Managed health care coverage for infertility services: understanding adverse selection

Insurance is an economic tool that individuals can use to reduce or eliminate financial risk. Health insurance provides risk reduction for economic loss caused by the need to pay for health care services. Insurance for any circumstance makes economic sense provided that administrative expenses to the insurer (insurance company or health plan) are no larger than the risk-premium or the value to the insured of having economic risk reduced or eliminated. Infertility has generally been regarded as a social problem rather than a medical one. Insurance companies and health plans have been reluctant to cover infertility services because of a lack of societal agreement that these services should be included and because accurate information about both the appropriate sequence of care and its cost effectiveness has not been available. Some health plans that have extended coverage for infertility services have experienced poor economic outcomes because of adverse selection. Adverse selection occurs when asymmetrical information exists, i.e. when those insured have privately held information about whether they will need the covered services or not. There are ways that the private sector can reduce or eliminate adverse selection without government mandates. These include limited coverage, experience rating, exclusion for pre-existing conditions, mandatory wait provisions, medical examinations and group coverage. When private sector efforts to control for adverse selection fail, government intervention may make sense. Governmental mandates are favoured by some because they compel wide coverage, which reduces overall economic risk. Even this can fail to eliminate adverse selection if individuals or couples who are higher risk for infertility move to areas where coverage is mandated. Given societal acceptance of the need for universal coverage for infertility services, the private sector should be able to create an economically beneficial insurance market for this coverage provided that they avoid adverse selection.