More than 1.7 million new cases of cancer will be diagnosed in the US this year and an estimated 609,640 people will die from the disease, in part from a lack of access to prohibitively expensive treatments.
But what if a company could pay for those treatments and still make money from seeing cancer survivors live healthy lives?
It’s not so far-fetched, says Finance Professor Stijn Van Nieuwerburgh, and it could radically transform a sector struggling to tame runaway healthcare costs.
In a new working paper titled “Financing the War on Cancer,” Van Nieuwerburgh and co-author Ralph Koijen of the University of Chicago argue that life insurance companies are in a unique position to both save lives and make money by covering the costs of cancer immunotherapy treatments, which have shown incredible promise in extending policyholders’ lifespans and thus reducing the insurers’ net payout costs. The professors are presenting their paper this week at the 41st annual National Bureau of Economic Research Summer Institute in Boston.
“There are not a lot of free lunches in economics,” says Van Nieuwerburgh. “This is a free lunch. Everybody gains.”
The proposal comes as the US healthcare industry is under growing pressure to reform, highlighted by the new venture from Amazon, Berkshire Hathaway, and JPMorgan Chase to provide medical care “free from profit-making incentives and constraints.” Berkshire chairman and Columbia Business School alumnus Warren Buffet ‘51 has described the US healthcare system as “a tapeworm of American economic competitiveness” because of spiraling costs.
Van Nieuwerburgh thinks he has a partial solution. The reasoning goes like this: About two-thirds of Americans own life insurance, which offer an average death benefit of $241,000, be it from MetLife or Northwestern Mutual or another provider. The longer a policyholder lives, the cheaper that policy is for the provider, because a dollar in the future is worth less than a dollar today.
Thanks to recent breakthroughs in immunotherapy treatment — described as a “paradigm shift” in the war on cancer — life insurance companies are benefitting by nearly $7 billion per year because of the prolonged lifespans of policyholders, according to the professors’ research. That windfall is enough to essentially make immunotherapy free for everyone.
Consider a person who purchases life insurance at age 30 and is diagnosed with stage-4 melanoma at age 40. The person’s chance of survival rises to 50 percent with state-of-the-art immunotherapy. While costly — on the order of $159,000 for stage-4 melanoma — the insurer could cover basic healthcare’s $20,000 copay and still see a financial gain, even for life insurance policies as low as $46,000.
When looking at all 17 cancer treatment sites in the US offering immunotherapies approved by the Food and Drug Administration, the professors calculated the total cost of immunotherapies for consumers with life insurance at $10.1 billion, including an aggregate copay of $4.1 billion. The life insurers could cover all copays and still reap a financial benefit, as well as a significant reputational boost among consumers.
Van Nieuwerburgh has begun pitching the idea to some of the world’s leading life insurance companies. The French life insurer AXA already offers a life insurance product in Asia that pays out the death benefit when there is a cancer diagnosis, helping patients fund the cost of care.
“We’ve spoken to several people in the industry and they love the idea,” Van Nieuwerburgh says. “It has all kinds of positive effects — if a lot of people bought this life insurance policy, then maybe health insurance would also get cheaper, and then drug companies could sell more immunotherapies, and then invest more in the R&D process.”
Because immunotherapy is so new, the life insurance industry has only begun to understand the ripple effects of immunotherapy drugs. Also called checkpoint inhibitors, immunotherapies have helped wipe out diseases such as lung cancer, which is the leading cause of cancer death globally.
Van Nieuwerburgh and Koijen are now working on a follow-up research paper looking at who should pay for such medical innovations — the life insurer, the health insurer, the pharmaceutical provider, the patient, or the government. By highlighting who financially benefits from medical breakthroughs and offering a schema for expanding medical benefits, Van Nieuwerburgh said he hopes to combat inequality in America’s high-cost medical sector.
“It’s an industry that’s ripe for disruption,” Van Nieuwerburgh says.
About the researcher
Stijn Van Nieuwerburgh
Stijn Van Nieuwerburgh is the Earle W. Kazis and Benjamin Schore Professor of Real Estate and Professor of Finance at Columbia University’s...Read more.