Re: Protocols for Insurance to Maintain Privacy

-----BEGIN PGP SIGNED MESSAGE-----

[ To: cypherpunks ## Date: 11/03/97 ##
  Subject: Re: Protocols for Insurance to Maintain Privacy ]

>Date: Mon, 3 Nov 1997 10:26:03 -0700
>To: "John Kelsey" <kelsey@plnet.net>,
>    "cypherpunks" <cypherpunks@Algebra.COM>
>From: Tim May <tcmay@got.net>
>Subject: Re: Protocols for Insurance to Maintain Privacy

>Such insurance is now common. A boat owner doesn't buy
>insurance for iceberg collisions if he is never in arctic
>waters, a small plane pilot doesn't buy cargo insurance if
>he doesn't ferry cargo, and so on.

Yes, I understand this.  Nobody with a grain of sense
insures himself for things he knows will never happen.

>>the point of having insurance, which is to protect yourself
>>from low probability high cost things happening.  That is,

>I have a different view of what insurance is than John does.

>What insurance is, and how it is priced, is too long a topic
>to get into here. Suffice it to say that the insurance
>company makes its profits by charging more for coverage than
>it pays out. And the customer, of course, tends to lose the
>differential.

An insurance broker and a bookie are in the same business.
A bookie takes a bet from me, at 1000 to 1 odds, for some
unlikely to occur event--which he thinks has a probability
of less than 1/1000.  An insurance broker does the same
thing.  The only important difference is my purpose in
placing the bet.  When I take out medical insurance, I am
placing a bet that I will get sick enough to spend more than
my deductable on doctors.  The insurance broker estimates
(based on whatever information is available) the probability
that this will happen, and makes me a bet at odds that are
in his favor, if his estimate is true.  If I get sick, I get
some money (or my doctors do).  If I stay well, I lose the
bet.  This is just paying someone to take some risk off my
hands.

>Each side tries to get as much information as possible. If
>Joe Client knows he never pilots a cargo plane, he doesn't
>opt for cargo insurance. If Joe Client knows he never
>engages in unprotected sex with diseasy prostitutes, etc.,
>he skips HIV insurance. The fact that some "low probability
>events," like meteor strikes, are uncovered is part of the
>price of keeping Joe's premiums tolerable.

>>before I've taken the test for genetic disease X, my best
>>estimate of the probability that I will test positive is
>>very low.  Once I have taken it, I know the result.  If I
>>sign up for a-la-carte insurance for this disease, the
>>insurance company effectively knows I must have tested
>>positive for a predisposition to it, and so either won't
>>give me insurance, or will give me insurance only at an
>>extremely high rate (corresponding to a 1/10 chance of
>>getting the disease, rather than a 1/1,000,000 chance).

>This is the idea. It causes those with the predilections to
>the disease to pay the high coverage costs.

Right.  I don't think I expressed my point too clearly,
because you seem to have responded to something different
than what I was saying.  Suppose there is some genetic
disease that kills its victims on their 31st birthday,
unless they get a $1,000,000 treatment first.  Before I have
taken the test for this disease, I have to accept a certain
risk--if I find out I have the disease, I have to raise a
million dollars in the next few months.  After I have taken
the test and gotten back the results, there's no more risk
involved (assuming the test is perfect)--I either have the
disease or I don't.  After the test, insurance isn't useful
(unless I defraud my insurer).  Before the test, though,
insurance might be useful--I could essentially place a bet
with someone that I had the disease--I pay $1, and get a
million dollars back if my test comes back positive--just
enough to pay for my treatment.

>The alternative is not pretty: banning private testing
>(how?) and forcing insurance companies to cover all
>applicants for all conditions at a fixed rate.

I know.  Let me make it clear that I am not at all
interested in banning private testing, coercing insurance
companies or anyone else into agreements they don't want to
make, etc.  I am saying it would be nice if I could buy
insurance against the results of the tests before I took
them.  The problem is, I can't see a really workable way to
do this, because there's no way to keep people from taking
the test beforehand.

>--Tim May

   --John Kelsey, Counterpane Systems, kelsey@counterpane.com
 PGP 2.6 fingerprint = 4FE2 F421 100F BB0A 03D1 FE06 A435 7E36

-----BEGIN PGP SIGNATURE-----
Version: 2.6.2

iQCVAwUBNGDdikHx57Ag8goBAQE6/AP/Yub9LA0b1rvivDeiHW9tHtV7b/n4jmUA
aP50hPFTCn7EEMsoKdC2pUv0eq5F+s8AmKyaE+SmxTgBbalrvm+T+lPib4bbEXjH
iI9nHbnfzTSxiVbkVHp0p0/0urIgokTcrFBWbfIEnmOnGvI7OHI+KcPjqr3JBQeo
A53+dL0NBRQ=
=kx2R
-----END PGP SIGNATURE-----

