Financing the War on Cancer

45 Pages Posted: 19 Mar 2018 Last revised: 4 Aug 2018

See all articles by Ralph S. J. Koijen

Ralph S. J. Koijen

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Stijn Van Nieuwerburgh

Columbia University Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); New York University Stern School of Business, Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: July 29, 2018

Abstract

We propose new solutions to finance life-extending treatments and apply it to immunotherapy. These treatments promise to dramatically raise durable survival rates for a growing number of cancer patients but are often prohibitively expensive for patients and governments alike. Our main insight is that life insurance companies have a direct benefit from such treatments as they lower the insurer's liabilities by pushing the death benefit further into the future and raise future premium income. Using detailed survival data from clinical studies, we quantify the insurers' benefit from immunotherapy for melanoma patients. Extrapolating to 17 other cancer sites, we estimate that $6.8 billion a year could be freed up to pay for existing immunotherapies. We discuss various financing mechanisms that exploit this value creation, which differ depending on the relative bargaining power of insurers and consumers. Moreover, the large benefits that accrue to the life insurers, paid for by consumers and health insurers, call for new boundaries between insurance markets by combining life insurance and (catastrophic) health insurance. We discuss the broader implications of our insight for medical innovation and long-term care insurance markets.

JEL Classification: G22, I13, I31

Suggested Citation

Koijen, Ralph S. J. and Van Nieuwerburgh, Stijn, Financing the War on Cancer (July 29, 2018). Available at SSRN: https://ssrn.com/abstract=3140940 or http://dx.doi.org/10.2139/ssrn.3140940

Ralph S. J. Koijen (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/ralph.koijen/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stijn Van Nieuwerburgh

Columbia University Graduate School of Business ( email )

3022 Broadway
Uris Hall 809
New York, NY New York 10027
United States

HOME PAGE: http://https://www0.gsb.columbia.edu/faculty/svannieuwerburgh/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

New York University Stern School of Business, Department of Finance ( email )

44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States

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