Issues and problems

26.34 Submissions received by the Inquiry identified a range of issues and problems related to the use of genetic information in underwriting. On the one hand, allowing unlimited use of genetic information in this context gave rise to concerns about the creation of a ‘genetic underclass’ that would be denied access to insurance and other related benefits. Concern was also expressed about the negative impact that the use of genetic information by insurers may have on individual and public health outcomes. On the other hand, concern was expressed that there was little or no justification for drawing a distinction between genetic and other health information in the voluntary, mutually rated, personal insurance market and that prohibiting the use of genetic information would threaten the viability of that market. Each of these issues is discussed below.

Equitable access to risk rated insurance products

26.35 A number of submissions expressed concern that allowing insurers access to genetic information would limit the availability of insurance based on genetic status, creating a ‘genetic underclass’.^[30] David Keays expressed the view that:

The cascading discrimination that can result from a genetic test has the potential to foster the creation of a genetic underclass. A group of people who already have the misfortune of inheriting genetic mutations, who then suffer discrimination at the hands of insurance companies, which then limits their opportunity and freedom. Furthermore, because genetic characteristics are passed from one generation to the next, so too is the discrimination that accompanies it.^[31]

26.36 The Anti-Discrimination Commission of Queensland, however, commented that:

It is acknowledged that the contract of insurance is a private commercial relationship between the insured and an insurer and that insurers should not be expected to provide a social safety net for people.^[32]

26.37 The IFSA submission made the following observation:

While insurance is provided by commercial enterprises, there will always be a group of people who cannot be offered insurance. Such a situation currently exists, and is not new with the advent of genetic testing. This occurs because for some individuals the risk of claiming is so high or so difficult to assess, that a reasonable premium either cannot be determined or would be prohibitively high.

The issue of access to insurance for all is an issue of equity and is a matter for government. A socialised insurance system would involve significant cross-subsidies between different groups of policy owners and could risk escalating costs and reductions in participation rates as witnessed in the private health system.^[33]

26.38 In addition, IFSA expressed the view that the use of genetic test information would not significantly impact on the number of individuals who would be uninsurable:

Various community groups have expressed concern that the use of genetics in underwriting will result in a pool of individuals being unable to secure insurance cover, disadvantaging them financially …

The introduction of new testing technologies, such as genetic testing, does not in itself impact the underlying health of the population. It does not increase the number of people who are likely to develop severe health conditions in the future, and therefore does not impact the number of people who present such a high risk as to be uninsurable. Therefore, it is not expected to increase the number of people who are declined insurance.^[34]

Impact on individual and public health outcomes

26.39 A number of submissions suggested that the potential for discrimination in insurance deters people from taking health-related genetic tests^[35]—a claim substantiated by the experience of several individuals who made submissions to the Inquiry.^[36] Health professionals stated that some patients hesitate to consult clinical genetics services due to the fear of negative consequences for insurance.^[37] As a result, some health professionals counsel patients to seek life insurance prior to undergoing genetic testing.^[38] Although the Inquiry did not receive submissions from individuals indicating that the fear of genetic discrimination had prevented them from participating in genetic research projects, the Centre for Law and Genetics suggested that this might also be a problem.^[39]

26.40 The Genetic Discrimination Project Team commented:

However, even on the basis of current knowledge, available from existing studies and anecdotal accounts of clinicians and other health care professionals, there are strong indications that genetic discrimination does occur and is certainly perceived by many to be a problem. Indeed, the fear of discrimination is a significant issue because of the potential impact this may have on people’s health care decisions, in particular, whether to undergo genetic testing and also in relation to their willingness to participate in genetic research. These are both areas that will be the subject of inquiry in our study of consumers.^[40]

26.41 The Director of the Familial Cancer Service in New South Wales, Associate Professor Judy Kirk, expressed the following concerns based on her experiences in the provision of cancer screening and prevention:

In my experience some people hesitate to even consult and seek advice from such a service for fear that they will have future difficulty with insurance. Insurance companies do ask whether a person has seen a doctor in the last X years, and the consultation at a familial cancer service may be in issue (for themselves and for their family, despite the assurances of the IFSA mandatory standard). Furthermore, it has been reported to me that some insurance companies ask whether one ‘intends having’ a genetic test. I would also comment that current advice to patients may sometimes infer that they should seek insurance cover before a genetic test is done, and this cannot be of benefit to the system if it becomes a widespread approach.^[41]