   --John Kelsey, Counterpane Systems, kelsey@counterpane.com
 PGP 2.6 fingerprint = 4FE2 F421 100F BB0A 03D1 FE06 A435 7E36

At 5:03 PM -0700 11/5/97, Adam Back wrote:
>John Kelsey <kelsey@plnet.net> writes:
>> Suppose there is some genetic disease that kills its victims on
>> their 31st birthday, unless they get a $1,000,000 treatment first.
>> Before I have taken the test for this disease, I have to accept a
>> certain risk--if I find out I have the disease, I have to raise a
>> million dollars in the next few months.  After I have taken the test
>> and gotten back the results, there's no more risk involved (assuming
>> the test is perfect)--I either have the disease or I don't.

I want to say one more thing about the example John Kelsey cites here.

That million dollar disease example is not too compelling to me. For
starters, there are literally hundreds of millions of persons on the planet
who are expected to die from various diseases or nutritional deficiencies
for lack of, not a million dollar treatment, not a $100,000 treatment, not
even a $1000 treatment...

No, there are billions who will die early (in childhood, early youth, etc.)
for want of treatments or supplements costing a few hundred dollars.

Not that I support forcibly extorting money from those who have it to give
to these wretches.

Which means I can honestly tell the "million dollar disease" guy: "I hope
you saved up a million dollars."

>> Before the test, though, insurance might be useful--I could
>> essentially place a bet with someone that I had the disease--I pay
>> $1, and get a million dollars back if my test comes back
>> positive--just enough to pay for my treatment.
>
>The insurance company would have no financial incentive to take on
>such risks -- I reckon they'd sooner let the wanna-be customer die.
>Nasty, but it's reality.

And underwriters do this all the time. That is, they fine-tune their
estimates of risks and adjust premiums accordingly.

If Joe Patient makes a bet on this million dollar disease, but won't let me
see any test reports, or won't let me test him independently, I as an
undewriter am going to make the assumption he knows something I don't know.
And his premium is going to go way, way up.

--Tim May


The Feds have shown their hand: they want a ban on domestic cryptography
---------:---------:---------:---------:---------:---------:---------:----
Timothy C. May              | Crypto Anarchy: encryption, digital money,
ComSec 3DES:   408-728-0152 | anonymous networks, digital pseudonyms, zero
W.A.S.T.E.: Corralitos, CA  | knowledge, reputations, information markets,
Higher Power: 2^2,976,221   | black markets, collapse of governments.
"National borders aren't even speed bumps on the information superhighway."

No, you die on your 30th birthday, when you ride the carrousel.

The insurance plan would only work if there was a significantly less than 
one-in-a-million chance of having the disease. Otherwise, the cost will 
be more than one dollar. The rates would be lower if you buy your policy 
well in advance, since the disease never strikes before you are 30 - 
there's money to be made on holding your premium, and you jsut might die 
of something else before requiring treatment.

As Tim pointed out, however, if you can be tested prior to obtaining the
insurance, without admitting to it, you would not obtain the insurance
unless the test showed that you had the disease. The price of the policy
would therefore be $1,000,000 or so, with minor adjustments. 

-r.w.

On Thu, 6 Nov 1997, Tim May wrote:

> At 5:03 PM -0700 11/5/97, Adam Back wrote:
> >John Kelsey <kelsey@plnet.net> writes:
> >> Suppose there is some genetic disease that kills its victims on
> >> their 31st birthday, unless they get a $1,000,000 treatment first.
> >> Before I have taken the test for this disease, I have to accept a
> >> certain risk--if I find out I have the disease, I have to raise a
> >> million dollars in the next few months.  After I have taken the test
> >> and gotten back the results, there's no more risk involved (assuming
> >> the test is perfect)--I either have the disease or I don't.
> 
> I want to say one more thing about the example John Kelsey cites here.
> 
> That million dollar disease example is not too compelling to me. For
> starters, there are literally hundreds of millions of persons on the planet
> who are expected to die from various diseases or nutritional deficiencies
> for lack of, not a million dollar treatment, not a $100,000 treatment, not
> even a $1000 treatment...
> 
> No, there are billions who will die early (in childhood, early youth, etc.)
> for want of treatments or supplements costing a few hundred dollars.
> 
> Not that I support forcibly extorting money from those who have it to give
> to these wretches.
> 
> Which means I can honestly tell the "million dollar disease" guy: "I hope
> you saved up a million dollars."
> 
> >> Before the test, though, insurance might be useful--I could
> >> essentially place a bet with someone that I had the disease--I pay
> >> $1, and get a million dollars back if my test comes back
> >> positive--just enough to pay for my treatment.
> >
> >The insurance company would have no financial incentive to take on
> >such risks -- I reckon they'd sooner let the wanna-be customer die.
> >Nasty, but it's reality.
> 
> And underwriters do this all the time. That is, they fine-tune their
> estimates of risks and adjust premiums accordingly.
> 
> If Joe Patient makes a bet on this million dollar disease, but won't let me
> see any test reports, or won't let me test him independently, I as an
> undewriter am going to make the assumption he knows something I don't know.
> And his premium is going to go way, way up.
> 
> --Tim May
> 
> 
> The Feds have shown their hand: they want a ban on domestic cryptography
> ---------:---------:---------:---------:---------:---------:---------:----
> Timothy C. May              | Crypto Anarchy: encryption, digital money,
> ComSec 3DES:   408-728-0152 | anonymous networks, digital pseudonyms, zero
> W.A.S.T.E.: Corralitos, CA  | knowledge, reputations, information markets,
> Higher Power: 2^2,976,221   | black markets, collapse of governments.
> "National borders aren't even speed bumps on the information superhighway."
> 
> 
> 
>

