Breaking Bad’s Premise & What We Get From Health Insurance
A simple way to think about the amount you pay for your health insurance is:
The healthcare spend of the average patient (or family) in your risk pool + the fee that the insurance company charges to service your risk pool - subsidies you get from your employer or the government.
Using some rough numbers, here's how that might break down:
Average total cost of family insurance: $24,000 ($21,000 in family healthcare spend + $3,000 in fees to health insurance company)
Average employer subsidy: $15,000
Net cost to family: $9,000 ($6,000 after tax)
*Note that this doesn’t include out-of-pocket costs.
The cost of health insurance is a huge topic in this country, both because it's expensive and because it keeps increasing. Over the last 20 years, the cost of health insurance has grown about 2%-3% faster per year than general inflation. This compounds over time and really adds up, taking a disproportionate share of the average American's income. It’s important to note that the majority of the increase is coming from actual increases in healthcare spend; the fees the insurance companies receive, in real terms, have stayed relatively flat.
So the primary reason your premiums are increasing is that the average patient in your risk pool is getting more and more healthcare. They're consuming more care and paying more for it. Of course, there are market, competitive, and regulatory issues that increase the cost of care, but I think people miss the fact that the primary reason for the continued increase in the cost of health insurance is that every year, there’s more and more healthcare stuff for us to buy, and we want to buy it, and the health plans are under a lot of pressure to cover it.
Related to all of this, Alex Kesin wrote a wonderfully clever post that I highly recommend reading, which examined the premise of the television show Breaking Bad, which premiered in 2008. Alex asked whether or not the show could be made in 2025. The simple premise of the show was that a high school chemistry teacher, Walter White, contracts a terminal form of lung cancer with a life expectancy of under two years, which required a treatment that his health plan wouldn’t cover, that he couldn’t possibly pay for on his own. So he decided to cook and sell meth to pay his medical bills and leave his family in a good financial position following his imminent death.
In short, this premise wouldn’t work in 2025. Today, once diagnosed, Walter would immediately get next-generation sequencing of his tumor and likely receive a combination of chemoradiation and Osimertinib (FDA approved in 2015) that would radically increase his life expectancy (he’d almost certainly see his kids graduate college, and possibly live longer). In addition, his health plan would cap his out-of-pocket costs for these expensive treatments, making it highly unlikely he’d need to turn to the drug trade. Good for Walter, bad for fans of the show.
It’s a fun post, but the larger point is that every year, there are new drugs, regenerative medicines, diagnostics, and all kinds of other innovative technologies that become available to us, consumed by us, and covered by our insurance. This innovation is happening far faster than the general rate of inflation, so healthcare costs are increasing faster than the general rate of inflation. Yes, we’re paying more, but it feels like insurers are generally keeping their side of the bargain. Would we want it any other way?
A recent 60 Minutes episode made this point even clearer. The episode highlighted that breakthrough gene therapies can save lives but cost literally millions of dollars per dose because of the cost to develop them and the small, niche markets they’re able to serve. Doug Ingram, the CEO of Sarepta Therapuetics that discovers and manufactures these therapies said in the episode:
“Today, on average, it takes more than 10 years to develop a therapy. It costs nearly $3 billion on average to make a therapy. And at the beginning of that journey, the probability of it being successful is nearly zero.”
When we talk about the cost of health insurance, we shouldn’t ignore the need for common-sense reforms that ensure healthy competition and a level playing field for payers and providers. But the noise around these topics kind of dodges a much, much bigger and far more difficult policy topic — that is, the rapid pace of medical innovation and treatments and technologies that were unimaginable just a few years ago and help us live longer, healthier lives but that cost much more than the average consumer, employer, or government is willing or able to pay.
Said more simply: as health insurance premiums head towards an inevitable breaking point, the issue we have to start to deal with is how much is another year of life worth, and who should pay for it?
