Who Will Pay the Bill for AIDS Treatment? : Rand Corp. Report Says the Cost Could Reach as High as $112.5 Billion by 1991

The nation’s AIDS treatment bill will likely total $37.6 billion for the five-year period ending in 1991, but could be as large as $112.5 billion, according to a Rand Corp. study whose “middle range” projections assume that 400,000 Americans will have contracted the disease by early in the next decade.

And if those cost estimates turn out to be accurate--Rand researchers emphasize that the uncertain future of AIDS makes them only “best guesses”--states with high concentrations of the disease will be caught in a cost squeeze that could see the largely state-funded Medicaid program having to absorb between $10.2 billion and $47.3 billion in added expenses.

Urgent Need

In all, said the Rand health economist who headed the study, the new figures underscore an urgent need to resolve, on a national basis, who will pay the inevitably rising economic price of AIDS and how government and private payers will apportion costs of the epidemic among themselves. The report was released Wednesday.

The new calculations of the cost of AIDS (acquired immune deficiency syndrome) are based on a variety of what Rand and other experts conceded are sometimes loose assumptions about the number of people who will contract the disorder. But experts agreed that precise predictions are impossible in the rapidly developing epidemic.

Growing Evidence

For instance, noted Anthony Pascal, chief author of the Rand report, the U.S. Public Health Service has estimated there may be 220,000 AIDS cases by 1991--but there is growing evidence the prediction is too conservative.

In fact, the Rand study concludes, 400,000 is a more likely toll and the figure could rise to 750,000. However, Pascal said Wednesday new estimates of the proportion of AIDS virus-infected people who will actually develop the disease have made him conclude that the 400,000 figure probably is “lowish” and that the actual total will be substantially higher.

The new AIDS cost projections appeared to differ somewhat from earlier estimates from a variety of sources that concluded the cost of AIDS could reach $8 billion to $16 billion a year by 1991. However, Pascal and officials of the U.S. Health Care Financing Administration said the Rand figures primarily provide a different perspective--figuring total AIDS costs over a five-year period instead of projecting an annual total. Annual totals may be deceptive, said Pascal, because costs are rising substantially each year.

“I think what our study shows is that we have no thoughtful (national or state) policies on AIDS (economic) burden-sharing,” Pascal said. “We’re simply flying in the dark based on policies developed to deal with AIDS in its infancy and (policies dealing) with other types of diseases. There’s been no attempt to come up with a plan to share the burden in a fair and equitable way, between private and public insurance programs and patients themselves. None of these things have been thought through.”

The costs of treating each AIDS case are the subject of controversy. Rand’s new projections assume a range per case of as little as $70,000 for each to as much as $150,000, with $94,000 seen as the most likely figure. The report notes that as AIDS spreads more broadly among the population, costs per case will likely rise.

Anne Scitovsky, an AIDS economics expert at the Palo Alto Medical Foundation, said her own rough projections of the costs of AIDS by 1991 total $30 billion to $32 billion--at about $85,000 per case. “Certainly, Pascal and I are not that far apart,” she said of the Rand figures, “but surprisingly few (hard) data are available.”

Ann Hardy, an epidemiologist who conducted an earlier study of AIDS costs at the federal government’s Centers for Disease Control in Atlanta said that, while she had not seen the new report, the figures in it sounded “in the right ballpark.” Hardy said, however, “if you do the same thing for other illnesses, you will see (AIDS) is still a small percentage of the total amount of money spent.”

Based on overall health care expenditure projections made by other researchers, the Rand team said total national medical outlays between 1986 and 1991 may total $3.4 trillion, with AIDS accounting for .5% to 3.3% of the overall amount. On an annual comparative basis, the costs of AIDS per year by 1991--about $8.5 billion, according to estimates by Scitovsky--would exceed auto accidents ($8 billion), lung cancer ($3.9 billion), kidney disease ($3.2 billion) and breast cancer ($3.1 billion).

Projections Could Be Disrupted

But all of these economic projections could be disrupted, said Pascal and Dave Llewellyn, vice president and chief actuary for the Health Insurance Assn. of America, if it turns out that a greater than expected proportion of people infected with the AIDS virus actually develop the disease. Until recently, most estimates were that 20% to 30% of people who tested positive for the virus would develop AIDS, but several new studies have suggested the totals could be far higher--50% or even 100% over the next several years.

Llewellyn said the Rand estimates are similar to calculations his association has made--though he said the figures have so far been disseminated only within the medical profession and have not received public attention. The Health Insurance Assn. of America estimate, he said, is that the cumulative costs of AIDS will reach $40 billion by 1991, with Medicaid absorbing $13 billion.

Pascal and Llewellyn, along with Joseph Antos, head of the Health Care Financing Administration’s office of research and demonstrations, said, however, that the Rand predictions represent significant new developments in AIDS economics. For one thing, said Llewellyn and Antos, the highest of the Rand estimates--which the study itself calls the most “unlikely” financial outcome--has at least the potential to turn out to be more accurate than today’s AIDS situation might suggest.

“We don’t really know how much costs might escalate,” Antos said. “There is a danger and the outer edge of the cost envelope might well (turn out to) be higher than previous high end estimates. That is a reasonable caution that is coming out of this study.” Llewellyn said one lesson of AIDS for health economists so far has been that costs have tended to exceed all initial projections. “What we see with the passage of time is that the figures tend to bear out the high end of the range,” he said. “I wouldn’t be surprised if serious consideration ought to be given to (the highest Rand estimate.)”

The Rand study warns that the escalating rate of new AIDS cases will likely place stresses on the existing health care financing and social services systems that have not been foreseen previously. For instance, the report speculated that San Francisco’s nationally touted system of shifting much AIDS care to outpatient and home settings may falter even in the Bay Area as the sheer volume of cases outstrips the ability of low-cost, non-hospital providers to cope.

Public hospitals and Medicaid programs will probably find themselves facing a far greater AIDS burden than they now expect, Pascal predicted. States and locales that already have high AIDS rates will find themselves even more hard-pressed between now and 1991, he said. Likely places the AIDS economic burden will be most pronounced, Pascal said, are the states of California, New York, Florida and Texas, as well as the District of Columbia.

ESTIMATED AIDS TREATMENT COSTS, 1986-1991

Range of Estimates Low Middle High Number of cases 220,000 400,000 750,000 Cases on Medicaid 30% 45% 60% Cost per case $70,000 $94,000 $150,000 Reimbursed by Medicaid 50% 60% 70% National costs in billions $15.4 $37.6 $112.5 Medicaid costs in billions $2.3 $10.2 $47.3

Source: Rand Corp.