Aging of Society and New Medical Technology: The Challenge for Health Insurers to Meet the Expectations of Consumers and Governments

4. Access to medical innovation in particular
Ever since Newhouse (1992), there has been growing recognition that new medical technology may be the main driving force behind the rise of HCE. Using time-series analysis for filtering out common trends in GDP and HCE, Okunade and Murthy (2002) came to a similar conclusion. More recently, the U.S. Congressional Budget Office (2008) has attributed about 50 percent of the growth of HCE in the United States to technological innovation in medicine. It should be noted, however, that the pace of change in medical technology is in turn influenced by health insurance. Healthcare providers are encouraged to use the newest therapies even if they are more costly since their patients, being covered by health insurance, are little affected financially (Weisbrod, 1991). In the case of statins, Gemmill et al. (2009) indeed find that both the probability and the extent of their use depends on the insurance status of the patient. In a final sample consisting of more than 210,000 U.S. individuals covering the years 1995 to 2005, they estimate effects on probability of use ranging from 1.9 percentage points (private insurance only) to 3.7 points (public insurance only), compared to the ‘no insurance’ benchmark. And given any use of statins, the number of defined daily doses increases by up to 13.2 percent beyond the value associated with ‘no insurance’.
Apparently, there is a spiraling interdependence between technological change in medicine and health insurance. On the one hand, new medical technology drives up HCE and hence insurance premiums; on the other hand, ample health insurance coverage facilitates technological change in medicine. To slow this spiral, it is therefore important to know the types of new medical technology that are sufficiently valued by consumers to be financed by health insurance. Since most policies cover the same set of therapies in a given country, it may again be worthwhile to consider experimental evidence as a second-best source.
A DCE involving Swiss citizens is reported in panel A of Table 3. WTP values are shown for accepting that social insurers generally delay the inclusion of new therapies in their benefit list by two years. The status quo is characterized by almost no delay after the Federal Medication Committee has recommended adoption of a new product or therapy. The compensation required for accepting this delay amounts to CHF 45/month in the lowest age group and rises to the significantly higher value of CHF 101/month among respondents aged 40 to 64. Interestingly, there is an indication that it might fall to CHF 83 for the highest age group, although the difference from CHF 101 lacks statistical significance. To put the CHF 83 into perspective, it equals 31 percent of the nationwide average premium at the time (2005); health insurers would therefore have to offer a reduction in premiums of at least 31 percent to make their aged members voluntarily wait for just two years before gaining access to the newest medical technology. This means that the cost savings achievable thanks to such a delay must attain 31 percent to be financially viable — a rather stringent requirement. An encouraging finding is that Becker-Leukert and Zweifel (2007), based on another DCE, also report that the top age group resists a delay of this type less strongly than the middle-aged one; therefore, depending on the speed with which the cost of new medical technology comes down after its introduction, consumers with rather short remaining life expectancy might be won over for policies designed to avoid the ‘cost explosion just before death’.
A second study, performed in 1996, revolves around a specific medical innovation, albeit of a rather mundane type. A DCE had 522 elderly (non-institutionalized) people choose between the status quo (no hip protector) and a hip protector designed to lower the risk of breaking their femur. The attributes were the amount of risk reduction, ease of handling, wearing comfort, and out-of-pocket price (to which respondents are used because Swiss social health insurance imposes a 10 percent copayment on ambulatory care). While the amount of risk reduction afforded was clearly valued, ease of handling and wearing comfort turned out to be important attributes as well. Since the available brands (among them, HIPS®) failed to provide sufficient ease of handling and wearing comfort, they all called forth negative total WTP values. Therefore, at the time it made little sense for Swiss health insurers to include any one of the existing brands of hip protector in their list of benefits; being negatively valued, they would not be worn (although product design may have improved since then). The WTP values entered in panel B of Table 2 relate to HIPS®). Resistance against HIPS® seems to increase with age, although the increase fails to reach statistical significance due to small sample size in the two highest age groups. Possibly, respondents considered getting used to wearing a hip protector as an investment which has a shortened payoff time with increasing age and hence proximity to death.
Rather than hip protectors, much medical innovation revolves around pharmaceuticals. Panel C of Table 2 reports WTP values for a new diabetes treatment derived from a DCE performed in 2007. While lowering the risk of hypoglycemia to a comparable degree as existing alternatives, the new preparation avoids the usual weight gain, does not need to be swung, and offers more flexibility in the timing of injection. There are two modes of financing: Out-of-pocket copayment and a slight increase in the rate of contribution to German social health insurance, to be paid by employees. Four subgroups are distinguished ranging from non-diabetics to type 2 diabetics who need insulin; in return, resulting sample sizes do not permit a classification by age group. Presumably, type 2 diabetics who have to rely on insulin have the shortest remaining life expectancy (or are closest to death, respectively). If they should view getting used to the new treatment as an investment (in a similar way as the potential users of a hip protector), their WTP values are predicted to be comparatively low.

