How are employers going to pay for cell and gene therapies?

In the U.S., we’ve created a system where health care is tied to the job we have. To understand why that is, we have to look back into history — at the post WW2 era, when it was imperative to get Americans back to work, so offering health care was a great benefit. This made some sense in the 1950s and beyond, when it was common to stay at the same company through retirement.

That is no longer the case today, given the rising rates of job hopping and flexible contract-based work. And yet, about 60% of people still get their health care through an employer. The self-funded market in America is absolutely massive, and for many employers health care is one of their largest line items to scrutinize year after year. And costs just keep going up and up.

As I reflect on recent conversations I’ve had with employers, there’s an analogy to be made here around the frog in a pot of boiling water. This status quo has been rife with challenges for decades now and it’s only getting worse. And yet, the frog has yet to expire or hop out of the pot. Why not? Well, there was a time when it seemed like things might finally boil over. Anyone remember Haven? The consortium of jumbo employers — J.P. Morgan, Amazon, Berkshire Hathaway — that got together to try to make some needed changes? The whole thing was a flop, and the press fixated on that failure, versus the reason why it happened in the first place. What I took from it is that employers were fed up, and in search of a viable alternative if such a thing exists.

That is even more true today. Per recent conversations with employers, 2024 was a very expensive year for myriad reasons, including rising cancer rates and a flood of elective surgical procedures post Covid. At a summit I attended last week, convening some of the leading benefits executives, we discussed how their medical costs had skyrocketed by tens of millions of dollars without a meaningful improvement in members’ health outcomes. One employer told me their increase in a single year was about $180 million! For benefits leaders, that means more difficult conversations with the chief financial officer. All while they faced competing pressures from the chief executive officer and the board to retain top talent in a competitive job market.

(Needless to say, point solutions that are not delivering real value in terms of reduced costs and/or improved clinical outcomes are going to get cut in 2025.)

Medical trend is not going to ease up in 2025. Biotech analysts predict that more innovative cell and gene therapies will come to market that provide major quality of life improvements to members and their dependents (in some cases, they may even be curative). But the cost for these treatments will be hundreds of thousands, if not millions of dollars. 

And that’s not the only major source of cost increases. For those wondering, other major drivers of cost include: NICU stays for premature babies, complex cardiovascular disease, complex surgeries, and the GLP-1 drugs. We’re talking more than a million dollars for a single member in a single year, and it’s a small percentage of the population that drives up the cost for the population.

The problem of rising costs

Back to cell and gene therapies. One could imagine a scenario where an employee of a company like Google or OpenAI would benefit from treatment. These companies can afford it. There will probably even be some kind of “centers of excellence” program in place to ensure that these employees are getting the highest-quality care, in the most affordable way possible.

But as physician and U.S. Senator Bill Cassidy argues in this important piece for Stat, we’re going to see inequities. There may be cases, such as with the new treatments for Sickle Cell, where the majority of patients who would benefit from the drug are enrolled in Medicaid. Medicaid typically pays less than commercial insurance — so drug companies may look for ways to offset that. Imagine the impact for small to medium-sized businesses when a member needs a therapy that costs more than $4 million? That would be crushing. “It’s painful at a Microsoft, but could be catastrophic at a smaller employer,” Matt Harmon, a longtime benefits executive, said on the Second Opinion podcast.

All of this could move the pendulum in a new direction. John Zutter, the CEO of Lantern, a company that sells into employers and health plans, indicated to me on the pod that we might see a shift away from smaller companies opting to be self-insured. Increasingly, in recent years, more smaller companies have opted to be self-insured, meaning they pay for claims out of revenue to unlock greater flexibility and control. That could change, for the simple reason that there’s more financial predictability with fully-insured plans. All of this might also force some evolution around how stop loss insurers work with employers, as well as the PBMs.

And yet, I am still concerned there will be employers who won’t cover these treatments for members and their dependents, in large part because opening the floodgates would be a financial disaster for them. So, for patients, inequities will persist.

Bigger questions, unclear solutions

All that ultimately begs the question that I started with: Why are employers covering the cost of drugs that have a huge long-term benefit for people when they aren’t seeing their employees stick around? The average tenure for employees to stay in a job is less than four years. Isn’t there another entity that is far more incentivized to care about our health? I’m not saying we need to move into a single payer system (yes, I know, it would be hard to do in America), but there’s a reason that a lot of other countries have determined that the most sensible payer is the government.

These are complex problems, and there won’t be a solution overnight. But at the very least, I do think that we’ll see more conversations around the role of the employer in our health care system — particularly as our benefits departments are going to have to play an uncomfortable role in gatekeeping access to care. We live in a system where the company you work for is playing a major (and growing) role in determining the type of care you can access. The new cell and gene therapies may force this problem into the spotlight in a very clear way — one patient worked at Amazon out of Seattle and got access to a $4 million drug, while another at a small employer in the Midwest did not.

So why aren’t employers advocating more for themselves publicly? Why aren’t they pushing for price transparency and for change? Will we see more lobbying, or op-Ed’s in the Wall Street Journal? As Zutter from Lantern pointed out on the podcast, a lot of the reason we haven’t seen more employers speaking out is the fragmentation. There’s a huge difference between the needs of a Big Tech company in Silicon Valley, versus an oil and gas manufacturer. There’s also massive geographic differences, and some companies are far larger and more profitable than others. That makes getting on the same page very challenging in practice. Although who knows what the next few years will bring.

To their credit though, despite all this, employers do seem to want to do the right thing.

What I also heard at the summit from many of the country’s most sophisticated benefits executives, amidst conversations about why they should be on the hook for health care in the first place, was another question:

“If not us, then who?”