A Crazy Idea?
Here’s a crazy idea: Why doesn’t life insurance pay for healthcare?
At this point, perhaps you are allowing the typical thing to happen. Typical, as in a lot of energy is immediately expended on coming up with the laundry list of reasons why this idea won’t work. Let’s suspend that urge for second. We will come back to it, I promise. Instead, let’s actually burn our calories a different way – by understanding the problem and seeing if perhaps the idea might work. So, let’s dig a little deeper.
In a previous article, we explored the burdens associated with chronic disease. One of those is financial burden. Because chronic diseases are on-going, they can be incredibly expensive – and that’s if a person can afford healthcare coverage in the first place. And because they are expensive, access to the proper care may be difficult and potentially impossible. In addition, with COVID-19 we have seen a virus that tragically discriminates against those with chronic conditions. So, it shouldn’t be a stretch to argue that it should be in our collective interest to try to solve some of the cost burdens that prevent the proper management of chronic disease.
Type 2 Diabetes in the United States
Now, let’s take type 2 diabetes in the United States. There are approximately 30 million patients in the United States who have type 2 diabetes – clearly, not an insignificant number.
With respect to treatment and care, type 2 diabetes is progressive, meaning that if you acquire it and do not care for it properly by keeping your blood sugar (glucose) levels under control, it can get worse over time. Patients with an early stage of type 2 diabetes may be put on a diet and exercise regimen. Without proper care, the disease may progress to the point where they need oral medication. If that fails to control their diabetes, they are then usually prescribed long-acting insulin. And if that fails, then they will usually require multiple injections of both long- and short-acting insulin each day. As the disease gets progressively worse, the cost to the healthcare system increase dramatically.
Most type 2 patients check their glucose levels by pricking their finger, depositing a drop of blood onto a test strip, and inserting the test strip into a glucose meter, which then measures the level of sugar in their blood. Depending on the severity of their disease, a patient will do this anywhere from a few times a week, to a few times a day. For a patient, particularly in the early stages of type 2 diabetes, it’s hard to draw any meaningful understanding from a blood glucose reading a few times a week. Besides, it’s painful. There are technologies – like continuous glucose monitors (CGM) – that allow a patient to see their glucose levels in real time, without having to prick their finger each time. To put it in perspective, CGM provides 288 readings a day! This technology can be incredibly impactful for a type 2 patient, regardless of the stage of their disease. By seeing how their blood sugar fluctuates in real-time with different types of food, with different types of exercise and even with different types of medication, a type 2 patient has the ability to better understand the things that cause high glucose levels and, as a result, can take the necessary steps to get their glucose levels under control.
So, with all these benefits, why wouldn’t every type 2 patient use a CGM? Two of the reasons are coverage and cost. In some cases, CGM for type 2 diabetes isn’t covered by health insurance, so if a patient wants it, they need to pay for it out-of-pocket. In the cases where it is covered by insurance, there are usually co-pays and deductibles that need to be met. In addition, CGMs are disposable devices that need to be replaced every 7 to 14 days. Meaning, you need to keep paying over and over if you want the on-going benefit. In many cases, even if CGM is covered by insurance, the out-of-pocket costs a patient needs to cover to use these devices on a regular basis are beyond their means.
A Health Insurer’s Dilemma
Let’s now look at this issue from the private health insurance company’s perspective. Private health insurance companies are businesses. When considering whether to cover a new therapy, in addition to assessing its safety and effectiveness, they also perform a cost-benefit analysis to see if the cost of the therapy justifies the benefit it delivers. In our example, health insurers will assess how much it will cost them if their members decided to switch from a low-cost test strip and blood glucose meter system, to a higher-cost CGM. They then compare this cost to the financial benefits that they can expect to receive from CGM. For a patient with type 2 diabetes, the financial benefit an insurer will receive from CGM will typically come in two forms: 1) from a diabetes patient having fewer hospitalizations as a result of using the technology, or 2) if the patient can delay or avoid disease progression from better glucose management, which avoids the need for more expensive treatment regimens and reduces the chances of long-term complications from the disease.
One of the challenges associated with this cost-benefit assessment is that private health insurers typically assess the cost vs. the benefits over a five-year period. Why? Because this is how long the average person stays with their health insurance company. So, let’s do a simple analysis from the perspective of the health insurer:
Cost … the insurers look at what happens to their cost through the adoption of the technology. Now, just imagine if 30 million type 2 diabetes patients switched from a very low-cost test strip and blood glucose meter system to a higher cost CGM. The insurers costs would clearly spike on day one.
Benefit … as mentioned earlier, the financial benefits for an insurer from a patient using CGM will come from either fewer hospitalizations or fewer long-term costs and complications. Let’s take them one at a time. A newly diagnosed type 2 diabetes patient is not likely to get hospitalized for their disease any time soon, unless they have some other underlying health conditions. The highest risk of hospitalization applies to a subset of patients that have more advanced forms of type 2. This is where CGM could save an insurer money, but it’s certainly not the entire 30 million patient population. As for the long-term costs and complications, some of the long-term health issues associated with type 2 diabetes can take decades to form. These complications are incredibly costly when they do occur, but they are usually outside of a five-year analysis window for most of the people a health insurer covers. So, while CGM could make a meaningful difference in health outcomes and cost, that difference is most meaningful for patients with more advanced forms of the disease, and over a longer time horizon for the others.
