Economics and similar, for the sleep-deprived

A subtle change has been made to the comments links, so they no longer pop up. Does this in any way help with the problem about comments not appearing on permalinked posts, readers?

Update: seemingly not

Update: Oh yeah!


Tuesday, August 31, 2010

 
I've seen this film before

Time for another go at this piece of conventional wisdom, I think:

The time is fast approaching when we will have an inexpensive test that is capable of revealing a person’s genetic propensity to contract a broad array of chronic diseases. That means that we will be able to accurately assess the cost of medical treatment over their lifetime . . .


No. I am not going to definitively say that no such thing will ever be possible in any factual or science-fictional world, but the second sentence does not follow from the first. I will assert with truculence and jutted jaw that the derivation of commercially relevant and actionable insurance information from genetics is much, much more difficult than that, and furthermore, will tentatively and politely advance the possibility that to "accurately assess the cost of medical treatment over a lifetime" might end up being at least as much of a tough-nut as the socialist calculation problem.

As the rant linked above tries to point out, the big issue here is the "Titanic problem" (from Hitchcock's aphorism about it being possible to make a suspenseful film about the Titanic given that everyone knows that it sinks - they don't know when). Knowing genetic propensities to develop various conditions is just about one tiny baby step along the way to making a cost estimate of the sort described. Just reeling off the other forecasting fun from the top of my head:

1) How long will it take for the condition to develop? (ie, how many years' premiums will the punter have plugged in before he needs the disease)
2) How much will the condition cost to treat when he gets it?
3) How does your answer to 2) depend on your estimate of medical cost inflation?
4) How does your answer to 2) depend on your assumptions about technological progress in medicine - given that we are talking about thirty or forty year horizons at a minimum here?
5) How do your answers to 3) and 4) interact, given that technological progress can either facilitate the prolongation of late-stage care at massive expense, or make hugely debilitating conditions curable with a twenty-dollar appliance?
6) How do the genetic markers interact; what is the possibility that a marker for a profitable condition (ie, ideally, one that kills the insured stone dead with no warning after having paid a lifetime's premia) is correlated with an unprofitable one?
7) How will the customer's estimates of 1-6, plus your terms and premiums, affect his or her behaviour?

This looks totally impossible to me; 4) is the real killer I think. People who comment on this issue almost always do so on the basis of genuine progress by the doctors in diagnosis and prognosis, without usually considering the fact that medical risk to the insured has to be mapped onto financial risk to the insurer.

However, wonderful, wonderful mathematics provides an easy way on this one. The mathematics of risk pooling is the closest thing to a free lunch as you are ever going to get. Because, although the Titanic problem is massive, you can be sure close to certainty that the Grim Reaper is going to play that fuck-awful Celine Dion song to all of us, sooner or later. If you give up on price-discrimination, then what you are modelling is the average outcome for the average patient, and he's a much more tractable soul.

In general, standard terms and risk pooling are proven technology. They work, and they have worked for about 250 years, give or take. Risk pricing, risk management and discrimination have a much shorter history and have caused quite a few spectacular flameouts for their users in their short existence (note that this wasn't the case for the early days of life actuarial science - the compilation of the first mortality tables more or less did for the benefits-societies and became hegemonic precisely because they worked straight from the off).

I have a fairly deep respect for actuaries as a profession. They've had their scandals, their Equitable Lifes and so on, but consider this - for 250 years, they have been in charge of a very complicated and very important set of social institutions, and not once have they totally destroyed the thing they were put in charge of through intellectual arrogance and bad faith. Neither bankers nor socialists are able to make the same boast.




endnote: I think that a lot of people also get misled on this one by the observable fact that the insurance industry does in fact take a very strong interest in genetic markers and prognosis. In my opinion, this is not because they have some dream of hunting down the chimera of perfect price discrimination, but because they're worried about good old fashioned moral hazard; they're worrying about the patients having an information edge over them. If you have good information about the likelihood of something happening to you, you can load up on coverage and effectively use your insurance policy as a low-cost savings vehicle, to the considerable expense of your insurer. Genetic testing (and this ought to be obvious really given that the basis of insurance is risk-pooling) is a threat to health insurance, not an opportunity.
7 comments this item posted by the management 8/31/2010 09:04:00 AM


This page is powered by Blogger. Isn't yours?




Links:

Bitch : Lab
Aaronovitch Watch
Balkanalysis
Perfect.co.uk
Maxspeak
Brad Delong
The Robert Vienneau blog

Political and philosophical heroes

Subcomandante Marcos
Will Rogers
Boris Vian
The English Svejk

RSS Feed:
This seems to matter to a lot of people

If you liked this "Daniel Davies" website, you might be interested in

"Danux", the web developer
The martial artist (and fan of extremely annoying Flash intros) from Blackburn
The Welsh political journalist
A Scouse computer programmer who collects Soviet cameras
"Danimal", the heavy metal drummer
Canada's finest recorder of radio jingles
More of the same, at the Guardian
A tailor's in Lampeter where Jimmy Carter once bought a hat
An advertising man who has written a novel about dogging (I think we sometimes get each other's email)
An award-winning facilities manager in Dubai
The son of the guitarist from the Kinks Update: he is apparently "balls-out motherfucking shit-dicked exxxstatic" to be included on a Kerrang magazine giveaway CD of Iron Maiden covers, which is nice.
"Fritz Gretel" from the Ramones film "Rock 'n' Roll High School"
The former presenter of the leading politics talk radio show on the Isle of Man, now a business change manager in the Manx government secretary's office
An aquarium curator in Sussex who keeps on scoring home runs like this (this is the first stable link I've found, but he is constantly kicking ass in acquarial terms)

If you didn't like this "Daniel Davies" website, then don't give up on the Daniel Davies industry completely!

An American "Christian Political Analyst" who has the same name as me
A student at Patrick Henry College
these two might be the same guy ...
"Scatter", the deceased Liberian gangster
A naked man stuck in a chimney in Wigan
A thug in Barrow



This blog has been going downhill since ...

August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
September 2003
November 2003
December 2003
March 2004
April 2004
May 2004
May 2005
June 2005
July 2005
August 2005
September 2005
October 2005
November 2005
December 2005
January 2006
February 2006
March 2006
April 2006
May 2006
June 2006
July 2006
August 2006
September 2006
October 2006
November 2006
December 2006
January 2007
February 2007
March 2007
April 2007
May 2007
June 2007
July 2007
August 2007
September 2007
October 2007
November 2007
December 2007
January 2008
February 2008
March 2008
April 2008
May 2008
June 2008
July 2008
August 2008
September 2008
October 2008
November 2008
December 2008
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009
November 2009
December 2009
January 2010
February 2010
March 2010
April 2010
May 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
January 2011
February 2011
March 2011
April 2011
May 2011
June 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
January 2012
February 2012
March 2012
April 2012
May 2012
June 2012
July 2012
August 2012
September 2012
October 2012
December 2012
February 2013
April 2013
June 2013
July 2013
August 2013
March 2014
April 2014
August 2014
October 2015