The impact of emerging cancer drugs on health

insurance

NZSA Conference

November 2016

Len Elikhis, B.Comm (Hons), FNZSA, FIAA

1

Agenda

2

1. Background

2. Accounting & reserving practices

3. Developments in cancer care

4. Implications

The views here are my own and do not necessarily reflect those of my employers –

past or present.

Background

3

Role of health insurance in NZ

4

MOH ACC PHI

Funding

Healthcare delivery

MaternityElectiveGPs /

primary

Semi

acute

Mental

Health

Public

Hospitals

Some co-

funding

MedSafe

Pharmac

Approval and

purchasing

20 DHBs

Long-term nature of health insurance

5

Guaranteed renewability

Non-cancellable

Renewal on original terms

Long-term nature of health insurance

6

Pure

Risk

insurance

Self

Funding

Health

insurance

Long-term nature of health insurance

7

High risk claimants

Cost of renewability option

Long-term nature of health insurance

8

1 – 1.5% for each year of portfolio duration

Selective lapsation

Cost of renewability option

Background

9

Accounting

IFRS 4: same contract – different treatment

10

Life insurance

BEL

PVFP

IBNR

UPR

Non-life insurance

Unearned premium

IBNR

UPR

Health insurance reserving in NZ

11

Reserve Statutory Management

IBNR 7 7

RBNA 3 3

Catastrophe 0 1

Guarantees / options 1 2

Claims expense 6 6

UPR 7 7

Health insurers fund claims costs on a PAYG basis

12

Selective

lapsation

Higher risk

claimants

No explicit allowance 4 7

Explicit allowance 3 0

13

Eliminate the transference of

financial responsibilities between

generations

By contrast, ACC is fully funded

14

Differences in reserving practices: health insurers and ACC

15

Interpretation of the Accounting Standards?

Market competition?

Industry capitalisation?

Developments in cancer care

16

Health insurance coverage: continuum of cancer care

17

Specialist consultations

Health insurance coverage: continuum of cancer care

18

Diagnostic scans

Health insurance coverage: continuum of cancer care

19

Cancer drugs

Health insurance coverage: continuum of cancer care

20

Radiation therapy

Health insurance coverage: continuum of cancer care

21

Surgery (therapeutic and reconstructive)

Health insurance coverage: continuum of cancer care

22

Other services

Chemotherapy: from the trenches to the theatre

23

Chemotherapy: mode of action

24

Chemotherapy: toxicity

25

Chemotherapy: toxicity

26

Immunotherapy: harnessing the immune system

27

Monoclonal antibodies

Immunotherapy: harnessing the immune system

28

Immune checkpoint inhibitors

Immunotherapy: harnessing the immune system

29

Immune checkpoint inhibitors

Immunotherapy: harnessing the immune system

30

Cell based therapies

Immunotherapy: lower toxicity

31

Implications

32

Implications

Funders should expect increased spending

33

• Longer treatment durations

• Patents

• Competition

• Combination therapies

• Policy settings

Consumer expectations

34

There are many things patients are willing to do without; however, medication for a fatal disease is not and should not be one of them.

The seriousness of a cancer diagnosis plays a role in how much cost patients and physicians are willing to bear for modest incremental benefits.

However, high prices for incremental benefits are a recipe for a system with unsustainable costs.

- Siddiqui and Rajkumar, Mayo Clinic (2012)

Cost trend: US perspective

35

Cost trend: NZ perspective

36

Cost trend: NZ perspective

37

Coverage levels: NZ insurers

38

Retail health policies are pro-consumptive and generally offer wide coverage

Responding to emerging claims

39

• Exclusions for experimental treatment

• Medical necessity (treatment without curative intent?)

• Reasonable charges

• Treatment criteria

• Affiliated Providers

• Ability to vary contract terms

• Pricing

Pulling the pricing lever: is it fair?

40

The competitive cycle weakens the sustainability of retail health insurance

Insurer A “ring-fences”

Healthy customers transfer to new product

Remaining customers pay higher premiums

Insurer A gains competitive price advantage

Other insurers follow

Cross-subsidies reduce

Implications

41

Conclusions

• Health insurance is a long-term product

• Evidence suggests that cancer costs may expose

insurers to even longer-tail claims

• Market forces constrain insurers’ ability to pre-fund

liabilities – pricing becomes increasingly important