Cost Sharing in Insurance Coverage for Precision Medicine

Mark V. Pauly

Chapter in NBER book Economic Dimensions of Personalized and Precision Medicine (2019), Ernst R. Berndt, Dana P. Goldman, and John W. Rowe, editor (p. 159 - 184)
Conference held September 13-14, 2017
Published in April 2019 by University of Chicago Press
© 2019 by the National Bureau of Economic Research

This paper describes theory and current practice associated with insurance coverage of treatments and associated companion diagnostic tests for precision or personalized medicine. Coverage by public and private insurances is generally furnished under policy-level cost sharing terms for tests and treatments accepted in clinical practice, but there are some exceptions. Coverage of and implementation of cost effective tests and treatments may either reduce the use, cost, and side effects of treatments (if the alternative is to treat all without testing) or may increase the use of treatment that was previously discouraged by expectation of side effects and high cost. Examples of cost effective use and coverage are provided for breast, small cell lung, and colon cancer. Optimal coverage may involve positive cost sharing if there is heterogeneity in insureds’ values of health improvements or side effects, or if test results give varying probabilities of effective treatment.

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This chapter first appeared as NBER working paper w24095, Cost Sharing in Insurance Coverage for Precision Medicine, Mark V. Pauly
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