qotd: Financing health care with consumer loans

Kaiser Health News
March 29, 2016
Mortgages For Expensive Health Care? Some Experts Think It Can Work.
By Michelle Andrews

A Massachusetts Institute of Technology economist and Harvard oncologist
have a proposal to get highly effective but prohibitively expensive
drugs into consumers' hands: health care installment loans.

Writing last month in the journal Science Translational Medicine, the
authors liken drug loans to mortgages, noting that both can enable
consumers to buy big-ticket items requiring a hefty up-front payment
that they could not otherwise afford.

Some consumer advocates and health insurance experts see it differently.

"Isn't this why we have health insurance?" asked Mark Rukavina, a
Boston-based health care consultant whose work has focused on
affordability and medical debt. "Insurance used to protect people from
financial ruin for these unpredictable, costly occurrences. Now, with
large deductibles, we've got coverage for preventive care but not for
treatment."

Andrew Lo, a financial economist at MIT's Sloan School of Management,
and Dr. David Weinstock, an oncologist at the Harvard-affiliated
Dana-Farber Cancer Institute, agree that insurance would be a better
option. But for many consumers that isn't enough protection these days.

"This is a private sector stopgap way to deal with something right now,"
said Lo.

Their proposal calls for the loans to be financed by a pool of investors
who would buy bonds and equities issued by an organization that makes
the loans to consumers.

While it's "distasteful" to talk about patients mortgaging their lives
for treatment, Lo said, they hope the proposal will spur change.

http://khn.org/news/mortgages-for-expensive-health-care-some-experts-think-it-can-work/

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Science Translational Medicine
February 24, 2016
Buying cures versus renting health: Financing health care with consumer
loans
By Vahid Montazerhodjat, David M. Weinstock, and Andrew W. Lo

Abstract

A crisis is building over the prices of new transformative therapies for
cancer, hepatitis C virus infection, and rare diseases. The clinical
imperative is to offer these therapies as broadly and rapidly as
possible. We propose a practical way to increase drug affordability
through health care loans (HCLs) — the equivalent of mortgages for large
health care expenses. HCLs allow patients in both multipayer and
single-payer markets to access a broader set of therapeutics, including
expensive short-duration treatments that are curative. HCLs also link
payment to clinical benefit and should help lower per-patient cost while
incentivizing the development of transformative therapies rather than
those that offer small incremental advances. Moreover, we propose the
use of securitization — a well-known financial engineering method — to
finance a large diversified pool of HCLs through both debt and equity.
Numerical simulations suggest that securitization is viable for a wide
range of economic environments and cost parameters, allowing a much
broader patient population to access transformative therapies while also
aligning the interests of patients, payers, and the pharmaceutical industry.

The Role of Health Insurance

Large copays are antithetical to the very purpose of health insurance.
Hence, our proposal for patients to cover these costs with HCLs is only
a short-run bridging solution. A more sustainable and economically more
efficient approach to address the high cost of transformative therapies
is for insurance companies to cover these costs, spread the amortized
costs across their policyholders, finance the upfront payments using
securitization, and set premiums at the appropriate levels to cover
these costs. In return for larger drug purchases, insurance companies
would wield substantial leverage to negotiate lower prices. Also,
insurers would presumably borrow at lower interest rates than would
individual patients, further reducing the overall financing cost of
these therapies.

Conclusion

The burden of upfront payment for curative therapies makes it
challenging for public and private payers to afford universal access to
potentially life-saving therapies. To address this issue, we considered
a new financing paradigm in which portfolio theory and securitization
techniques are used to finance HCLs whose repayment is linked to ongoing
value. By estimating the post-treatment mortality rates of the patients
and using statistical models to gauge the default characteristics of
these loans, we demonstrate viability under current practical
conditions. Securitization brings new participants (for example, pension
funds, mutual funds, and life insurance companies) into the financing
pool and helps transform a set of disjointed and sometimes competing
interests into a more cooperative system focused on improving care.
HCLs, not unlike student loans, auto loans, and home mortgages, can
improve access to the best health care for the less affluent.

Considering the extremely large burden of certain diseases, such as HCV,
for which cures already exist, and the many transformative therapies on
the horizon, developing more efficient financing methods is now a matter
of life and death. Taking action is no longer a choice but has become a
necessity.

http://stm.sciencemag.org/content/8/327/327ps6.full

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Comment by Don McCanne

So the answer to outrageously priced drugs is to pay for them through
health care loans (HCLs) - the equivalent of mortgages - and then use
securitization "to finance a large diversified pool of HCLs through both
debt and equity." Did we not learn anything from the subprime mortgage
crisis? Just as securitization of subprime loans became a "necessity,"
securitization of HCLs is now not only supposedly necessary to prevent
personal insolvency, it is, according to Andrew Lo, et al, "a matter of
life and death."

In Lo's words, "While it's 'distasteful' to talk about patients
mortgaging their lives for treatment, they hope the proposal will spur
change."

Oh my.

An improved Medicare for all with first dollar coverage would eliminate
any need to consider such an inhumane concept.