A win-win for health and life in times of COVID
Rachel Adams Greenup, Ralph Koijen, J. Leonard Lichtenfeld, Stijn Van Nieuwerburgh 25 September 2020
The COVID-19 pandemic has overwhelmed hospitals and health systems across the US. And yet, a less visible and underappreciated side effect of this global crisis is that many households are entirely foregoing medical care. Cancer screenings for melanoma, breast cancer, and colon cancer were down by 65-95% in reports from early May, and reductions of 30-35% remained in mid-June. Not surprisingly, new cancer diagnoses have also declined sharply. Miles (2020) offers a related discussion for the UK, while Galeotti et al. (2020) discuss testing and screening.
In the midst of the COVID-19 pandemic, the temporary suspension of oncology screening programmes and patients’ reluctance to seek medical care contributed to declines in screen-detected cancer diagnoses. But the economic impact of the COVID-19 crisis and the subsequent financial insecurity felt by many Americans cannot be ignored. Job losses and the consequent absence of employer-sponsored health insurance have resulted in patients being unable to afford healthcare at any point along the continuum from prevention through treatment.
The clearest and most problematic example of this phenomenon is the existing cancer, heart, or diabetes patients who discontinue or fail to seek treatment. While medical professionals may disagree on the risk–reward trade-off of postponing a routine cancer screening for a healthy individual, there is universal agreement that people who have already been diagnosed with a life-threatening disease should not forego care. Since early diagnosis and intervention typically lead to better health outcomes, the lack of both may well raise the number of additional, potentially preventable, non-COVID-related deaths substantially.
In a recent survey by the Commonwealth Fund, two in five adults responded that they or their spouse had become unemployed or been furloughed due to COVID-19, and 20% had lost health insurance as a result. The Kaiser Family Foundation estimates that 27 million individuals lost employer-sponsored insurance and became uninsured following job losses that occurred in March and April. Pandemic-related unemployment and lack of health insurance continues to worsen as many parts of the country experience a resurgence in cases.
When a worker with employer-sponsored insurance is laid off or has her hours cut, she can continue her health insurance coverage for 18 months through COBRA. But COBRA policies are expensive: since the employer portion must now be paid by the laid-off individual, what used to be a $6000 a year plan becomes a $20,000 proposition, which many workers find an insurmountable barrier to continuing insurance coverage.
One alternative is an individual health plan through the Affordable Care Act (ACA) exchanges. Someone whose income is below $100,000 (for a family of four) can get a subsidised rate. In some states, a family whose income is below $35,000 qualifies for Medicaid, which is the least expensive option.
But many do not qualify for these subsidies and even for those eligible, the best medical option is usually continuity of treatment with existing care providers. Unfortunately, this is also the most expensive option, and one that lies out of the financial reach of many Americans. A growing literature explores the impact of ‘financial toxicity’ on treatment choice and health outcomes (e.g. Greenup et al. 2019, Gupta et al. 2020).
We think there is an excellent private sector solution within our grasp.
Most Americans have some form of life insurance, ownership of which is pervasive across the income distribution. Among people making around the median income, the Life Insurance Marketing and Research Association (LIMRA) reports that over 70% have life insurance, with an average face value of around $180,000. Among households with an income below $35,000, 50% own life insurance with an average face value of $80,000.
In contrast to health insurers, who bear the high healthcare expenditures associated with oncology treatment and survival, and who benefit from the cessation of these costs upon the death of the insured, life insurance companies have a financial interest in the wellbeing and survival of their policyholders. If the cancer patient whose life insurance policy they have underwritten dies prematurely, they owe the family a large death benefit. They also forgo future premium payments. Postponing this large payout by guaranteeing continuity of care may literally be worth tens of thousands of dollars to the life insurer.
In a new paper (Koijen and Van Nieuwerburgh 2020), two of us applied the same insight to immunotherapy treatments. As an example, suppose a healthy individual buys a life policy at age 30 and is diagnosed with stage 4 melanoma at age 40. Due to the reduced life expectancy and the concomitant reduction in premium payments, the policy now has a value of −$0.95 to the insurer per $1 of death benefit, compared to −$0.08 before the diagnosis. Clinical studies imply that immunotherapy has a 50% probability of success. The expected gain in survival raises the value of the life insurance contract to −$0.51, yielding a benefit of $0.44 per dollar of face value for the insurer. The life insurance sector’s benefit from all FDA-approved immunotherapies is $9.8 billion a year (see Koijen and Van Nieuwerburgh 2018 for further details).
The utilisation of life insurance dollars towards needed healthcare now benefits all parties. Patients can leverage policies towards better health or life-saving treatments, while life insurers avoid the payments associated with policyholder deaths. The overwhelming pandemic-related mortality of the past six months may provide another incentive for life insurers to temper the pace of continued payouts.
Hence, it makes good economic sense for life insurers to ensure that policyholders who are undergoing medical care for life-threatening illnesses have stress-free access to the same care they had before COVID-19, and can afford to make COBRA premium payments. Organisations like the American Cancer Society have recognised this as a reasonable option under extenuating circumstances. The coronavirus pandemic certainly qualifies as such a circumstance.
The simplest solution is for the life insurer to provide a zero interest-rate loan to policyholders of both term and whole life insurance, with the provision that all loan proceeds must be used for the COBRA payment. Offering such an option is profitable to the life insurance company and benefits the policyholder who enjoys continuation of medical care.
Notably, this proposition will not adequately address existing disparities around medical financial hardship or issues of low health literacy or access. Yet, for many patients currently struggling to afford healthcare, this win-win represents a rare free lunch in economics, while benefitting consumers in these unexpected and difficult times.
Greenup, R A, C Rushing, L Fish, B M Campbell, L Tolnitch, T Hyslop, J Peppercorn, S B Wheeler, S Y Zafar, E R Myers and E S Hwang (2020), “Financial Costs and Burden Related to Decisions for Breast Cancer Surgery”, Journal of Oncology Practice 15(8).
Koijen, R S J and S Van Nieuwerburgh (2020), “Combining Life and Health Insurance”, Quarterly Journal of Economics 135(2): 913-958.
Koijen R S J and S Van Nieuwerburgh (2018), “Financing the War on Cancer,” VoxEU.org, 1 July.
Gupta, A, E Morrison, C Fedorenko and S Ramsey (2020), “Home Equity Mitigates the Financial and Mortality Consequences of Health Shocks: Evidence from Cancer Diagnoses”, NYU Stern working paper.
Miles D (2020), “The UK Lockdown: Balancing costs against benefits”, VoxEU.org, 13 July.
Galeotti, A, P Surico and J Steiner (2020), “The Value of Testing”, Vox EU.org, 23 April.