be. Finally, the third is that people who do want to take a test for health reasons may not do so because they fear having the results used against them.” Her bill did not get beyond first reading. In April 2013, Liberal Senator James Cowan tabled a similar bill that would stop insurance companies from discriminating on the basis of genetic testing.
1.Do you consider it to be unethical for insurance companies to charge high-risk people a higher premium than low-risk people?
2. Are insurance companies acting responsibly when they require customers to disclose medical information and/or submit to a medical examination?
3. Argue either in favor of or opposed to Senator Cowan’s proposed legislation.
After reviewing the case study, consider the following questions in your report.
· Discuss whether or not that it is unethical for insurance companies to charge higher premiums to high-risk individuals.
· Discuss whether or not insurance companies are acting responsibly when they require customers to disclose medical information or are required to submit to a medical examination.
· What actions would you take if you were an insurance commissioner.