Document de travail

Welfare Impacts of Genetic Testing in Health Insurance Markets: Will Cross-Subsidies Survive?

David Bardey et Philippe De Donder


Personalized medicine is still in its infancy, with costly genetic tests providing little actionable information in terms of efficient prevention decisions. As a consequence, few people undertake these tests currently, and health insurance contracts pool all agents irrespective of their genetic background. Cheaper and especially more informative tests will induce more people to undertake these tests and will impact not only the pricing but also the type of health insurance contracts. We develop a setting with endogenous prevention decisions and we study which contract type (pooling or separating) emerges at equilibrium as a function of the proportion of agents undertaking the genetic test as well as of the informativeness of this test. Starting from the current low take-up rate generating at equilibrium a pooling contract with no prevention effort, we obtain that an increase in the take-up rate has first an ambiguous impact on welfare, and then unambiguously decreases welfare as one moves from a pooling to a separating equilibrium. It is only once the take-up rate is large enough that the equilibrium is separating that any further increase in take-up rate increases aggregate welfare, by a composition effect. However, a better pooling contract in which policyholders undertake preventive actions (and lower their health risk) can also be attained if the informativeness of the genetic tests increases sufficiently.


discrimination risk; informational value of test; personalized medecine; pooling and separating equilibria.;

Codes JEL

  • D82: Asymmetric and Private Information • Mechanism Design
  • I18: Government Policy • Regulation • Public Health


David Bardey et Philippe De Donder, « Welfare Impacts of Genetic Testing in Health Insurance Markets: Will Cross-Subsidies Survive? », TSE Working Paper, n° 19-1035, septembre 2019.

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Publié dans

TSE Working Paper, n° 19-1035, septembre 2019