26.42 Margaret Otlowski has noted, however, that:

In this situation, where insurance is secured prior to genetic testing being undertaken, there is no issue in relation to adverse selection on the basis of greater knowledge on the part of the applicant as a result of genetic test information. (As noted above, there may be some relevant family history of genetic disease but this would have to be disclosed in any case in response to specific questions.) In short, it is submitted that there would be no breach of the legal duty of disclosure if insurance is purchased before genetic testing is undertaken, provided any specific questions contained in the policy are answered truthfully.^[42]

26.43 The Human Genetics Society of Australasia (HGSA) submitted that:

It is a relatively common occurrence that we see individuals who decline genetic testing when the potential implications of that test on insurability are raised. These of course are only people who get to the point of seeing a clinical geneticist or genetic counsellor. How many people do not even get to that point because of these concerns is something that we do not, and cannot know. The best way to address this issue is for legislation banning the use of genetic tests in underwriting insurance policies.^[43]

26.44 In consultations, the Genetic Support Network of Victoria noted that it was aware of at least one incident of a medical practitioner advising a person not to be genetically tested in case they became ineligible for life insurance.^[44]

26.45 IFSA expressed a contrary view in its submission, noting that:

IFSA research of consumer perceptions, [found] there was no evidence … to suggest that people would refuse a genetic test due to fears about adversely affecting their standing with insurers. In fact most people would have any test should that test be recommended by their doctor.^[45]

26.46 Members of the Familial Cancer Service at Westmead Hospital, Sydney, commented that patients had difficulty distinguishing between the various types of insurance, including health insurance.^[46] It is possible that the level of concern about potential discrimination in insurance is in part based on the misapprehension that genetic information will impact on access to public or private health insurance.

26.47 The majority of submissions that addressed this issue supported some degree of regulation of genetic test information in insurance to overcome negative consequences for patient health and medical research.

Distinguishing genetic from non-genetic health information

26.48 Although recognising that genetic information has special characteristics, the Inquiry has generally resisted making recommendations in this Report based on the notion of genetic exceptionalism. A number of submissions cautioned against treating genetic test information in an exceptional way in the insurance context.^[47] IFSA submitted that ‘treating consumers with access to genetic information differently to the remainder of the insured population would introduce inequities between consumers’. The submission included the following example:

Consumer A—Applies for $1.0m of life insurance coverage. Due to her age and the amount of cover applied for she is required, as standard practice, to undergo an electro-cardiogram (ECG) which identifies an abnormality. Additional investigations confirm that the applicant has severe coronary artery disease. On the basis of this information the applicant’s mortality is classified as being 4 times that of a standard risk.

Consumer B—Applies for $1.0m of life insurance coverage. This applicant has previously undergone a genetic test which indicates she will develop, with certainty, a specific medical condition which may result in her death within the next 10 years. At present she is asymptomatic. If disclosure of a previous genetic test were excluded from the underwriting process, the applicant would obtain her insurance cover at standard premium rates.

Both applicants were asymptomatic at time of applying for insurance cover. Both applicants have a significant likelihood of claiming within the next 10 years. However because one has been diagnosed by ECG and the other by a genetic test their insurance applications are treated completely differently.

The industry believes that this situation is both illogical and inequitable.^[48]

26.49 By contrast, the Centre for Law and Genetics submitted that:

Whilst prima facie, it may seem inequitable to treat genetic test information differently from other health information, some of which may also be predictive or of a particularly sensitive nature, it is submitted that there are good reasons for differentiating in view of the greater risks associated with this kind of information. Of particular concern is the risk that predictive genetic test information will be misunderstood and misinterpreted, treated as having greater probative value than it deserves, resulting in unfair discrimination against individuals. To single out this form of information as one category of information that insurers should not be entitled to, at least for the time being, would not affect the equitable treatment of all insurance applicants. Although some may perceive it as unfair that genetic conditions are given ‘favourable’ treatment, in contrast to other health conditions, this can be justified as necessary because of the particular risks presently associated with this category of predictive genetic test information.^[49]

