Tests play an important role in modern medical care. Is my leg broken? Check the X-ray. Do I have HIV? Look at the blood tests.
But when are tests appropriate? In some cases, tests will not alter treatment. For instance, let assume that a person is either healthy or has Disease X. Disease X is untreatable or does not require treatment. This illness could represent a life-threatening disease for which there is no treatment, or it could also represent a minor ailment which would heal on its own. Since we know that if a patient has Disease X it won’t be treated, should insurance cover the cost of the test?
In our example, the value of information to providers is $0. If the physician finds out the patient does not have Disease X, they will not treat them. If they do have Disease X, they will still not treat them since because this particular type of disease. From the clinical point of view, the test is worthless.
However, if Disease X was a life threatening disease, most patients would want to know their prognosis. In the absence of health insurance, individuals who wanted to find out if they had Disease X could pay for the test out of pocket. Those who preferred to save their money and deal with extra uncertainty would not have the test done.
The question is, should insurance cover the test for Disease X? If insurance does decide to cover the test, this will increase insurance premiums. However, if everyone who potentially would have Disease X would always have the test, this would simply be a transfer of funds from all enrollees to those who potentially had Disease X. If some individuals would forego the test in the absence of insurance, moral hazard would mean that more of these individuals would have the test done if it were covered by insurance.
From an insurance company point of view, what is the correct evaluation tool? As mentioned earlier, the test has no clinical value, but patients likely would value this information highly if Disease X were life-threatening. Should insurance companies incorporate enrollee willingness-to-pay in their benefit packages or should they rely on a strictly clinical evaluation? I would lean towards the clinical definition, since it is very difficult to model individual willingness-to-pay. If the test is so valuable, the patients can pay for it themselves.
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