Insurance Policies for Cancer: Made in Japan

The financial burden of a long-term illness such as cancer canbe devastating, with as much as 66% of the costs of cancer beingnonmedical[1]. These financial concerns are leading some Americansto buy insurance policies that, upon diagnosis of cancer, assistthem in paying for their care.

Several companies now offer disease-specific insurance policiesfor cancer, with the industry leader being American Family LifeAssurance Company (AFLAC).

AFLAC built this program by selling cancer insurance to the Japanese,starting in 1974 when they became the second foreign company licensedin Japan. AFLAC currently has a monopoly in Japan, insuring 20%of the Japanese. The $7.2 billion company receives 85% of itsrevenues from Japanese operations[2].

Understanding the factors that made cancer insurance successfulin Japan may assist policy makers in eval-uating strategies forcancer insurance policies in America. However, cultural considerationsclearly differ between the two countries.

The Japanese population is one of the healthiest in the world.Japan provides universal access for its 127 million citizens andhas the highest life expectancy of any industrialized nation (76.1years for males and 82.1 years for females), as well as the lowestinfant mortality rate (0.5%)[3,4].

These statistics, however, overshadow trends for cancer. Cancer-relateddeaths in Japan have risen sharply over the past 50 years, andin 1992, 188 of every 100,000 Japanese died of cancer, makingit Japan's number one cause of death[5].

Cancer Care in Japan

Cancer care in Japan differs markedly from that in the UnitedStates. Doctors rarely inform patients of their diagnosis, believingthat a patient's knowledge of the disease contributes to a poorprognosis[6]. Physicians instead often inform a family member.

This philosophy has contributed to the taboo nature of cancerin Japanese society, and has led consumers to prepare for theworst by buying cancer insurance policies. These policies givethe Japanese peace of mind that they will have enough money tobe properly taken care of in the event that they develop a malignancy.

Despite Japan's universal health care and a government cap onmonthly out-of-pocket medical expenses, cancer treatment can beexpensive. The average hospital stay for initial treatment ofcancer in Japan is 49 days, compared with fewer than 13 days inthe United States[7].

Standard health insurance will cover a semi-private room, whichcan be a ward of anywhere from 4 to 12 hospital beds. Patientswho request a private room face surcharges that can be fiscallyprohibitive[3]. It is also the norm in Japan for patients to expresstheir gratitude toward physicians in the form of monetary gifts[8].

These factors, plus loss of income from prolonged treatment, canmake cancer care in Japan a financial burden, which, coupled withthe fear surrounding cancer in Japanese society, has made cancerinsurance an important adjunct.

AFLAC was given an opportunity by Japan to tap their cancer insurancemarket in the 1970s, and today they are ranked 191 on the Fortune500 list. Although AFLAC's cancer policies are well subscribedto in Japan, the US market is relatively undeveloped.

In 1995, AFLAC's premium income from Japan was $5.2 billion vs$860 million in the United States[2]. In this country, however,AFLAC paid out only 62% of its premiums earned as benefits, whilein Japan 86% of the premiums were paid out, with the lower ratein the United States being attributed to a tendency by Americansto discontinue their policy before they actually need it[2].

Thomas Rosencrants, an analyst for Robinson-Humphrey Corporationin Atlanta, told the New York Times that 75% of AFLAC policyholdersin Japan hold their policy for at least 10 years, while in theUnited States only 25% will carry the policy this long[7].

Cultural differences may account for part of these differences,but they may also be due to the strong presence of AFLAC in Japanfor over 20 years, compared with the significantly less matureUS market.

Because of the low amount of benefits paid out by cancer policiesin the United States, the value of cancer insurance is continuallyquestioned. In 1981, a study by the House Committee on Aging reportedthat fewer than 40% of cancer insurance premiums are paid outas benefits, whereas the industry standard for health insurancepolicies is 80%[9].

This percentage has risen in recent years to 62% for AFLAC inthe United States and 60% for the United American Insurance Company[10].

