Congress Caps Medicare Insulin Cost

The so-called Inflation Reduction Act (IRA) includes a provision limiting the cost of insulin to Medicare patients.

Under the IRA, the monthly cost for insulin will be capped at $35 for Medicare recipients. The law does not limit costs for patients using private insurance or for the uninsured.

The law also allows Medicare to negotiate prices for prescription drugs and limits out-of-pocket spending for enrollees in Medicare Part D to $2,000 annually.

While these provisions were welcomed by many Medicare enrollees, critics say this is the wrong approach to the problem of high out-of-pocket medical costs, because price controls can discourage innovation, lead to shortages, and increase government spending.

Insulin Price Cap Harms Diabetics

Insulin products are complex biologics—of which there are different formulations and delivery systems that aren’t accommodated by a single price cap, says health economist Devon Herrick, Ph.D., a policy advisor to The Heartland Institute, which co-publishes Health Care News.

“There have always been sources of cheaper insulin, just not the latest insulins at generic prices,” said Herrick. “The insulin diabetics inject today is far better than insulins from 30 years ago.

The price cap on insulin will reduce the revenues of manufacturers, leaving them with less money to invest in development, says Herrick.

“Price controls may be popular with those who benefit from artificially low prices but will ensure diabetic patients decades from now will not benefit from new advancements in technology because there will be no incentive to invest in newer insulins,” says Herrick.

Negotiated Prices No Bargain

Government-negotiated drug pricing has been tried in other countries, says Linda Gorman, director of the Health Care Policy Center for the Independence Institute.

“As government typically underpays in health care, the negotiated price will likely be less than full cost,” said Gorman. “The result will inevitably be less money for research on new drugs. The destruction of drug research in the United Kingdom after negotiated pricing with a fixed profit rate is the real-world example.”

Alternatively, capping the out-of-pocket cost to seniors in Part D plans could shift costs to taxpayers, says Gregg Girvan, a resident fellow in health care policy at the Foundation for Research on Equal Opportunity (FREOPP).

“The problem is that if we cap the cost, it allows the manufacturer to consistently raise the price of that drug because the consumer is going to pay the same price,” said Girvan. “That can raise government spending in the Medicare program.”

Girvan equates price caps to those discount cards drug manufacturers give out which remove co-pays for a product.

“Not only does it allow them to raise the price behind the curtain, but it also allows manufacturers to develop that brand loyalty to the point where the people stay on the product even when there is a cheaper generic or biosimilar available,” said Girvan.

Better Cost-Saving Options

      In Medicare, but also private health plans, it would be better for prescription drugs to be covered as medical treatments, says John C. Goodman, president and CEO of the Goodman Institute for Public Policy Research and co-publisher of Health Care News.

“Having two different health insurance plans—one for drug coverage, the other for medical coverage—creates perverse incentives,” said Goodman. “If diabetics don’t take their insulin, the drug company’s expenses go down. But a resulting trip to an emergency room causes the medical insurer’s expense to go up. What’s good for one insurer is bad for the other, and bad for the patient as well.”

This is not an uncommon occurrence, says Goodman.

“Patient noncompliance, especially with prescription drugs, is the biggest problem in care for diabetes and other chronic conditions,” said Goodman. “That’s why integrated health plans that cover both drugs and medical services typically make insulin free to the patient. These plans ‘invest’ in free insulin and the payoff is fewer emergency room visits and hospitalizations.”

Regulations Worsen Problems

Federal intervention in health care can drive costs up, not reduce them, says Michael Cannon, director of health policy studies for the Cato Institute, in a blog post on August 8.

“Insulin prices should be falling over time, yet they have more than doubled over the last 10 years,” wrote Cannon. “Many diabetics struggle with those rising prices, sometimes with deadly consequences. A humane health system would make insulin increasingly accessible to diabetics.”

Federal regulators have made the U.S. health sector inhumane toward diabetics, says Cannon. These include exorbitant costs related to the approval process for new drugs and medical services; requiring a prescription to purchase insulin; strict limits on the amount of insulin an American traveling to a country such as Canada that does not require a prescription can bring back.

In addition, government regulations promote excessive health coverage; insulate patients from the price of their health insurance, push drug costs higher; and discourage private insurers from structuring insulin cost-sharing to maximize the long-term health of diabetics, says Cannon.

“If Congress and/​or federal bureaucrats really wanted to expand access to insulin, they could do so tomorrow,” wrote Cannon. “But it would require them to give up some of their power. The fact that congressional Democrats and the rest of the federal government will not give up even a little bit of their power in order to help diabetics tells you where their hearts really lie.”