Impact on viability of risk rated insurance market

26.50 A number of individuals and organisations expressed concern that prohibiting the use of genetic information in underwriting would give rise to ‘adverse selection’, which would threaten the viability of the voluntary, mutually rated insurance market.^[50] The Australian Prudential Regulation Authority (APRA) explained the phenomenon of adverse selection as follows:

Genetic information may influence a person’s desire to apply for insurance. A person who is aware of their genetic test results indicating that they are at high risk of an early death or disablement might find a life insurance policy an attractive proposition. Conversely, armed with favourable genetic test results, some people might choose not to take out insurance to cover their future risk for developing a particular condition. This is symptomatic of the inherent problem with insurance of adverse selection, where the demand for insurance is largest for individuals who are most likely to have a loss, more generally, or who expect their loss to be larger than average.

The adverse selection problem is especially acute when buyers of insurance can conceal information that the insurer could use to evaluate the likelihood of loss, such as the information available from genetic tests undertaken. In this sense, genetic test information is no different from any other information relevant to an assessment of the insured’s health or medical condition. APRA’s concern is to ensure that life insurance companies are in a position to assess and accurately price the risks which they underwrite.

The presence of asymmetric information also raises systemic implications. If more people with knowledge of their higher risk join the risk-sharing pool at too low a price relative to their likelihood of claim, then premiums would rise for all policyholders. This will result in insurance becoming generally less attractive to those who believe themselves to be relatively healthy and therefore less in need of insurance cover. This could lead to a shift in the average risk of people taking out life insurance, causing an upward spiral in premiums and risk across the industry.^[51]

26.51 IFSA stated that it was

opposed to the placing of restrictions on underwriting such that it undermines the right of access to all information relevant to the underwriting process including human genetic information known to the applicant. The undermining of this fundamental principle could lead to the destabilising of the system and threaten the commercial viability of this form of insurance.^[52]

26.52 However, a number of submissions questioned the severity of the likely impact of denying insurers access to existing genetic information.^[53] The Centre for Law and Genetics, for example, submitted that:

Although these [adverse selection] arguments have frequently been made of the damaging effect for the industry if insurers are denied access to genetic test information for underwriting purposes, rarely have they been substantiated. There is in fact evidence (largely from the United Kingdom), to suggest that, whilst there are risks to insurers arising from adverse selection in the event that applicants have access to genetic test information that is not available to the insurer, the risks are greatest in respect of large policies. This research indicates that the risks arising from adverse selection in relation to small to average size policies would not be significant and certainly would not undermine the viability of the industry. This points to the desirability of distinguishing between large policies on the one hand, for which some measures to protect against adverse selection may be warranted, and small to average sized policies, in respect of which the industry could reasonably be expected to absorb the risks associated with adverse selection.^[54]

26.53 Graham Whittaker, an actuary with expertise in underwriting, suggested that, while the short-term consequences of prohibiting the use of genetic test information may not be significant, it would be important to consider carefully exactly what information was excluded:

In the short term it is unlikely that the viability of the market would be threatened, as the volumes of significant genetic tests are low. However a consequence would be that some individuals would be able to obtain very cheap insurance for a high risk, unfairly, and subsidised by other policyholders. If ‘family history’ were excluded (which is a type of genetic data) the position would be much more serious.^[55]

26.54 A body of expert opinion in other countries suggests that adverse selection is unlikely to be significant in the current climate, at least where genetic test information alone is excluded.^[56] Tony McGleenan, who was commissioned by the Association of British Insurers to conduct research into the impact of genetic information on the insurance industry, notes in his report that:

Actuarial modelling indicates that four factors are crucial in determining whether adverse selection based on genetic information will be damaging to a life insurance company.

(i) If the results of the genetic test need not be disclosed to the insurer.

(ii) If the possibility of the condition being present would not have been revealed in any event by other medical information, notably family history.

(iii) If the additional mortality risk indicated by the genetic test is higher than that in the broad categories already used to classify risk in underwriting.

(iv) If there is no therapeutic option to improve the healthcare prospects of someone with a positive genetic test.

