The House‐passed Build Back Better Act (BBBA) purports to make insulin more affordable. As Cato adjunct scholars Charlie Silver and David Hyman write in Overcharged: Why Americans Pay Too Much for Health Care:
Insulin is a drug used by millions of Americans afflicted with diabetes. It is off‐patent and made by three companies, so it should be reasonably priced. It is not. The past two decades have seen stunning price increases. Short‐acting insulin, which cost about $21 in 1996, went for about $275 in 2017. And…the prices went up in lockstep, even though there were two companies making short‐acting insulin. Prices for long‐acting insulins, which also had two makers, rose in tandem too.
Insulin prices are high not because the government has not intervened in health care but because government has intervened. Government has created an oligopolistic market for insulin where manufacturers raise prices far higher than they could in a free market.
- Congress, through the U.S. Food and Drug Administration (FDA), creates barriers to entry into the market for new and generic insulins, which reduces the number of manufacturers and facilitates tacit price collusion.
- Medicare, Medicaid, and the tax preference for employer‐sponsored health insurance encourage excessive insurance. Since those policies heavily insulate diabetics from the price of insulin, they make diabetics less willing to switch to lower‐priced insulins when insurers use that strategy to keep insulin spending down.
- Congress, through the FDA, requires diabetics to get prescriptions for most insulins, which adds the cost of a doctors’ visit and inhibits bulk purchases and discounts.
- Congress, through the FDA, restricts the right to purchase lower‐priced insulin from other countries, including Canada where prices are lower and insulin is available without a prescription.
Unfortunately, the BBBA would not fix any of these policy errors. Instead, it takes the exact wrong approach to rising insulin prices by further encouraging excessive insurance.
Yes, the BBBA would would allow Medicare to “negotiate” the price of insulin with manufacturers. This would be great, if it resulted in Medicare paying lower prices for insulin, and thus lower Medicare spending and lower taxes. But it likely won’t. Why?
The next thing the BBBA would do is require private insurers to cover a range of insulin products, and require Medicare Part D plans to cover all insulin products, with just a $35 monthly copay. It is precisely because this measure would limit diabetics’ price‐sensitivity that it would put upward pressure on insulin prices and prevent Medicare from negotiating lower prices.
When Medicare demands price concessions that insulin manufacturers consider unacceptable, or threaten to de‐list uncooperative manufacturers’ insulin products, those manufacturers will complain to members of Congress. They will launch lobbying campaigns. And they will win. Because the voters who care about this issue – diabetics – will not care about prices. Congress will have capped their contribution to the price of their insulin at $35 per month. They will care only about maintaining their access to the (overpriced) insulin that they prefer. So diabetics will side with Big Pharma against the interest of taxpayers and they will succeed. This patient‐pharma pincer movement is why Medicare has always overpaid for drugs. It is why Medicare will continue to overpay even under the BBBA. And woe unto any Medicare bureaucrat or member of Congress who gets in the way.
If Congress wants to lower the price of insulin, it should remove barriers to entry into the U.S. market by reducing regulatory burdens on generics and allowing purchases of insulin from other countries without limit. It should eliminate prescription requirements for all insulins. It should allow enrollees with Medicare and private insurance to keep the savings from switching to lower‐price insulins, which would finally spark price competition in this market.