At 11:58 AM -0700 11/5/97, John Kelsey wrote:

>I know.  Let me make it clear that I am not at all
>interested in banning private testing, coercing insurance
>companies or anyone else into agreements they don't want to
>make, etc.  I am saying it would be nice if I could buy
>insurance against the results of the tests before I took
>them.  The problem is, I can't see a really workable way to
>do this, because there's no way to keep people from taking
>the test beforehand.

That's my point. Since there can be no way to determine if someone has had
themselves tested, such "wouldn't it be nice" scenarios are meaningless.

--Tim May


The Feds have shown their hand: they want a ban on domestic cryptography
---------:---------:---------:---------:---------:---------:---------:----
Timothy C. May              | Crypto Anarchy: encryption, digital money,
ComSec 3DES:   408-728-0152 | anonymous networks, digital pseudonyms, zero
W.A.S.T.E.: Corralitos, CA  | knowledge, reputations, information markets,
Higher Power: 2^2,976,221   | black markets, collapse of governments.
"National borders aren't even speed bumps on the information superhighway."

John Kelsey <kelsey@plnet.net> writes:
> Suppose there is some genetic disease that kills its victims on
> their 31st birthday, unless they get a $1,000,000 treatment first.
> Before I have taken the test for this disease, I have to accept a
> certain risk--if I find out I have the disease, I have to raise a
> million dollars in the next few months.  After I have taken the test
> and gotten back the results, there's no more risk involved (assuming
> the test is perfect)--I either have the disease or I don't.  

The insurer can't determine whether you've taken the test.  The
insurer may insist on the test anyway or offer you unfavourable odds,
basically assuming you have privately tested and found positive
otherwise you wouldn't be refusing to have the test.  (A variation of
the `he must have something to hide' theme).  Unless you can afford
the premium for withholding this test, you're stuck.

> Before the test, though, insurance might be useful--I could
> essentially place a bet with someone that I had the disease--I pay
> $1, and get a million dollars back if my test comes back
> positive--just enough to pay for my treatment.

The insurance company would have no financial incentive to take on
such risks -- I reckon they'd sooner let the wanna-be customer die.
Nasty, but it's reality.

> >The alternative is not pretty: banning private testing
> >(how?) and forcing insurance companies to cover all
> >applicants for all conditions at a fixed rate.
> 
> I know.  Let me make it clear that I am not at all
> interested in banning private testing, coercing insurance
> companies or anyone else into agreements they don't want to
> make, etc.  I am saying it would be nice if I could buy
> insurance against the results of the tests before I took
> them.  The problem is, I can't see a really workable way to
> do this, because there's no way to keep people from taking
> the test beforehand.

I reckon your only option would be charity.  If these $1,000,000
treatment 1:1,000,000 odds genetically testable diseases are rare
(1:1mil is rare), perhaps a charity would be able to cover the costs.

The increased choice in insurance would ensure cheaper medical care
for all.  A deregulated medical profession with third party rating
services rather than top down government services should reduce prices
dramatically also.  Same for medical drugs, third party ratings.  Buy
your ratings service.

And being a hard line anarcho capitalist, I draw the conclusion that
if you can't afford to keep yourself alive, that is your problem.
(Heartless ain't it:-) Aside from comments about evolution in action
(perhaps I personally don't want to fund propogating these genetic
defects, and that is my choice), my suggestion is that such cases
would have to be met by charity.

A charity could also refuse to help people who hadn't donated, if
it chose.

I bet it would work too, and a lot more efficiently than the
government regulated setup now.

Heck I might even donate to it, with the savings I'd make from
the breakup of the medical cartel.

(UK is as socialist as it comes with medicine, and your taxes reflect
this.)