It must be said that currently, given the costs involved in genetic testing, these diagnostic procedures are usually only performed when clinically indicated for some phenotypic reason other than family history. Therefore, in most cases the condition outlined in (ii) above will not be satisfied. The market for genetic testing for the purposes of satisfying personal curiosity is extremely small and is likely to remain so.^[57]

26.55 Angus Macdonald, a United Kingdom actuary, has noted that:

The most striking feature about this, often heated, debate is the almost total absence of numerical estimates of the cost implications. Actuarial modelling is beginning to provide such numerical estimates, in the first instance to the question of the costs of adverse selection if life insurers did not know genetic test results. The answers point to a sharp distinction between dominant single-gene disorders and multifactorial disorders. The former are rare enough that solutions outwith the free market should be sought, and (with some exceptions) the latter probably will not provide clear and reliable estimates of lifetime risk, distinguishable from lifestyle and environmental factors; they might therefore not meet criteria of accuracy and reliability such as those that govern discriminatory pricing in respect of disability.^[58]

26.56 It its final report, the United Kingdom Human Genetics Commission (HGC) concluded that

recent [actuarial] modelling has shown that a moratorium that extended to family history (as well as genetic test results) would be likely to have a large impact on insurance premiums and affordable access to ‘essential’ insurance. On the other hand, we have also heard that restricting access to family history information might have only a small impact on insurance premiums in most markets in comparison with the commercial variations that already exist. We do not at present recommend that the insurance moratorium should be extended to the use of family history information.^[59]

Options for reform

26.57 The Inquiry received a large number of submissions recommending further regulation of the use of genetic information in underwriting. Suggestions ranged from a complete prohibition on the use of genetic test results and family medical history, to a government subsidised, community rated, universal insurance pool. On the other hand, IFSA, the Insurance Council of Australia, the Institute of Actuaries of Australia and a number of other individuals and organisations did not support a significant change in the collection and use of genetic information for the purposes of underwriting.^[60]

26.58 In this section the Inquiry examines the following five options:

• maintaining the status quo;

• prohibiting the use of genetic information in underwriting;

• introducing a two-tier system;

• developing specialised insurance products; and

• cross-subsidising poorer risks through an industry or government scheme.

Maintain the status quo

26.59 A number of submissions expressed the view that there should be no change in Australian law as it relates to the collection and use of genetic test information for underwriting. IFSA noted that the existing system was designed to achieve the following goals:

Ensuring fairness to consumers—namely ensuring the cost of insurance is fair and reasonable relative to an individual’s risk profile, so that lower risk individuals are not required to subsidise higher risk individuals.

Protection of insurer’s financial soundness—ensuring the insurance industry remains viable so that protection is available when it is needed and that, in the event that insurance providers withdraw from the market, individuals interests are protected.

Equity between insureds—minimise opportunities for high-risk individuals to adversely select against insurers and be subsidised by low-risk individuals.^[61]

26.60 IFSA expressed support for the status quo, on the basis that other options would: not be in the best interests of consumers; generate complexity and cost beyond any potential benefits gained; create administrative difficulties; lead to reduction in currently available cover; and create a climate where the viability of the currently available forms of life insurance is placed in doubt.^[62]

Prohibit the use of genetic information

26.61 A general prohibition on the use of genetic test information in insurance received some support in submissions, either on an interim or permanent basis.^[63] The Centre for Law and Genetics noted that:

One of the key advantages of at least delaying the use of genetic test information for the purposes of insurance underwriting (eg through an industry moratorium) is that it permits time for the scientific and actuarial relevance of genetic tests to be established, thus addressing current concerns about the reliability and relevance of information currently used by the industry for underwriting purposes.^[64]

26.62 The Genetic Support Council of Western Australia stated:

The genetic support groups were strongly opposed to the idea that their genetic information could be used by insurance companies for underwriting purposes. The groups felt that insurance companies should not be legally allowed to request or use genetic information. This view stems from the concern that insurance companies may not understand the range of genetic tests available, such that a test for a predisposition to a condition not yet present may be treated in the same manner as a diagnosis of a current debilitating condition.^[65]

26.63 The Haemophilia Foundation of Victoria stated:

There was a strong and unanimous feeling that insurance companies should NOT have access to genetic information under ANY circumstance. While it is fair that they know of pre-existing conditions, a predisposition to a condition should not have to be declared, even if tests have been conducted and results known. No one has perfect genes!^[66]