Table 3. WTP values for access to medical innovation


¹ Other attributes: Physician list of three different types, Reimbursement of generics only, No reimbursement of drugs for minor complaints, and No small local hospitals.
² Attributes: Reduction in the risk of breaking the femur, Ease of handling, Wearing comfort, Out-of-pocket price.
³ Sum of attributes with significantly positive WTP values only. Attributes: Change in risk of hypoglycemia, Change in weight, Have to swing (yes/no), Increased flexibility in timing of injection (yes/no), Amount of copayment, Increase in annual contribution to health insurance.
ª WTP values for non-diabetics are weighted by their average estimated probability of acquiring diabetes in the future (equal to 53 percent)
Sources: Telser and Zweifel (2000), Table 32; Zweifel et al. (2006); Sennhauser and Zweifel (2013).

In the case of financing through copayment, WTP values are highest among the non-diabetics (Euro 790/year, after weighting them with their subjectively estimated 53 percent probability of acquiring diabetes in the future). Almost two-third of this value comes from a preference for the alternative, the opposite of status quo bias. One might infer a degree of altruism causing the non-affected to be willing to support those affected by the condition. However, the WTP values of non-diabetics drop considerably (to Euro 232/year) if the innovation is to be financed by an increase in contributions, which would burden them as well. By way of contrast, type 1 diabetics know that they might need treatment before long. As expected, the difference between the two modes of financing vanishes for them (the WTP value of Euro 245/year in the case of copayment is not significantly different from the Euro 269/year in the case of an increase in contributions).
The WTP values among the type 2 diabetics already undergoing insulin treatment are of particular interest because these patients have the shortest remaining life expectancy of the four subgroups distinguished. The closest comparison group probably are type 2 diabetics who are ‘insulin-naïve’, i.e. who can still do without insulin treatment and therefore have a higher life expectancy. In the case of copayment, patients subject to insulin treatment indeed display a lower WTP value (Euro 318/year) than the insulin-naïve ones (Euro 427/year). This is compatible with the view that just learning a new way of insulin treatment constitutes an investment whose payoff needs to be sufficiently high (a condition apparently better satisfied among insulin-naïve than among insulin-treated patients). When turning to the alternative of financing through increased contributions, the results are puzzling. For the insulin-treated subgroup, the WTP values pertaining to the attributes add up Euro 1,000/year, but none of them can be distinguished from zero. For this reason, a zero value is entered for this subgroup in Panel C of Table 3. Their seems to be hidden heterogeneity of preferences causing an unexpectedly large degree of dispersion in WTP values and hence overlap with the zero benchmark. In contrast, the insulin-naïve subgroup exhibits a statistically significant WTP value amounting to Euro 171/year.
On the whole, it is not clear whether WTP for this particular medical innovation increases or decreases with closeness to death. However, two findings stand out. First, seemingly minor innovations may be associated with substantial WTP. For instance, the fact that the new preparation does not need to be swung contributes 22 percent (72 out of the Euro 318/year found among the insulin-treated type 2 patients in the case of copayment) to total measured WTP, comparable to the absence of weight gain (Euro 72/year) and clearly more than the reduction in the risk of hypoglycemia afforded by the preparation (Euro 29/year; figures not shown in Table 3). In hindsight, this finding becomes intuitive. A preparation that needs to be swung may fail to deploy is full effectiveness; being relieved of this risk may well be of considerable importance to patients. Second, the data permit to perform a full-blown cost-benefit analysis. While the extra cost of the new preparation is Euro 272/year and patient, WTP values exceed this benchmark among three of the four subgroups distinguished when financing is through copayment, the exception being diabetes type 1 patients (Euro 245/year). However, the same subgroup exhibits a WTP value of Euro 269/year if the burden of financing is shared by everyone through a slight increase in contributions. In addition, non-diabetics, the majority of the insured population, exhibit a WTP value of Euro 232/year, which comes close to the extra cost of Euro 272/year. Therefore, applying the cost-benefit standard one is led to conclude that willingness to pay of the socially insured in Germany is sufficiently strong to justify inclusion of this particular medical innovation in the list of benefits of (social) health insurance. In view of the fact that the non-diabetics display a WTP value that is almost 3.5 times greater (Euro 790 rather than 232) if financing is through copayment, it might be appropriate to subject this particular innovation to a modest degree of copayment in order to heed the preferences of those who constitute the majority of the insured.

Conclusion 4:
To mitigate the ‘cost explosion right before death’, health insurance policies might exclude or at least delay access to new medical technology beyond a certain age. Experimental evidence suggests that the challenge may again be overcoming a marked status quo bias on the part of the aged. In the case of an innovation requiring substantial adjustment (wearing a hip protector), willingness to pay can be negative. In the case of a particular pharmaceutical innovation (new diabetes treatment), it is found positive and high enough to cover the extra cost be thorough a slight increase in contributions potentially combined with a modest copayment.

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