Healthcare Financing and the Cost of Cancer Care

Oncologists and their patients face difficult choices as they determine the course of treatment of a particular cancer. Patients must deal with the new reality that their life plans have been abruptly altered. Their healthcare decisions and their ability to accomplish them may be limited by diminished physical capabilities arising from the cancer and its treatment. Their healthcare-related decisions are now made under duress and must be adjusted based on a dynamically changing assessment of their condition.

The oncologist’s recommendations of alternative treatments take into account the patient’s history and available health information. Together the physician and patient determine the appropriate course of treatment, with a patient’s choice of therapy subject to his or her health status and ability to pay. A patient’s level of insurance coverage thus weighs heavily on the management approach that is selected.

The issue at the core of the ongoing healthcare financing debate is that of determining who ultimately pays for medical care. Cancer treatment provides ideal examples of the complex issues that must be considered. The treatment options often require a long-term commitment, are affected by rapidly changing technologies, and are expensive to develop.

To illustrate the difficult choices patients face, Dr. Eagle in his article gives the example of a Medicare patient who, following the removal of a tumor, chose to forgo a drug intervention due to its prohibitively high cost-even though the drug had proven success in reducing the risk that his cancer would recur.

The author rightly asks: How should we view this? Should patients’ focus on cost when evaluating potential therapies preclude the consideration of an expensive treatment that a significant body of research has shown to be of benefit? An important follow-up question could be: Have our current healthcare financing arrangements produced incentives to develop expensive healthcare innovations that can only be supported through continuing the same sort of financing?

Fundamental to questions centering on the expense of cancer care in particular and of healthcare in general, is the way in which Americans pay for the healthcare they consume. Most Americans are covered by some type of insurance, and consequently, when they consume healthcare they do not bear the full cost of the care they receive. That is the point of having insurance. We insure against healthcare losses just as we insure our cars and homes against loss.

However, because most private health insurance is an untaxed form of compensation, we spend more on it than we would if it were taxed like other goods and services. This year the tax expenditure, or foregone tax revenues, on employer-provided health insurance is $128 billion. Further, public programs like Medicare and Medicaid are also taxpayer-financed. Altogether, public health insurance and tax-preferred private insurance increase the demand for healthcare relative to the demand that would exist if the programs and more favorable tax treatment had not grown to their current levels.

The point here is that the healthcare advances, the types of technological improvements, and the total spending are all related to the particular financing arrangements that now exist. Though often onerous for patients, out-of-pocket cost-sharing accounts for less than 14% of total personal healthcare spending, while third-party payers account for more than 86%. The out-of-pocket shares for the components of spending on prescription drugs and on physicians are about 19% and 10%, respectively.

In addressing the author’s questions pertaining to the high cost of cancer care, its growth rate, and who pays for the care, it is important to consider how the financing arrangement has shaped our current expectations and how it will change in the future. The author notes that patients’ cost-sharing burden may result in some patients forgoing expensive treatment options or facing bankruptcy as a result of their mounting healthcare bills. This leads to the following questions: How should we address these dilemmas? Should patients have more complete insurance so they can access the more expensive options but are then less aware of the full expense of the interventions they choose? Further, the author notes that patients who have been diagnosed with a disease that lowers their subjective life expectancy often opt for hopeful gambles (expensive) instead of treatments that offer more predictable (less expensive) but modest survival gains.

Controlling healthcare spending has been, and appears destined to remain, at the center of the public policy debate at each level of government, given that much of the healthcare bill is paid by taxpayers-either directly, through programs like Medicare and Medicaid, or indirectly, through the tax preference afforded to employer-provided health insurance. What mix of healthcare policy interventions can reduce the spending growth rate; insure access to the latest technology for all patients, particularly those with lower incomes; and provide the correct incentives for patients and physicians when they face difficult choices between expensive options? This is the tall order that Dr. Eagle will discuss in Part II of his article.

Important to the discussion will be a close look at the public policies that have led consumers and providers to the current healthcare market outcomes. Addressing the tax treatment of employer-provided health insurance is an important starting point. Reducing the tax preference will simultaneously lower the tax expenditures and reduce the benchmark against which public programs are measured.

Financial Disclosure:The author has no significant financial interest or other relationship with the manufacturers of any products or providers of any service mentioned in this article.