26.64 The Genetic Discrimination Project Team summarised as follows:

We agree … that the dangers associated with insurers’ use of predictive genetic information are too great, at least at the present time, to allow the routine use of genetic information in underwriting. We believe that this information should not be used until such time as there is better understanding of its significance, particularly in relation to multi-factorial disorders.^[67]

26.65 IFSA did not support a prohibition on the use of genetic information for the following reasons:

The major disadvantage of a complete ban is that it undermines the basic principles of a voluntary, risk-rated insurance system. Such an approach exposes the industry to the risk of adverse selection and potentially destabilises the system. The main advantage of the approach is that it potentially provides greater access to life insurance to those who are aware of an unfavourable genetic test result. However, the industry believes this preferential treatment is inequitable, as other consumers bear the additional cost.^[68]

Introduce a two-tier system

26.66 A two-tier system would allow individuals to purchase insurance up to a specified monetary limit without an obligation to disclose genetic information. Once the sum insured exceeded the threshold, full disclosure would be required. Genetic information could be defined to include only genetic test information or extended to include family medical history.

26.67 The two-tier system attracted some support in submissions on the basis that it would go some way to address consumers’ concerns by providing access to a basic level of insurance regardless of genetic information. It was also thought to go some way to meet insurers’ concerns if the monetary limit was set below the level at which the effects of adverse selection might become apparent.^[69]

26.68 The Centre for Law and Genetics recommended that:

A ‘ceiling’ model along the lines suggested … is readily applicable to life insurance and could also be adapted to disability and related forms of insurance. Such an approach could be accommodated within existing insurance legislation (Insurance Contracts Act 1984 (Cth)) as a qualification on the usual disclosure obligations: the alternative, and arguably preferable option, would be for this to be dealt with by way of an industry code or moratorium.^[70]

26.69 Some European jurisdictions have adopted various forms of the two-tier system. The type of genetic information protected varies between jurisdictions. In Sweden, the two-tier system applies to the use of genetic test results and family medical history, while in the United Kingdom the system applies only to genetic tests, defined as chromosomal cytogenetic tests and molecular DNA tests.^[71]

26.70 The method of implementation also varies. The United Kingdom insurance industry has opted for a self-imposed industry scheme to run for five years. In Ireland, a Bill that included a moratorium on genetic testing for insurance purposes until 2010 and imposed a two-tier system with respect to the use of family medical history was introduced into Parliament in December 2001 but has now lapsed.^[72]

26.71 The monetary thresholds vary depending on the type of insurance purchased. In the United Kingdom, for example, the limit for term life insurance is set at a higher level than other insurance products (for example, trauma insurance and disability income protection insurance) because these other products are more vulnerable to the effects of adverse selection.^[73]

26.72 The monetary threshold also varies significantly between countries. For example, the threshold for term life policies ranges from €60,000 (approximately AUD $110,000) in Sweden to £500,000 (approximately AUD $1.35m) in the United Kingdom. The difference in the threshold appears to reflect differences in the insurance market and the type of genetic information protected under the threshold. In some countries with a two-tier system, the threshold was initially selected by reference to the average cost of housing because life insurance was generally required in order to obtain a mortgage.

26.73 In its submission to the Inquiry, the Association of British Insurers set out the rationale for the five year moratorium and two-tier system adopted by insurers in the United Kingdom:

The purpose of the five year moratorium, as set out in our press release, is to enable there to be a rational and informed discussion about the best way forward for the UK on genetics and insurance in the medium term. It does so by balancing the desire of those faced by genetic disadvantage to be able to access life and health insurance, with the insurance industry’s need to protect itself against the highest levels of adverse selection.^[74]

26.74 The Inquiry received a number of submissions supporting the adoption of a two-tier approach in Australia.^[75] There are two ways in which a two-tier system could be implemented: through industry codes or standards, or through legislative amendment, for example, by altering the applicant’s duty of disclosure in the Insurance Contracts Act 1984 (Cth).

