Over the next few years, numerous gene therapies are likely to be approved for use. But the cost of developing treatments for rare conditions is enormous and cannot be spread over many patients. As a result, companies will not invest in developing these products unless they can set extremely high prices.

For instance, Hemgenix, a recently approved gene therapy for hemophilia B, which afflicts 6,000 Americans, is priced at $3.5 million. By carrying a gene to improve blood clotting, Hemgenix does away with the need for repeat infusions for at least eight years—potentially saving money over the long run, given the $600,000 annual cost of existing procedures. At a price almost 50 times the median annual household income, treatments like Hemgenix can hardly be funded by widespread out-of-pocket payment. But American health insurance is poorly structured to finance services yielding long-term benefits. Coverage is highly fragmented over time, as workers typically switch plans when their employment circumstances change. By increasing the duration of insurance coverage, therapeutic options with long-term benefits might make more business sense.

Gene therapies seek to address underlying causes of disease by inserting healthy genes where they are defective or missing. This potentially allows one-time procedures to replace constant treatment for chronic conditions.

The Food and Drug Administration has already approved cell and gene therapies for muscular dystrophy, lymphoma, and sickle cell disease, and the technology is expected also to help combat cancer, heart disease, and diabetes. More than 10,000 diseases are linked to genetic disorders, so demand for gene therapies is expected to grow rapidly. Tailoring treatments to specific genetic conditions improves their effectiveness but also narrows the patient population that stands to benefit. As a result, huge development costs, including the expense of demonstrating safety and efficacy, cannot be spread over as many patients as for other treatments. Furthermore, the manufacturing of gene therapies is often challenging, and its administration often requires costly hospitalizations to mitigate patient-specific risks.

Some have contemplated public financing of gene therapies through direct payment or reinsurance subsidies to insurers. But existing health-care spending commitments are already fiscally unsustainable, and manufacturers of treatments for rare diseases are unlikely to win political fights to claim enormous additional expenditures.

Expanding private insurance coverage of newly available gene therapies would be desirable, but insurers may be reluctant to cover such expensive treatments, which would appeal disproportionately to enrollees with the costliest preexisting conditions. Mandating coverage by insurers would further inflate the prices they can be charged for the drugs, while doing little to relieve them of the newly imposed cost burden.

Louisiana senator Bill Cassidy has endorsed a “Netflix Model,” a framework by which the high up-front costs associated with newly developed cures can be spread over time. That may help relieve sudden spikes in costs for private insurance and state Medicaid programs, which must pay for pent-up demand as new treatments become available. It could also free up funds by enabling such payers to realize savings relative to traditional methods of treating conditions, which may incur substantial hospitalization, drug, and long-term care expenses year after year. Costly gene therapies are particularly likely to save money for younger workers, whose bodies have accumulated less irreversible damage from these conditions.

But a pay-over-time approach would saddle individuals with substantial overhanging liabilities for many years into the future. Establishing such financial preexisting conditions would cause insurers to focus on shifting the burden to one another, by deterring patients with substantial legacy costs from signing up.

Though the Affordable Care Act is supposed to redistribute funds to insurers covering patients with the greatest prior liabilities, the approach has worked poorly in practice: regulators struggle to reimburse insurers appropriately for treating sicker patients. Compensating insurers according to treatment expense incurred inflates costs, while redistributing funds through insurance premiums punishes enrollees who signed up before they got sick.

The root of the problem: Americans’ source of health insurance is highly fragmented over time. Most working Americans receive coverage from their jobs but remain with an employer for an average of only four years. For those who lack employer-sponsored health benefits, coverage is even more splintered: those receiving Medicaid typically do so for only two years, while those purchasing plans from the individual market remain enrolled with plans for only one year. By contrast, the most popular life insurance has a term of 20 years.

The discontinuous nature of health-insurance coverage owes much to the exemption of employer-purchased insurance from income and payroll taxes. The Trump administration changed federal regulations to let employers provide pretax funds for individuals to purchase their own insurance, which they could carry with them from job to job. But insurers are prohibited from offering lower premiums to enrollees who maintain continuous coverage over multiple years. Removing this restriction could reduce premiums and reward the early purchase of insurance, while making it profitable for insurers to fund medical services that yield long-term value.

Those who move in and out of eligibility for public entitlements face a similar problem. The fragmentation of coverage associated with Medicaid eligibility can be reduced by separating the long-term disabled from beneficiaries who move in and out of employment. Medicaid is already responsible for costs associated with the former over the long-term; the latter should instead be given aid to continue coverage purchased from the individual market—allowing them to retain the same plans over time.

Lengthening the time horizon of health insurance can help improve funding for many new therapies. But savings will often not materialize as hoped for in cases involving a substantial risk of unanticipated long-term side-effects, complications, and costs. At some point, financing new products will be too costly to justify. Thus, the most important factor in making new therapies economically feasible is to reduce the cost of their development and delivery. These processes should improve with technology and scale, especially if common features for the treatment of rare diseases can be identified.

Photo: Ilya Lukichev/iStock


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