Anti-selection and insurance: What you should know
It seems today that there’s a lot of “us and them” going on in the world. While the economic situation of humanity on a worldwide scale has been on average improving, in many places economic inequality has been growing consistently for some time now. Fortunately for people in China, theirs is a country that belongs to the former group, rather than the latter. Even so, it’s fairly safe to assume that most people would agree that equality is important.
After all, who wants to try to find success in life fighting an uphill battle on an unbalanced playing field? To many, it’s better that everyone in the world has an equal chance to create a happy, fulfilling life for themselves, so they are rightly upset by situations where one side if unfairly disadvantaged.
Nevertheless, the fact that imbalances exist, even in China. This is even true in the world of health insurance, where information can be a powerful tool when wielded by either policyholders or insurers themselves. Here, Pacific Prime China discusses how having an informational advantage can lead to anti-selection on the part of both insurance providers and policyholders, as well as how it could have a detrimental impact on the entire life and health insurance industries.
The meaning and roots of anti-selection
Also known as adverse selection, when it comes to the insurance industry anti-selection basically means acting on known information to gain an advantage on either securing or denying an insurance policy.
For insurance providers, this means using information about a specific person’s genetic data to make decisions about whether or not to insure them. If it is know that somebody has a genetic predisposition towards colon cancer, for example, an insurer may then take a number of different actions to negate this increased risk. They might exclude colon cancer coverage from a policy, raise premiums substantially to cover potential costs, or simply refuse to insure an applicant outright.
On the other hand, it is much easier for individuals to get in depth genetic data and make decisions about their insurance based upon than it is for an insurer to do so. This issue has had a spotlight shined upon it recently, as insurers have been in the news making noise about the advantage that some people are getting from popular DNA testing companies like 23andme, Ancestry.com, and more.
An August 2017 article in The Economist tackled just this issue, as it ran the headline ‘Genetic testing threatens the insurance industry’. How could this be? Well, these types of genetic tests will give a person an idea of which diseases that are most likely to develop over the course of their lives. While family medical history has been the metric people had used in the past to determine this, DNA tests today are more reliable than family medical history has been since they can identify genetic markers that are definitely present in a person’s DNA.
So, when a person gets their test results and sees that there is a significant chance of developing, say, Alzheimer’s disease at some point in their life, the person will then make sure that they have ironclad coverage for this disease specifically, coverage that includes very high benefit levels.
The problem with anti-selection
While people knowing more about their own health and taking steps to protect themselves is certainly a good idea, the practice of anti-selection could still be incredibly damaging to the world of private health insurance as we know it. This is because, while one person getting an edge on the insurance system is not terribly damaging to it, if enough policyholders were to eventually engage in the same practice, it could through the whole insurance economy out of whack.
When insurance providers decide on the details of a given health insurance policy, which is a process known as underwriting, they come up with plan coverages, exclusions, and so forth based on whatever they know about the a potential policyholder. However, if there is absent detailed medical or genetic information, they make assumptions based on an individual’s demographics, such as their age, gender, ethnicity, etc.
An underwriter than sets the plan’s premiums based on what the expected medical costs to the insurance company will be. However, in cases where a person knows what ailments they will be developing, they can then get insurance where the medical costs they eventually pass on to the insurer are far greater than the premiums they paid. If enough people replicate this, insurers would no longer be profitable and could face serious repercussions, including being forced out of business.
This clearly wouldn’t be good for insurance providers, but it would also hurt policyholders in the long run, as the companies that were formerly insuring their livelihoods may then go out of business, leaving them without insurance coverage and scrambling to secure another policy. However, in many cases, a new insurance policy would then likely have much higher premiums, and any pre-existing conditions developed since the outset of the previously held policy may possibly be excluded.
For the reasons outlined above, insurers are worried, and rightfully so. As it stands, insurers can require that any diagnostic results from an insured individual be shared with their insurance provider – especially from policyholders aged 55 and over – but not predictive test results like those provided by the DNA tests in question.
For this reason, it would not be surprising to see insurance companies going to governments the world over and asking for legislation to be enacted that mandates the sharing of such test results. Without such requirements, the face of the life and health insurance sectors as we know it could be irreparably harmed forever.
Let’s just hope that any legislation that does create laws that level the field for insurance companies will also include points to protect consumers in the other direction. Only then will there be a proper balance between insurer profit and insured benefits.
Get the advice you need
If the above information raises any additional questions about your particular situation vis-à-vis your current or potential health insurance policy, you need not feel left out of the loop. Please feel free to contact the knowledgeable insurance professionals at Pacific Prime China to get answers to any questions you may have.
Our agents have well-established relationships with local and international health insurance companies in China, as well as heaps of experience in dealing with them when it comes to applications and claims. They can provide you with the inside information you need to make the best decisions about covering the costs of your medical care.
Our insurance advisers can also provide you with a comparison of plans from top China insurers, and a free price quote. Contact us today!