26.75 A number of submissions that addressed this issue favoured implementation through industry codes, coupled with independent government oversight and approval of genetic tests. Submissions noted that industry codes would be an effective strategy in the short-term and would retain sufficient flexibility to develop long-term policy at a time when the number of genetic tests being undertaken is small.^[76]

26.76 As discussed in Chapter 25, many superannuation funds provide a certain amount of life insurance to members without requiring the insurance to be fully underwritten. The Anti-Discrimination Commission of Queensland noted that

separate insurance policies have now been replaced by personal insurance benefits attached to superannuation. Presently, most employees (other than those who are self-employed or employed in small businesses) are provided with automatic cover up to an automatic acceptance limit. Where employees require a greater amount of insurance, that extra cover is mutually rated.

In our submission, the system of underwriting presently used for insurance benefits attached to superannuation provides a good example of a working ‘two-tier’ system of insurance.^[77]

26.77 The Queensland Government submitted that, if a two-tier system were recommended, it should apply only to genetic test results, and not family medical history.^[78]

26.78 IFSA expressed the view that the introduction of a two-tier system would be impractical in Australia for a number of reasons:

The size of the population in Australia compared to the population overseas where the two-tier system operates is significantly smaller. Thus, the costs of implementing a two tier system in a small voluntary market are not justifiable (given the costs will outweigh any perceived benefits).

The nature of the business sold in the Australian market is more risk focused and therefore the impact on price of any such introduction would be more significant …

The variable nature of Australian life insurance products compared with those offered in the overseas market, would make it difficult to introduce a common two-tier system (like the overseas models) to apply across diverse and unique products.^[79]

26.79 APRA expressed some concern:

Obviously, the potential impact of such a proposal depends on the level of any threshold adopted. However, this has the potential to reintroduce adverse selection problems … and will lead to cross-subsidisation, in that one group of policyholders (eg. those who have not undertaken a genetic test) may be subsidising the other group that have undertaken such tests.^[80]

Develop specialised insurance products

26.80 A further option raised in submissions is development by the insurance industry of specialised products that cater for the insurance needs of individuals with genetic disorders or predispositions. The Centre for Law and Genetics submitted that:

We believe that there is definitely merit in encouraging insurers, agents and brokers to specialise in designing products and handling coverage for persons with a higher level of risk due to genetic factors. It is important that the legitimate insurance needs of this category of the population are met and that their difficulties are not compounded through insensitive treatment. Development of products with the needs of those at increased risk due to genetic factors in mind and ensuring that those handling coverage for such persons are specialised in the area, would be a way of achieving this objective on terms that are also compatible with the viability of the insurance industry. This strategy could augment the protection provided by a ceiling approach, as recommended above, or possibly be an alternative to it.^[81]

26.81 The HGSA submitted that:

If the overall decision is that insurers are allowed to use genetic information to underwrite policies, it is vital that they produce products that allow those with a genetic predisposition to disease to avail themselves of insurance, including:

1. Having policies below a certain amount of money for which questions about family history and genetic testing are not asked.

2. Having policies that allow coverage for all eventualities other than the genetic illness for which the person is at risk.

3. Having policies with a time limit may be appropriate in some instances.^[82]

26.82 The New South Wales Branch of the Australian Huntington’s Disease Association expressed the concern that:

Although it may be possible to design products for those with positive family histories of genetic conditions or positive genetic test results, the cost could be prohibitive for the average Australian family.^[83]

26.83 IFSA’s view was that:

Boutique specialised products require investment of large sums of money to develop and without the market demand to fund potential high risk claims, there is no financial justification for introducing such products.^[84]

26.84 The Institute of Actuaries of Australia submitted that there are a number of alternative products already available to those at higher risk:

Superannuation: The mandatory Superannuation Guarantee Contributions (SGC) provide every employee in Australia with a minimum level of superannuation benefits. These superannuation facilities almost invariably carry a certain amount of life cover. The only entry requirement is that the person covered be fit enough to attend work on the start date. Thus, most people who are fit enough to obtain employment at present have access to some insurance regardless of their predisposition for future health problems. … Once obtained, superannuation insurance covers can often be maintained even after the employee leaves employment, under continuation cover terms.

