I want to pull out two very smart comments on super high cost drugs and respond some more to them:
First, from Another Scott:
I guess I am still not feeling any sympathy for the insurance company. They know that they are in the business of taking premiums from a large group of people and paying bills from a small group of people and having plenty left over to pay for salaries and hookers and blow. Expensive diseases have been around forever.
This is a good point that is slightly off. Insurers are in the business of taking premiums from large groups of people in order to lower variance of eating statistical risk. Insurers will lose money on some people who are at risk of possibilities and make money on some people who are at risk of possibilities. These hyper expensive treatments are not risk. They are certainty. Insurers don’t handle certainty well. If we assume insurers are profit seeking and they can effectively predict a tiny population will be on the margin massive net money losers, we should expect a strategic response to minimize or eliminate those guaranteed losses. There is a rich vein of papers by Geruso, Layton, Schneider, Shepherd, etc that look at insurer responses to small shocks on the margin where the margin member on an informational axis is a net money loser. The insurers quickly shift formularies, networks and keystone hospitals to avoid those losses.
how many of the patients that need these very expensive treatments are not in the private insurance market and are on medicaid and disability? Would the government have better incentive to go for it on this stuff?
Government funded programs will probably have the plurality if not majority of individuals. The big problem is that these programs will also experience a one time (or realistically a 3-5 year) cash flow problem as 2045 spending is pulled into 2023 or 2024. However, some of the incentives that I mentioned to Another Scott are still in play as most Medicaid programs are run through managed care where insurers get a risk adjusted capitation payment and told to try to profit from that. Medicare Advantage is now more common than Traditional Medicare for new enrollees. Programs like the VA don’t have the same incentives as anything run by a Blue but there are still substantial policy challenges.
Another Scott
Thanks for this.
I still feel like there are some hidden variables that you know about that I’m not seeing.
Isn’t the underlying context here the ACA? A company on the exchange has to take anyone who signs up, right? So if Joe Hemophiliac signs up for Talc plan that costs him $0 and he gets prescribed the $3.5M cure by Dr. Kildare, then the company still has to pay the claim, right? (Subject to the normal negotiation battles between the Dr. and the insurance company.) There are mechanism for the insurance company to regain a portion of the lost revenue, as I understand it. But they don’t involve not paying for Joe’s treatment, or dumping him, if he’s on an ACA plan.
What am I missing? (I haven’t had my dose of caffeine yet.) Are you concerned that companies will abandon the ACA if they pay “too many” $3.5M claims without the reimbursement structure being addressed? That could be a reasonable worry, but I again go back to my earlier comment about $2.5M or $0.9M or … treatments. We invite never-ending demands to satisfy corporate demands for hookers and blow if we look at individual, 9-sigma tail cases rather than the company as a whole.
I don’t think that “guaranteed loss” is a mitigating factor if the company is on the ACA, because them’s the breaks. If they want to be listed, they have to take everyone who picks them, even if they cost $3.5M. Right?
Corrections welcome.
Thanks for all you do here.
Cheers,
Scott.
Lobo
Reinsurance and maybe a move of that person to Medicare for paying those high cost cost claims. The insurance companies would be able to offload those patients by paying a premium into that system. To make it work health care companies would have to accept Medicare patients. Also enforce rule that 80% of the money be spent on direct services and cap exec compensation especially for “non-profits “.
Urza
This needs more context. Why is 2045 spending being pulled in more than 20 years?
Victor Matheson
@Another Scott: If I remember correctly, the private insurer ACA market in Iowa completely collapsed about 5 years ago because of just one or two patients with hemophilia that destroyed the entire ACA private insurance market.
If the number of people buying insurance is sufficiently small and the known costs of any one patient are sufficiently large, whichever company is unlucky enough to have that patient sign up with them will have to raise premiums to cover that patient and those higher premiums will price them out of the market. It was a single kid with hemophilia that broke the entire system.
It’s not the kid’s fault, but systems need to be designed to make sure this problem can be addressed.
Victor Matheson
@Urza: Cures for things like hepatitis and hemophilia have massive costs for year 2023 but prevent even larger costs spread out from 2023 through (say) 2045 (had we let the diseases go unchecked).
Dave’s whole point is how do we design systems that give the insurers an incentive to pay the massive financial hit for the cures now when they are very unlikely to benefit from the cost savings down the road. Why would a private insurer be willing to pay a ton now for a cure just to prevent costs for another private insurer or Medicare/Medicaid in 20 years?
Insurers are generally ok at covering preventative care, but it is another story when that preventative care is $3.5 million per person, and the care it prevents is years and years in the future.
Ruckus
As I see it the only way to change any of this is to take the responsibility/decisions away from private insurance and private management because their major goal is profit and assessing the risk of not having any. All private businesses have the goal of profit, it’s how one stays in business. It is the basis of what people do it for, it is the holy grail for every business. Some are not greedy about the amount of profit but massively are about loss, especially a massive loss. Business owners may actually sometimes like the business they are in but serious losses mean that they are likely not to be in business. And yes I’ve owned 2 businesses and while I like profit as well as the next person, because it is how one stays in business, it was not the over ridding premise of being there. But it is important. It’s extreme profits or losses that are critical over time. For a critical business, like healthcare, which insurance is part of that has to be taken into account. As I stated here the other day, I owned a business one door away from a medicine manufacturer, one that designed and manufactured medicine for rare diseases like being discussed here. The cost is astronomical to get from point A to a licensed, working medication. The cost of production is most often quite tiny in comparison, with the exception that the disease is relatively rare so the production does not always make up for normal costs because of the extreme risk/cost of development.
My point is that all businesses have to at least break even to stay in business but the point in the first place is a profit. For a greedy company/people that profit has to be at the minimum, reasonably large. If you extend that profit to a relatively small company and have to have a lot of small companies to actually be the overall business, then individual profit may be small but the overall profit will not be. It is why many countries have socialized medicine, it spreads the cost to the one entity that can sustain a loss over time and also one that can make better use of expensive procedures. I’ve had a lot of MRI scans, I get at least one a year. In the private world that cost is high because every step is a profit margin. At the VA, not every scan has to have a profitable outcome and the cost is lower because there is almost always a line waiting for the next scan. My almost 30 yrs of MRI experience is that someplace like the VA makes better use of a multi million dollar tool than does most private users, because it is more of a production line and less of a profit center. Yes the patients are more of a production item but overall I feel that I get better care because not every single interaction is a profit point.
Another Scott
@Victor Matheson: Thanks for this.
I think that this strengthens my argument, though. The Iowa problem was that the market was too small, not that the one guy/gal broke it. (And I know that David is on our side about making health care universal but 218/51(60)/5/1…)
I understand that the system needs to be fixed so that companies don’t go under because of a sudden $3.5M expense. Since someone eventually pays (or the company goes under, the patents expire, and the drug comes to market years/decades later and people needlessly suffer in the interim), ways need to be found to keep the companies in business, and it’s a solvable problem given good-faith. I don’t think though that looking at the problem from the $3.5M cost side will solve the systemic issues. What will? Dunno…
Thanks again. This was helpful to me.
Cheers,
Scott.
Ruckus
@Another Scott:
It’s not looking at the problem from the $3.5 million side that is the problem, it does have to be looked at that way. The larger the group that shares the cost of something, the less cost per person/group. I get my healthcare through a socialized medicine organization. The VA. The VA is not looked at that way because it is a limited socialized organization, only vets. But the concept is socialized medicine because if you are a member of the group there is no difference in your treatment. You can have been a private or a general, your treatment is the same. You sign up for 4 or stay in for 30, you are treated the same. The only difference is your needs.