Insulin Cap Talk Ignores Market-Based Success Story

In 2021, the Democrat-led Congress passed, and President Biden signed, the inaptly named Inflation Reduction Act (IRA). This legislation included an ill-conceived price cap on out-of-pocket (OOP) costs for many insulin purchases under Medicare health plans beginning in 2023. Now, President Biden and Senate Majority Leader Schumer are proposing to extend similar price controls to all types of health insurance plans, including employer-sponsored plans. It’s never a good idea for the government to set prices in the private marketplace--no government can ever know the correct price for any product or service. However, this proposal is particularly flawed as it is a solution in search of a problem and creates a dangerous precedent for price controls in the private healthcare market.

For a variety of reasons, insulin prices and out-of-pocket costs for consumers were declining well before the government-imposed the cost cap in Medicare. According to IQVIA, a healthcare information technology company, in its 2022 report on the use of medicines in the U.S., “across all patients, benefit design changes combined with the availability of biosimilars are contributing to falling insulin costs.”
In fact, IQVIA estimates the average insulin out-of-pocket costs for all payers fell from $31.52 to $21.19 from 2018 to 2022, and nearly 80 percent of insulin prescriptions cost less than $35 per month OOP in 2022, before the IRA price cap took effect for Medicare on January 1, 2023.

In addition, GoodRx, a healthcare company that tracks prescription drug prices in the U.S., found that from January 2019 to January 2023, retail prices for insulin dropped by 11.8 percent. GoodRx also attributed the trend to greater competition in the market, explaining, “FDA approvals of generics and biosimilars have largely driven the downward trend in overall cash price.”

In the pharmaceutical drug marketplace, it is Pharmacy Benefit Managers (PBMs) that force the big drug companies to compete, keep the pressure on them to lower prices and offer health insurance plan sponsors a range of choices.

In addition to leveraging competition to lower insulin costs, PBMs have implemented innovative offerings for health plan sponsors to choose from as part of their benefit design.

For example, one PBM introduced an option that provides access to diabetes drugs, including insulin, at no out-of-pocket cost. Another PBM eliminated out-of-pocket costs in standard, fully insured group plans for certain preferred prescription drugs, including insulin. In neither of these examples is insulin free. The costs must be covered by some combination of out-of-pocket and insurance premium costs.  But it is better for plan sponsors, and the consumers they cover, to be able to choose how those costs will be allocated rather than having that choice made for them, or eliminated, by government mandates. In addition, government caps on out-of-pocket costs could have negative, unintended consequences, including slowing, or even reversing, the trend toward lower insulin costs.

Government-mandated out-of-pocket caps could incentivize drug companies to increase their list prices since the cost of higher prices would be borne by taxpayers, health insurance companies and health plan sponsors, like employers, while the consumer would be insulated from increases at the point-of-sale. This would lead to higher overall healthcare costs for consumers, however, in the form of increased premiums.

Benedic N. Ippolito, a senior fellow at the American Enterprise Institute (AEI), and Joseph Levy, assistant professor at the Johns Hopkins Bloomberg School of Public Health, examined the effects of a 2022 proposal that would have capped insulin cost sharing at $35 per month, and found, “[the bill] would provide little incentive for drug makers to lower costs any further, since it would be hard to distinguish themselves from the other preferred products. This is a problem because insulin prices are clearly falling.”

They further explained that “in aggregate, spending on the entire class of [insulin] products is on a promising trajectory and there is reason to think this will continue as lower-cost copycat products continue to enter the market. In trying to reduce out-of-pocket spending of some consumers, policymakers should be wary of interrupting competitive forces that are lowering insulin costs more broadly.”

Competition encourages lower prices. Arbitrary out-of-pocket cost-fixing and government overreach in the market would probably end up encouraging higher costs.

The insulin example should serve as a reminder of how often this is the case with government intervention in a private marketplace. The stated objective sounds welcome, but the unintended negative consequences usually outweigh the benefits, and often result in the opposite of the intended outcome by diminishing market forces that most effectively deliver value for consumers.

This is the case with a variety of misguided proposals floated in Washington to restrict how PBMs operate in the pharmaceutical market. The proposals, which generally would undermine market forces in health care, pick winners and losers in the sector and eliminate flexibility and options for employers, would result in higher healthcare costs for the American people.

Policymakers should reject government mandates targeting PBMs, just as they should reject the hazardous insulin out-of-pocket caps being pushed by the White House.

Beware of rosy-sounding election year promises. The most effective way to keep making insulin more affordable for all Americans who need this life-saving medicine is to let the market keep making insulin more affordable.

By leveraging competition and innovating to meet a demand from their customers, PBMs are successfully delivering on this trend, and showing the value of unimpeded market forces in healthcare. Policymakers should pay attention.

Pat Toomey served as a U.S. senator from Pennsylvania from 2011 to 2023 and in the House of Representatives from 1999 to 2005. He serves as an adviser to the Pharmaceutical Care Management Association.