Editor’s note: This article was first published in the Wall Street Journal on March 20, 2019.
Imagine a scenario in which a 57-year-old man with an individual health-insurance policy is diagnosed with cancer. As soon as the diagnosis is made, the incentives of the man and those of his health insurer diverge.
He wants the best treatment immediately, while the insurer seeks to meet its obligations in the most financially prudent way possible. That could mean paying for less-expensive treatments first before gradually moving up a ladder of remedies if they fail. If the patient switches to a different insurance plan after being cured, his first insurer will have in effect subsidized a competitor. Moreover, the insurer’s obligations end with his death.
This misalignment of incentives is one reason many Americans distrust the private health-insurance industry and even entertain ideas like Medicare for All. But there is a way to rearrange priorities in the private health-insurance system. Consider an industry that excels in long-term planning and has a strong incentive to keep clients alive: life insurance.
Let’s say our 57-year-old has a $250,000 life-insurance policy. At the time of diagnosis, the incentives of the patient and those of his life insurer align more strongly. Both want him to live as long as possible. Every month of added life is a bonus for the insurer, both in postponing benefits and in collecting additional premiums.
Studies are beginning to show that life insurers could save lives and help their bottom lines by purchasing cancer treatment for their clients. This would not be the case for drugs that produce only modest gains in life expectancy. But the development of expensive new immunotherapies changes the math. For those medicines that prolong life enough to delay death-benefit payments significantly (or, in the case of some term life policies, perhaps even eliminate them), it makes sense for life insurers to intervene.
Let’s assume our patient bought his $250,000 policy with a 30-year term at age 40. His diagnosis at 57 is metastatic skin cancer, which has been almost universally fatal within five years. But Yervoy, a drug manufactured by Bristol-Myers Squibb, offers a reasonable chance at a durable cure. By our calculations, the cure would generate about $28,000 in value to the insurer in the form of delayed death-benefit payouts and increased expected premium revenues. Of course the value would be greater for larger life-insurance policies.
The course of Yervoy therapy costs about $120,000, of which an insurer like Medicare would pay about $96,000. That means the life insurer would come out ahead, paying only the patient’s $24,000 out-of-pocket cost. Researchers at Columbia and the University of Chicago calculated that longer lives resulting from the introduction of cancer immunotherapies save life insurance companies $6.8 billion a year.
There are signs life insurers see the benefit in getting more involved in their clients’ health. The financial-services firm John Hancock recently began offering premium discounts of up to 15% to customers who report their health habits, including eating, drinking and exercise.
To accelerate their involvement, life insurers need better access to information on which of their beneficiaries will need financial help accessing new medications. Partnerships between oncology-care providers and life insurers may hold promise. Care providers could help their patients identify and finance clinically appropriate therapies via their existing life insurance policies.
For too long, life insurers have been afraid to act on medical information for fear of invading beneficiaries’ privacy. It’s time for them to revisit this notion and work with health-care providers to help patients. In addition to being lucrative, such a partnership could help create a more effective and sustainable health insurance system.
Mr. Goldman is director and Mr. Lakdawalla research director of the Leonard D. Schaeffer Center for Health Policy and Economics at the University of Southern California. They are co-founders of Precision Health Economics, a consultancy to pharmaceutical companies.
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