May Duplicate Existing Coverage

These numbers bring accusations that cancer insurance is a toolthat takes advantage of consumers. Critics claim that it preyson people's fears, and that policies duplicate existing coveragein standard health insurance policies[9,11-13]. The title of theMay 1995 issue of Retire with Money reads "Health Insuranceto Avoid," and states that due to minimal benefits paid out,"dread-disease medical plans [such as cancer insurance] areof limited value"[14].

In a 1978 survey, the House Committee on Aging found that 72%of State Insurance Commissioners felt that fear tactics were usedto promote dread disease policies[9]. State regulations reducedthis practice, but promotional statements continue to use statisticspublished by the American Cancer Society such as "three outof four families are affected by cancer" or "an individual'sodds of getting cancer are one in three"[1].

These statistics are valid, but can also be misleading. Cancerinsurance policies do not typically cover skin cancers, whichmake up approximately one quarter of cancer diagnoses, yet skincancers are included in the statistics used to market cancer policies[9].

Cancer policies cover only about a tenth of a typical hospital'scharges, Karen Eldred, a representative of the New York StateInsurance Department, said in a recent article in The Record [11].People who buy cancer policies that dramatically increase theirhospital stay benefit after 30 days do not realize that the majorityof cancer patients are sent home in less than half that time.

The value of cancer insurance does become apparent when an individualis involved in long-term treatment with high out-of-pocket expenses.According to a study based on posthospital interviews with 2,661seriously ill patients, 31% of their families reported loss ofmost or all of their family savings, and 29% reported loss oftheir major source of income[15].

There is currently not much support for cancer insurance in theUnited States, yet AFLAC has managed to increase its US salesby a respectable 9% a year over the past 3 years[2]. They haveaccomplished this while New York, New Jersey, Connecticut, andMassachusetts continue to prohibit the sale of cancer insurance.

In Japan, AFLAC continues to prosper, increasing sales by 19%in 1995[2], and as Japan's elderly population is increasing ata faster rate than any other nation in the world[3], the demandfor AFLAC's product is also increasing.

AFLAC and other companies may try to create a cancer insurancemarket similar to Japan's in the United States, but due to culturaldifferences in attitudes toward cancer, as well as general featuresof the American health care system, cancer insurance in this countrywill continue to be a hard sell.

References:

1. Cancer Facts & Figures--1996. Atlanta, Ga, American CancerSociety, 1996.

2. Annual report for AFLAC Inc., 1995.

3. Iglehart JK: Japan's medical care system: Part 1. N EnglJ Med 319:807-812, 1988.

4. Okimoto DI, Yoshikawa A: Japan's Health System: Efficiencyand Effectiveness in Universal Care. Washington DC, Faulkner& Gray, Inc., 1993, pp 85,88.

5. Statistics and Information Department, Minister's Secretariat,Minister of Health and Welfare, Japan, 1992.

6. Ohnuki-Tierney E: Illness and Culture in Contemporary Japan:An Anthropological View. New York, Cambridge UniversityPress, 1984, pp 62-66.

7. Lohr S: Under the wing of Japan Inc., a fledgling enterprisesoared. The New York Times, January 15, 1992, section A,p 1.

8. Iglehart JK: Japan's medical care system: Part 2. N EnglJ Med 319:1166-1172, 1988.

9. Cancer Insurance: Exploiting Fear for Profit. Report by theSelect Committee on Aging, House of Representatives, 97th Congress,1st session. US Government Printing Office, Washington DC, Oct.1981, 2nd ed, p 11.

10. Annual Report for United American Insurance Company, 1994.

11. Boroson W: Stock only Mammon could love. The Record,May 10, 1995, p BOI.

12. Limited benefit insurance: Palliative or panacea? ChicagoTribune, February 25, 1996, business section, p 3.

13. Weinstein GW: The Lifetime Book of Money Management.New York, New American Library, rev ed, 1987, p 455.

14. Weil H (ed): Health insurance to avoid. Retire with Money,May, 1995.

15. Covinsky KE, Goldman L, Cook EF, et al: The impact of seriousillness on patients, families. JAMA 272:1839-1844, 1994.