Insurance allows us to pool our collective resources to pay for expensive medical treatments, including drugs, when someone in our “pool” gets sick or needs care. About 10% of what we pay into insurance through our monthly premiums and taxes goes to pay for branded medicines. So it’s only 10% of healthcare costs that incentivize development of all new and better drugs. Just 10%. ([OPTIONAL] Dig in a bit further here, if you want.) And what’s really cool is that since drugs keep going generic, the <10% we spend this year on branded drugs goes toward paying for different branded drugs than we were paying for 15 years ago. In 15 more years, less than 10% of our insurance premiums will still be paying for branded medicines, but they’ll be newer, better ones. We’ll dig into this dynamic more in chapter 8.
American Medical Association | Trends in health care spending
Where does the other 90% go? A few percent goes toward paying for all those once-branded, now-generic drugs. Most of it pays for health care providers and services (think hospitals). Those costs never go generic, and they keep on rising ([OPTIONAL] again, dig in a bit further here, if you want). So it’s important to keep incentivizing development of new drugs that can keep us healthy, productive, and out of the hospital as much as possible to increase our “health-span,” and by extension, our life-span.
So without insurance, we simply wouldn’t have innovative new medicines. This short animation from No Patient Left Behind (NPLB) describes how that works, and shares a few ways in which we need to improve the system so it works better for everybody. We’ll dig into some of this later in the chapter (another hint: out-of-pocket costs are too high!).