Voluntary Pooling of Genetic Risk: A Health Insurance Experiment

Scientific and technological advances increasingly allow for better tailoring of health insurance plans to individual health risk profiles. This development questions the sustainability of health plans that feature strong cross-subsidization across different health risk types and health behaviors. An important observation is that the willingness to cross-subsidize risks in health plans might depend on whether the risk is uncontrollable by individuals, such as genetic risk, or modifiable via health behaviors. That is, people might be willing to pool genetic risks because individuals have no control over these. However, the converse might be true for behavioral health risks, for which homogeneous premia do not reward or punish health behaviors.

In this study, we use a laboratory experiment to investigate how the possibility to adjust health insurance premia according to health risk information affects the willingness to pay for different health insurance schemes. In particular, we test whether individuals are more willing to pool on genetic risk, if health insurers can condition parts of the insurance premium on preventive effort. Individually pricing preventive effort reduces free-riding incentives and, thus, separates out one confounding factor in group insurance schemes. In particular, it allows to isolate the presence of social preferences for pooling of genetic risk. To derive our experimental hypotheses, we develop a theoretical model of health insurance choice with social preferences. By eliciting subjects' voting preferences for health insurance systems in a survey, we furthermore investigate whether there is a discrepancy between preferences expressed by voting and those revealed by the incentivized experiment.

Our results show a higher willingness to pay for a group insurance scheme that pools genetic risks but includes individual premium discounts based on preventive effort, compared to a group insurance scheme that pools both genetic risk and the effort component. Thus, our results indicate that pooling on genetic risk due to social preferences is more likely to occur when the effort component, and thereby free-riding incentives, are separated. However, we do not observe an increase in preventive effort across insurance schemes when effort is priced individually, contrary to theoretical prediction. This finding can be explained by the low level of group insurance under the health insurance scheme that pools both genetic and behavioral risk. We also find a strong discrepancy between preferences for health insurance systems expressed in the survey and the subjects' choices in the incentivized experiment.

Our study provides an important contribution informing the design and regulation of health insurance by investigating social preferences for pooling of genetic and behavioral health risks as well as the impact of health risk information from new information technologies. Given the continuously growing health care costs in most countries, the role of (new) health risk information in health care markets has to be reassessed, also for health insurance. While current legislation still prohibits the use of genetic testing information in health insurance, at the behavioral side, health insurers in the US and Europe started to provide monetary incentives that are tied to health behaviors that are monitored via, e.g., mobile devices.