What will our growing ability to identify Alzheimer’s Disease years before a patient shows full symptoms mean for the U.S. system of voluntary long-term care insurance?

The New York Times reported this week that a new test using spinal fluid can accurately identify Alzheimer’s a decade before it becomes full-blown. With some patient groups, the technique–which is already commercially available–can identify future onset of the disease with 100 percent accuracy. The Times also reports that separate PET scan imagery is also being used on an experimental basis to detect early signs of the disease.

This diagnostic work is great news for medicine. These tests may become impotant steps toward eventual treatment and possible prevention of the disease. But they also promise to completely shake up our model of long-term care insurance. This is a very big deal.

To understand why, keep in mind that nearly half of long-term care insurance claims costs are for those with dementia. While Alzheimer’s is only one of many memory loss diseases, it is by far the most common. 

Second. rememember how insurance works. We buy it to protect against the cost of a future bad event. I know that some people will contract Alzheimer’s, but don’t know if I will. So I can use the insurance to hedge against that risk. I may never file a claim, while others may end up spending far more for care than they ever pay in premiums. So insurance companies use my premiums (and the money they make investing those premiums) to pay the claims of those who do.    

Now imagine if people can learn 10 years before full onset of Alzheimer’s that they are highly likely to suffer from it. Imagine, moreover, that a future genetic test can tell them decades in  advance, perhaps while they are still in the 20s or 30s. The result is that those who test positive will flock to buy insurance, dramatically increasing the amount of money carriers will have to pay in claims. They in turn will raise rates to reflect these higher costs. 

Some states have already barred insurance companies from getting results of diagnostic tests. But that will just drive up premium prices for all buyers. Knowing that the tests are widely available, the companies will simply assume that more buyers are at greater risk for getting Alzheimer’s and raise rates accordingly.

Btw, the new national long-term care insurance program, the CLASS Act, will face exactly the same problem since it is voluntary. In fact, it may bear an ever greater burden. If private insurance more tightly underwrites to screen out those susceptible to Alzheimer’s, those unable to buy in the market will turn to government insurance, which cannot reject buyers based on health. And that will drive up CLASS premiums.