Gene Therapy: Rarely Needed but Massively Expensive

Gene therapies aren’t widely used yet, but they seem to be widely discussed in the insurance industry. Why are they a concern?

Their price is definitely eye-opening, and we have been anticipating for four to five years therapies that are just beginning to hit now. There are maybe 40 total right now that are approved by the FDA [U.S. Food and Drug Administration] but there are dozens more in the pipeline.

What do these drugs do?

The FDA loops cell and gene therapies into one category for the purposes of their review. Cell therapy is where cells are inserted into a patient to improve a disease or condition. It’s costly, but only about half a million dollars.

With gene therapies, genetic material is introduced—removed, repaired, or changed—in a patient and the point of administration has to be in a special clinical setting. These have price tags which can be into the millions, and they are very much life-preserving treatments.

Why are they so costly?

Partially because the patient populations are relatively small—these are used to treat rarer diseases. And they are based on the net price value of what the current cost of other types of therapy are on an annual basis. Like Roctavian, which is [a gene therapy] treatment for severe hemophilia A that costs about $2.9 million. It was one of the first to be knocking around that $3 million price tag. Prior treatments for hemophilia A were $1 million to $1.5 million per year, but a patient can take one Roctavian treatment and they may be set for a long time. It’s a pricing dynamic that we haven’t seen elsewhere.

Another is Elevidys, which was approved in 2024 for Duchenne muscular dystrophy. Its cost is about $3.2 million a year, so it’s one of the most expensive drugs available. Zolgensma is for spinal muscular atrophy in infants. It’s about $2.1 million for one administration. The treatment that has been around longer for that condition is Spinraza, which is often given to adults and costs about $800,000 for the first injection and then $380,000 a year after that. These drugs are in their own pricing stratosphere.

If these are used for rarer conditions, how often are they hitting employers’ insurance? Should they worry about them?

We aren’t seeing a lot of Roctavian uptake yet, and no one’s necessarily complaining about that. There are a few reasons why there seems to be slow uptake of some of these medications.

First, everyone is eager to be second when it comes to something new. No one wants to be the first on a new therapy, or maybe their parents are hesitant to try something new when there’s an established therapy.

And in the provider community, they know they have established therapies. They are unfamiliar with the new treatments, may not have facilities to administer them, and may be worried about shaking up their revenue stream.

When I’m talking to people in benefits or HR or other brokers, I tell them they don’t want to suddenly catch one of these claims. The risk is small, but it’s greater than zero and it’s out there. And it would be a $3 million funding draw that would have to be taken out in a week. Stop-loss can reimburse that later, but that is going to be a big draw in one shot. There is no accounting standard to account for the occurrence of a costly gene therapy, and your CFO is going to ask where your hedge was against that.

What is the hedge to cover these kinds of claims?

You have to make sure you have a carve-out or stop-loss to cover gene therapies. You just have to know what your plans cover. If you are a large employer and don’t have stop-loss, you may be able to get a plan that says, for 99 cents per member per month, these top seven or eight gene therapies that are the most likely to be used will be covered.

When you have a stop-loss rider out there with larger companies like Sun Life, Voya, Berkley, or your HMs [HM Insurance Group], most are ready to take a gene therapy claim. They’ve priced for it. You just need to make sure the policy covers gene therapy, because $3 million is a big hit. If you have a policy with a $100 million annual [limit], one claim taking 3% of that is a lot.

You can find out if gene therapies are covered under your stop-loss a couple of ways. If you are an employer, ask your broker; if you are a broker, ask the stop-loss writer. The stop-loss writer may say they cover them, or they may say they have what’s called plan mirroring. That means it covers what your insurance considers medically necessary. So, if gene therapies are included in your medical plan to cover it when it is clinically administered, it mirrors that. The worst-case scenario is having an employee who has to get a therapy and you thought the plan covers it, but it’s excluded. If the plan doesn’t cover it, a separate carve-out might be warranted.

Employers don’t have to cover these therapies, correct?

The ACA [Affordable Care Act] doesn’t require employers to cover these therapies. Right now, I’m not seeing a lot of plan sponsors say they aren’t going to cover gene therapy, but we are aware of some employers that have made the determination not to. And, in many cases, they may have a patient resource program that will allow employees to get some funding for a therapy, possibly by going through the manufacturers. That allows employers to say, well, at least we are directing the employee to a way to get that therapy if they want it.

How informed are employers about the coverage and possibility they may face one of these claims?

They’re asking because they’ve seen the outsized prices. By and large, most haven’t yet experienced a claim, but they know it’s out there. They’ve read about it. They’ve seen a presentation about it, perhaps. I was at a conference last fall and one of the benefit leaders from AT&T was presenting about gene therapy. He was nonchalant about it. He said, we cover up to $5 million on a claim, or something like that, we’re happy to if that makes us a better recruiter or helps us keep an employee from going to T-Mobile. I remember walking out and thinking, “Wow, it must be nice to be AT&T.” It was a good presentation, and a large employer would likely see one of these claims sooner than smaller employers will. These claims may be a nothingburger to a very large employer because their insurance can take the hit. But I don’t think he was in tune to the challenges of other employers who might be dealing with this and don’t have stop-loss— especially for a self-funded plan.

Is covering gene therapy a costly addition for an employer?

Larger underwriters anticipate they will get two or three of those each year, so they plan for it in their books. The cost is relatively light—easily less than 5% of where their pricing is, so it’s not significant due to the fact that these are infrequent claims.

Employers have to remember, though, if they are getting a new stop-loss plan, there will be a disclosure document. They will have to disclose if they have someone who is, for instance, already diagnosed with hemophilia—if someone already had a claim line on Jan. 1 of that year. And a new stop-loss provider will very likely add an exclusionary laser there. If, say, the employer has a $200,000 deductible, they might say, this patient with hemophilia has a $3 million deductible for gene therapy administration. All writers will try to avoid catching one of these when they can see it coming at them. And that’s always been, unfortunately, a case with stop-loss. And it forces brokers to do their disclosures properly because if they don’t disclose it and a claim comes through that should have been disclosed, the insurer won’t cover it.

What is the most important takeaway about the current landscape of gene therapies?

The field has been percolating, but there’s not a whole lot of take-up at this point. A tidal wave of sorts, or tsunami, was expected. But it’s been more of a rising tide than a tsunami. Some of the top therapies that have been advertised, and were anticipated, are landing with a bit of a thud right now and we’re wondering why. A couple of manufacturers have decided they aren’t going to bother with gene therapies—Pfizer just pulled out of pursuing them in February. These therapies just aren’t producing the revenue they thought they would. But that’s not enough that employers don’t have to worry about it. There’s a lot that will be on the market soon [according to the American Society of Gene & Cell Therapy, 2,117 gene therapies were in development at the end of 2024]. It’s not off the table by any stretch. In most of the groups we deal with, employers are not looking to be the employer that gets a lot of bad publicity because they were not covering gene therapy for their employees. A lot of these therapies are for children, and they don’t want to be the bad employer that doesn’t have their children covered.