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What Health Plan Sponsors Should Know About Covering Gene Therapies

Gene therapies are both medically miraculous and prohibitively expensive. Here’s how benefit plan sponsors can insulate themselves from financial risk.

Gene therapies are advanced medical techniques that involve the introduction or alteration of genetic material in the body to treat disease. According to the U.S. Food & Drug Administration (FDA), 12 gene therapies have been approved for use since they were first introduced in 2017. While research into the long-term efficacy of these therapies is still being conducted, there is little doubt that they have provided enormous relief to patients suffering from debilitating conditions with limited treatment options, most of whom are young children.

The Center for Biologics Evaluation and Research (CBER), a department within the FDA that oversees the approval of gene therapies, expects that dozens more of these treatments will enter the market over the next few years. While this is great news from a medical perspective, the prices of these therapies can be quite alarming for both plan sponsors and plan members.

Gene therapies, which often retail for millions of dollars, treat disease by introducing or altering genetic materials in the body.

Gene therapies for muscular dystrophy and hemophilia can each cost more than $3 million per treatment. Other recently approved therapies have surpassed $4 million per treatment, and it is possible that future approved products could be priced even higher.

It is important to note that most gene therapies are intended to be administered infrequently, often only once in a patient’s lifetime. Even so, such high prices can be burdensome to both patients and health plan sponsors, which is why it is important to understand options for cost containment and risk mitigation:

Self-Funded Plan Exclusion

Self-funded plans may expose employers to a higher amount of financial risk in exchange for more control over plan design, greater transparency into health spending, and potentially lower overall cost as the claim margin is held by the plan sponsor. Because employers with self-funded plans assume total financial liability, unexpected spending on expensive gene therapies could result in immediate financial consequences for plan sponsors.

Self-funded plans can exclude coverage for gene therapies, eliminating the need for the plan sponsor to fund the cost of these treatments. The main concern with this approach is that many of the gene therapies are for the dependent children of covered employees.

Gene Therapy Carve-out Policies

Carve-out policies provide a large degree of financial protection to employers, as the insurer entirely absorbs the cost of gene therapy. This means that the costs associated with gene therapy use will not necessarily constitute a financial burden for a self-funded plan sponsor with a carve-out policy.

These policies may not cover all available gene therapies in the market, so it is important to review the coverage listing and see if expanded coverage options are available in the future as more gene therapies are approved. The newest gene therapy carve-out policies to hit the market are expected to cover all available gene therapies, but not without a much higher price tag. The current gene therapy carve-out programs are not providing the level of protection needed today to justify any additional cost outside of the stop loss program.

Stop Loss Insurance

Self-funded plan sponsors who want to protect themselves from the financial risks associated with gene therapies are strongly urged to consider purchasing a stop loss policy. Stop loss policy carriers sell separate insurance policies to clients, where the covered party pays premiums to the carrier in exchange for the carrier accepting liability for all plan expenses once a certain spending threshold is crossed.

The OneDigital Stop Loss Center of Excellence (COE) carrier partners differ in their approach to pricing gene therapy risk, as these treatments are fairly new to the medical industry. We have observed that some stop loss carriers are taking a conservative approach to pricing by including base rate loads as a pooling charge on all groups to hedge against the potential for catastrophic losses. However, others believe that such a level of caution is unnecessary and report that the incidence of gene therapy is coming in below expectations.

Stop loss carriers still may choose to “laser” their policies (i.e., identify high-risk individuals within a plan and shift additional risk to the plan sponsor). The OneDigital Stop Loss COE partners with multiple carriers that have agreed to not laser any gene therapy candidates and the candidate’s adverse experience will not be factored into the individual case’s experience calculation. Furthermore, the OneDigital Stop Loss COE has negotiated terms with our carrier partners to ensure the stop loss carrier mirrors the plan design so gene therapies are not excluded from coverage, and our partners may offer rate caps with a no new laser clause to protect clients on renewal when a high-risk member emerges during the underwriting process.

For more strategies to control costs, connect with OneDigital’s Stop Loss Center of Excellence.