New cancer drugs hasten rationing and supplemental insurance

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September 4, 2014 by Tony Novak

“The first of a promising new class of cancer drugs went on sale in Japan this week at an average annual cost of $143,000 a patient” – the opening line of news coverage in today’s Wall Street Journal. Great news, except that U.S. Medicaid systems and prison systems are already saying they can’t afford the drugs for every patient who medically qualifies and would benefit from the treatment.

Since my early coverage of this topic in newspaper columns and editorials as far back as 1983, I’ve predicted that eventually we, as a society, would need to increase our mechanisms for rationing health care in public health plans. This remains true today; we are simply waiting for technology to catch up and force our hand. The logical expectation is that government will adapt additional new Medicaid regulations and “red tape” that makes it more difficult for patients to access these expensive drugs. We can imagine that if you make these regulations difficult enough, the problem will be solved. A majority of the cancer patients would be dead before getting through the approval process. The problem is that the drugs, like most medical treatment, are most effective if started quickly in the early stages of treatment.

Private health plans, on the other hand, have no immediate motivation to restrict these hefty drug costs as long as they can raise premium rates fast enough to keep pace with the costs of these new technologies. Right now that is not a problem. Medical costs rose less than 4% in 2013. Government generally won’t intervene unless health insurance premiums rise by 10%. But the new government-imposed cost controls in the form of premium caps will eventually clash with our society’s idealistic goal of providing the best available medical treatment to all patients. After all, we like to say, “health care is a basic human right”.

In the long run, the actuarial mathematics simply does not allow us to provide all of our citizens with the latest, best care and still maintain our overall health care costs at a manageable level, however we define that limit. Some form of rationing of medical care is inevitable. I predict that these new cancer drugs will prove to be the bellwether of new health care policy.

We will wind up with two standards of medical care just like in U.K. where the basic government-paid standard of medical care does not cover these expensive new drugs. In the end the wealthy who can afford to pay for supplemental health insurance will wind up with the best of medical care. The rest will face increasingly difficult access to the latest and best medical treatment.

The main point of this blog post is that these new medical technologies will have a direct substantial impact on the personal financial planning for ordinary working-class Americans. Most of us need to be prepared for six figure medical expenses that are not covered by insurance. How do we do that without bankrupting our family’s future? The most likely available solution is voluntary supplemental insurance, a topic that we will learn much more about in the years to come.

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