Privacy and the Economics of Personal Health Care Information

Paul M. Schwartz* Introduction [V]ideo rental records are afforded more federal protection than are medical records.1 Genetic science permits, to a previously unimaginable degree, predictions as to the illnesses that a person-and her immediate relatives-might confront in the future. At the same time, information technology permits greater transmission, sharing, and storage of personal health care data at ever lower costs on a national and even international basis.2 The combination of easy dissemination of highly sensitive data and use of these data to predict future health risks has already caused significant harm.3 Employers are gaining information regarding which employees, potential or present, might fall ill in the future and are utilizing it to deny them jobs or promotions.4 Insurance companies are using this same information to deny health care coverage for these individuals.5 And at least one Health Maintenance Organization ( HMO) has permitted electronic access to complete psychiatric-session notes to all its employees, including nurses and clerical staff.6No adequate legal protection currently exists in this area.7 As dissemination becomes easier technologically and more predictions are made of future illnesses, more people will lose jobs and health coverage unless health care information receives legal protection that shields it from inappropriate disclosure. The critical issue is how the law should structure the use of personal medical data by government and private enterprise alike. Proposals have been introduced in the current Congress that would prevent uncontrolled access to health care data.8 Proponents of these measures typically justify them on fairness grounds or, even more broadly, through reliance on a perspective that views privacy as a right.9 In contrast, their opponents have questioned the economic efficiency of privacy legislation.10 This debate appears to have reached a stalemate." This Article argues, however, that a strong economic argument can be made in favor of informational privacy. It does so by carrying out an internal critique of the current conventional wisdom of law and economics concerning the inefficiency of data privacy. This Article evaluates and corrects certain conclusions of law and economics theorists by testing their arguments within a specific and complex American landscape. In a world far more simple than the one that we inhabit, unlimited disclosure of personal data might be economically efficient. Yet, in the current marketplace for health care and employment-and any such markets that we are likely to have in the future-a strong economic argument can be made in favor of privacy. We begin by exploring the provocative views of Judge Richard Posner and Professor Richard Epstein, who argue against regulation and in favor of unconstrained access to information about individuals. Judge Posner advocates open disclosure of personal information.12 In his view, data privacy primarily serves to allow individuals to carry out dishonest manipulations of the world around them.13 Richard Epstein finds that the full benefits of the enormous predictive power of genetic data will be reaped only if unrestricted access is provided to this information. 14 This Article's second Part points out the weaknesses in these approaches and argues that neither absolute disclosure nor absolute secrecy for medical data will be socially optimal.15 It finds open access sometimes to have negative effects and privacy to have a potentially positive impact. Because much information may be both harmful and useful in different contexts for different reasons, an economically efficient distribution of information is unlikely to exist at either extreme on the privacy/disclosure continuum.16 In its third Part, this Article considers the nature of an economically efficient regulation for health care information and argues that optimal distribution of personal health care information requires rules that are tied to and follow these data through various uses17 In the electronic age, a health "record" per se no longer exists. …