Adam
-- 
Now officially an EAR violation...
Have *you* exported RSA today? --> http://www.dcs.ex.ac.uk/~aba/rsa/

print pack"C*",split/\D+/,`echo "16iII*o\U@{$/=$z;[(pop,pop,unpack"H*",<>
)]}\EsMsKsN0[lN*1lK[d2%Sa2/d0<X+d*lMLa^*lN%0]dsXx++lMlN/dsM0<J]dsJxp"|dc`

Many insurance companies with Mutual in their name (Liberty Mutual is
large in the Northeastern US) get that from being founded as mutual
insurance companies, where you pay to be part of the mutual insurance
group, and when you get sick, injured, etc, the group pays money
towords your treatment.  I think it broke down with increases in
mobility.  They were implicitly based on reputation capital, and were
not highly fraud resistant.

Adam's suggestion of a charity which only pays for the treatment of
those who donate thus recreates an old system.

Adam

Adam Back wrote:

| And being a hard line anarcho capitalist, I draw the conclusion that
| if you can't afford to keep yourself alive, that is your problem.
| (Heartless ain't it:-) Aside from comments about evolution in action
| (perhaps I personally don't want to fund propogating these genetic
| defects, and that is my choice), my suggestion is that such cases
| would have to be met by charity.
| 
| A charity could also refuse to help people who hadn't donated, if
| it chose.


-- 
"It is seldom that liberty of any kind is lost all at once."
					               -Hume

Adam Shostack <adam@homeport.org> writes:
> Many insurance companies with Mutual in their name (Liberty Mutual is
> large in the Northeastern US) get that from being founded as mutual
> insurance companies, where you pay to be part of the mutual insurance
> group, and when you get sick, injured, etc, the group pays money
> towords your treatment.  I think it broke down with increases in
> mobility.  They were implicitly based on reputation capital, and were
> not highly fraud resistant.
> 
> Adam's suggestion of a charity which only pays for the treatment of
> those who donate thus recreates an old system.

Saying that it would be a charity is just a statement of reality.
There exist no methods to insure when there is a near certainty of a
payout being required, as I think we all agree (Tim, Adam, Jon).

To call it anything other than charity is misleading, so I am really
just arguing for honesty in advertising.  (Something socialists are
not big on :-)

An insurance company would probably find customers and hope to make a
profit by offering a mutual fund, or charitable donation service.
There would be an agreement as to who could claim, and what types of
illness were covered, maximum payouts etc.  Then the business would
use the funds (minus it's profit margin) to pay for those treatments
affordable within the current funds.

This means that as funds may be limited that some people will go
untreated, if their treatments are too expensive and funds are short.
Efficient usage of funds is expected -- if it costs $1m to fix up some
old guy to live for a couple more years as opposed to giving cheaper
treatments to several younger people, well the old guy gets to die.

This might seem heartless to socialist types, but this kind of
decision gets made all the time by medics, who don't have unlimited
funds even in socialist countries.  In the UK some practices are funds
holding, which means that they get to manage their own money, they get
to decide which drugs to use, and who to give them to, and they get to
use profits (or more correctly surplus government grants) in certain
ways (equipment, etc).  (Or they did, Labour were threatening to
confiscate these surpluses).  I talk to medics a bit, as I am into
medical messaging security, and some of the people are bilingual
medics and medical informatics people.  Examples are drugs which are
3% more effective but cost 5x the price.  These kinds of optimisation
of available resources problems are all over the place in medicine,
and doctors balance these within budgets.

Another example is that doctors are able to tell smokers with lung
cancer who refuse to stop smoking that they will not treat them.  Or
switch off life support machines if it looks pretty hopeless, and is
costing a fortune to keep a half-alive person ticking over.

The failure with mutual funds is that people will attempt to start
donating once they realise they have some big medical bills coming (if
only donators get payouts).  To combat this the company might perhaps
have a policy of not paying out within 5 years of the first donation.
Then you'll have the counter attack of people re-selling proof of
donation receipts.  And then the company can counter that with a hash
of DNA code mixed in to the donation receipt such that only with the
patients consent can the receipt be used to link to him. 

The key point is the choice.  Many companies, many choices, freedom to
donate or not, or to stipulate terms of donation (eg., not to fund
lung cancer treatment for smokers).

It seems to me that people are on average more generous and charitable
than socialists would have us believe also.  For example a charity to
support people who had no insurance, or hit the maximum payout on
their insurance might get donations.  Perhaps even enough donations
that it would cover most cases.

Adam
-- 
Now officially an EAR violation...
Have *you* exported RSA today? --> http://www.dcs.ex.ac.uk/~aba/rsa/

print pack"C*",split/\D+/,`echo "16iII*o\U@{$/=$z;[(pop,pop,unpack"H*",<>
)]}\EsMsKsN0[lN*1lK[d2%Sa2/d0<X+d*lMLa^*lN%0]dsXx++lMlN/dsM0<J]dsJxp"|dc`