Monday’s New York Times highlighted one of the many ways that existing models of medical insurance are beginning to come undone. In this case the subject was long-term-care insurance, which is supposed to help cover the exceedingly high cost of intense chronic care required by some elderly Americans—especially those with Alzheimer’s disease and dementia. As policy-makers have looked at the economic forecasts for old-age health care in the past few decades, they have increasingly used tax incentives and other spurs to encourage middle-aged and older Americans to buy such insurance.
Insurance companies at first jumped right into the newly burgeoning field, but as the years have passed and more patients have made claims, insurers have come to realize that the economic model of long-term care does not work like the rest of their business: demographic changes mean much more demand than originally anticipated, costs are enormous and stretch on for years, and the normal insurance premium structure is often not adequate to make such insurance a profitable enterprise. Several of the biggest early players have suffered mightily. Conseco, which at one point was the leading insurer, actually went bankrupt.
The result is what the Times described this week: some patients who counted on their insurance have been let down as the industry has begun to come to terms with the economic realities of an aging society. The Times story goes too far in its criticism at some points—one California lawyer is quoted saying, “these companies have essentially turned their bureaucracies into profit centers.” Well, yes, that’s what companies are. But the article does get at a growing set of problems for the insurance industry.
The aging society is one source of the trouble, but advances in biological science are another. As genetic knowledge improves, some of the premises of the insurance system could come undone. Insurance is based on an assessment of risk that in turn relies on the inherent unknowability of the future, including our medical future. If that changes, if we become better able to predict with genuine precision our likelihood of falling prey to certain medical conditions, it will begin to make less and less sense for insurers to cover us for those illnesses. If they know with near certainty that we are likely to need a particular treatment, then insuring us for it would cease to be a risk, and would become just bad business judgment.
In both cases—long-term-care insurance and improving genetic knowledge—we find that the problem is not so much a lack of coverage or care, but a business model that’s failing to keep up with reality. The age of biotechnology, which has only begun, will certainly bring many more such challenges.