Conclusion … in our admittedly simplified scenario, a five-year cost-benefit analysis likely looks very lopsided – meaning, a lot of upfront costs with broad adoption of the technology and limited short-term benefit. Therefore, in this case, investing in CGM technology for their entire type 2 patient population is not likely viable for a health insurance company. So, they may refuse to cover it for the broad population and cover it only for the patients with more advanced forms of the disease. And, even if they do cover it, co-pays, deductibles and other mechanisms that shift some of the cost to the patient will, not surprisingly, become a deterrent to broader adoption.
In a subsequent article, I will talk about how Value-Based Healthcare could potentially change the dynamic above. But for the purposes of this article, we will explore the alternative posed at the outset. Life Insurance. Could health insurance’s cost-benefit challenge become life insurance’s opportunity?
Life Insurance’s Opportunity?
One of the things that makes life insurance companies different than private health insurance companies is that they have a much broader, long-term view. These companies retain their customers for a much longer time horizon – certainly longer than 5 years. In addition, it is completely in the interest of a life insurance company to have their members live longer. I hate to sound cold and calculating, but from a purely business perspective, the longer a person lives, the more premiums the life insurance company collects and the more time that elapses before the insurance company has to pay out a death benefit. As it relates to type 2 diabetes, a 2010 UK study determined that the life expectancy of a patient with type 2 diabetes is reduced by 10 years[1]. In the case of patients who were once healthy, eligible and covered by life insurance and now have type 2 diabetes, a life insurer should want all of them on the therapies that provide the best chance of maintaining good health and maximizing their life span.
An example of this could be as follows:
For a once healthy patient who has life insurance and has recently acquired type 2 diabetes, a mechanism in their policy could exist that would completely cover the costs associated with the therapies that allow that patient to achieve the best outcomes and extend their life, like CGM. This mechanism would eliminate the patient’s financial burden and make the best-in-class therapy much more accessible.
In exchange for covering the patient’s out-of-pocket healthcare costs, the patient would need to demonstrate they were maintaining good health. The patient could show, among other things, on-going glucose control – essentially, proving to the insurance company that they are using the therapy and engaging in a lifestyle in a way that reduces, or even eliminates, long-term complications and, ultimately, increases their life span.
As long as the patients can demonstrate that they are engaged in achieving favorable health outcomes, the life insurance company would continue to cover any of the out-of-pocket healthcare costs associated with the therapy. In fact, many of the things we have discussed in previous articles, such as gamification, IntelliMedicine, and tools for predictive analytics and actionable insights could be part of the equation as well.
Conversely, if the patient fails to achieve and maintain good glucose control, then the life insurance company would no longer cover the out-of-pocket costs, and possibly also raises the life insurance premiums.
This theoretical model doesn’t need to only apply to existing life insurance patients who have recently acquired type 2 diabetes. The model can also apply to type 2 patients who are looking to purchase life insurance, though the actuarial analysis would be different depending on their age, how well they were controlling the disease, etc. In addition, it doesn’t need to only apply to type 2 diabetes, it can apply to a myriad of different chronic diseases.
Now, as promised, let’s get back to the desire to simply explain all the reasons why this idea won’t work. I fully understand what I am suggesting is hard. Very hard, in fact. First, not everyone has, or can afford, life insurance. Second, life insurance companies want to identify and underwrite only the healthiest individuals and some of these diseases may disqualify an individual from coverage entirely. They are also regulated entities and things like incentives, rebates and fluctuations in premiums pose a massive challenge for them with their regulators on a state-by-state level. In addition, issues like recommending therapies and care-pathway are outside of their existing domain. On top of all this, data privacy is another hurdle that would need to be overcome. These are all real challenges, and some may even be insurmountable.
Despite these hurdles, I do believe that life insurance companies could, at a minimum, approach this potential opportunity in an incremental fashion.
First, identify the chronic diseases that contribute to the greatest decrease in life expectancy and the greatest number of deaths each year.
From there, begin to engage with partners to perform the clinical work necessary to determine which therapies are best suited to improve health and extend life.
Once this is understood, engage in the actuarial analysis necessary to determine the cost-benefit of removing the financial burden associated with these therapies — first, for their existing members first and subsequently for new life insurance candidates.
If the math works, then look to create and test different insurance products that encourage patients to use these therapies, starting on a very limited scale.
If results can be demonstrated and sustained, then – and only then – look to expand.
Ultimately, the goal would be to assess if there are viable approaches that could potentially help a broad portion of the population — those who acquire certain chronic diseases — to better deal with the cost of healthcare in a way that also empowers them to take better care of their health and extend their life. In doing so, these new mechanisms could not only reduce the cost of healthcare through better health outcomes, they could also potentially create a business model that brings in more money for the life insurance company. In addition, by engaging the life insurance industry in healthcare, there could be the added benefit of life insurers using their negotiating power to keep the cost of drugs, devices and care in check, especially over the short-term.
I submit, maybe this is all a crazy idea. Too crazy, perhaps. But, given the current healthcare landscape it might be the right time to actually think a bit more out-of-the-box and, in certain situations, start to cautiously take the first few “crazy” steps forward.
References:
[1] Diabetes UK — “Diabetes in the UK 2010: Key Statistics on Diabetes” https://www.diabetes.org.uk/resources-s3/2017-11/diabetes_in_the_uk_2010.pdf
