Life insurers could help solve America’s healthcare shortfall
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The writer is a real estate professor at Columbia Business School
The cost and fate of the US healthcare system is inextricably tied to the insurance market. Hospital and healthcare outcomes fluctuate widely based on whether patients have health insurance and what their plan covers.
Yet most Americans access coverage through their jobs. That means the Covid-19-driven recession is depriving Americans of life-saving healthcare benefits just when they might need it most. The Kaiser Family Foundation estimates that 27m people lost employed-sponsored insurance after being furloughed or let go in March or April.
Without insurance, many households are skipping preventive medical care, with results that are likely to be severe. Pandemic lockdowns had already disrupted screenings for breast, cervix and colon cancer — medical records provider Epic reports they dropped between 86 per cent and 94 per cent in March — and now many people cannot afford to catch up.
Missed screenings mean that doctors aren’t catching cancerous tumours early, which allows them to grow, metastasise and become more deadly.
The US Cobra law is supposed to provide laid-off workers with a backstop, by allowing them to pay themselves to keep their job-related coverage going. But such policies are often prohibitively expensive. Barack Obama’s Affordable Care Act tried to address this, with subsidised insurance for families of four making less than $100,000 per year. However, many of the newly unemployed have made too much to qualify for these benefits or for Medicaid, the government-run health insurance for low-income people.
There can and should be another option. Many of the Americans caught in this bind have life insurance. LIMRA, the industry association of life insurers, reports that more than 70 per cent of Americans who make the median income have life insurance with policies that have an average face value of $180,000.
It is in the interests of life insurance providers to step in. Here’s why: when the healthcare system fails patients, mortality rates increase. If a policyholder dies prematurely, insurance companies not only lose future premium payments, they also face a steep payout to the policyholder’s family. So if life insurers guaranteed life-saving continuity of care for policyholders, they ought to save money in the long run.
In a 2018 paper, we applied this assumption to immunotherapy treatments. If a healthy individual buys a life insurance policy at age 30 and is diagnosed with stage-4 cancer a decade later, a life insurance policy would have a value of −$0.95 to the insurer per $1 of death benefit compared to −$0.08 before the diagnosis, due to reduced life expectancy. For cancers with identified treatments, like melanoma, clinical studies imply that immunotherapy has a 50 per cent success rate. That means paying for the treatment would lift the value of the cancer patient’s life insurance policy to −$0.51, a benefit of $0.44 per dollar of face value for the insurer.
We should therefore give life insurers the opportunity to make the Cobra payments to extend health insurance coverage after a lay-off. They could easily offer zero-interest-rate loans to policyholders while requiring that the proceeds be used to pay for health insurance.
During the Aids crisis, investors bought up life insurance policies taken out by HIV-positive patients, giving them much-needed cash for medical care. But this is an imperfect solution because patients have to give up their life insurance coverage with possibly devastating consequences.
Allowing life insurers to help policyholders struggling to afford healthcare would represent a rare free lunch in economics while helping people through these unexpected and difficult times.
Ralph S.J. Koijen, a professor of finance at the University of Chicago, Booth School of Business, co-authored this article
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