Managing the costs of informational privacy: Pure bundling as a strategy in the individual health insurance market

Advances in genetic testing and data mining technologies have increased the availability of genetic information to insurance companies and insureds (a pplicants and policy holders) in the individual health insurance market (IH IM). Regulators, concerned that insurance companies will use this informati on to discriminate against applicants who have a genetic risk factor but wh o are still healthy, have implemented genetic privacy legislation in at lea st Is states. However, in previous work we have demonstrated that such legi slation will have unintended consequences it will reduce consumer participa tion in the market without making those remaining better off. This paper id entifies a mechanism, a pure bundling strategy, that insurance companies ma y implement in this regulatory environment to restore (or maximize) consume r participation in the market and to discourage such discrimination among i nsureds. This problem is examined through System Dynamics, a simulation-bas ed modeling technique. The results will have significant implications for p olicy designs implemented by insurance companies, and for legislation imple mented by industry regulators, and therefore, for the insurability of the i ndividuals that rely on this market for health insurance coverage.