Consumer credit insurance: People who buy goods under hire purchase can often obtain insurance to cover the remaining repayment instalments in the event of their prior death. This cover has varying terms from company to company. Sometimes it is offered automatically, without the need to provide evidence of good health.

Credit card offers: Credit card providers, and other organisations including large chains of retail shops, sometimes make offers of simple entry insurance policies. Some of these may have an initial period of accident only cover, say three years, before full cover commences. This prevents a person who may be terminally ill from obtaining cover, while providing insurance to most people, including those who have poor prospects beyond medium term survival.^[85]

Cross-subsidise poorer risks

26.85 A final option is the establishment of schemes whereby individuals with poorer risks, who may not otherwise be able to obtain insurance, are subsidised for the purpose of obtaining insurance. Depending on the model chosen, the subsidy might come either from government (with cross-subsidisation from taxpayers) or from the insurance industry (with cross-subsidisation from other insureds).

26.86 A report of the United Kingdom HGC in 2002 noted the development of detailed models for the creation of a re-insurance pool, which would provide insurance to poorer risks through a partnership between insurers and government.^[86]

26.87 This sort of scheme operates in the Australian private health insurance industry. As discussed in Chapter 25, private health insurance is community rated:

the premium for an individual is based on the risk for the group (or community) to which the individual belongs, rather than the individual’s own risk. Thus private health insurers may not increase premiums for more risky individuals. The highest risk individuals are in general, the oldest individuals. Community rating leads to the problem of adverse selection … This is mitigated by the operation of a reinsurance scheme operated by government that requires all insurers to pay into a common pool, and pays out to those insurers with a more risky client profile.^[87]

26.88 The reinsurance scheme redistributes the hospital and medical costs of high risk members—those aged over 65 and those with more than 35 days of hospitalisation in any one year—and acts to counter the effects of adverse selection which can follow from community rating:

Funds with a greater proportion of low risk groups (the young) pay contributions to a pool which then distributes the income to funds with a greater proportion of high risk groups (the chronically ill and the aged).^[88]

26.89 Another model referred to by the HGC was an industry-funded risk pooling system based on the United Kingdom Motor Insurance Bureau model:

A new “Central Insurance Bureau” (CIB) would underwrite life and health insurance for those who cannot obtain insurance because of an adverse genetic test result. Insurance companies would have to be members of the CIB in order to underwrite life and health insurance in the UK. It would be funded by a levy on all life and health insurance of up to 5% of premiums.^[89]

26.90 In its submission, the Institute of Actuaries of Australia noted that:

It would be feasible, at a suitable cost, for the Australian government to provide a base level of life insurance to all Australians, regardless of individual risk factors.^[90]

26.91 Although not necessarily supporting such a scheme, the Institute outlined a scheme that could provide a certain level of life insurance for all Australians—a ‘government funded, community, life insurance pool’. One option outlined was a compulsory, universal scheme providing a benefit on death for members between the ages of 18 and 67, covering all Australians of working age.

26.92 The Director of the Queensland Clinical Genetics Service, John MacMillan, submitted that:

In the case of genetic testing and insurance I believe that a basic level of insurance, regulated by the state not the insurers, should be made available to all irrespective of any genetic test result. This would not expose the industry to adverse selection and would spread the risk and cost over the whole population.^[91]

26.93 In relation to the idea that government should assume some level of responsibility for providing a basic level of personal insurance cover, the Queensland Government submitted that:

The notion of providing basic cover through government-run programs similar to a national medical/hospital insurance scheme, would require considerable resources and depend on the willingness of society to pay for the premiums through increased taxation. It raises the question of how much compensation and taxation the community would be willing to provide.^[92]

26.94 Dr James Butler, Deputy Director of the National Centre for Epidemiology and Population Health, suggested that

there are important social and ethical issues associated with the use of genetic testing in life insurance (see, for example, Lowden, 1999). However, these issues are better addressed through social policies specifically designed to address those issues rather than regulating the life insurance industry by prohibiting the use of genetic test information. For example, a program of explicit government subsidies to those individuals who face dramatic increases in life insurance premiums as a result of a genetic mutation would provide targeted assistance to those affected. At the same time, this would avoid the adverse selection side-effects of regulations that attempt to avoid such premium increases by prohibiting the use of the information on which they are based.^[93]