Expanding government coverage could smother the market’s competitive pricing.
Over the past few years, the American health-care sector has seen a real-time experiment in what happens when a revolutionary treatment runs outside traditional payment systems. Usually, when the FDA approves a new drug, its cost is quickly covered by employer-run insurance plans and the government through Medicare and Medicaid. Yet the makers of GLP-1 drugs, approved for weight loss, have had to compete for patients’ dollars more directly.
The obesity-drug market is dominated by Novo Nordisk and Eli Lilly, whose respective signature GLP-1s, Wegovy and Zepbound, have reached tens of billions of dollars in annual sales. (The companies’ equivalent drugs, Ozempic and Mounjaro, used to treat type 2 diabetes, are responsible for far greater revenue.) They have joined the ranks of the country’s top-selling pharmaceuticals with a fraction of the typical coverage that most drugs receive. Because some insurers view weight loss as a discretionary choice rather than a medical necessity, only 19 percent of employers with 200 or more workers cover GLP-1s for obesity, and more are planning to drop coverage as the drugs explode in popularity. Coverage is a rarity among individually purchased plans, and federal law prohibits Medicare Part D from paying for weight-loss prescriptions.
As a result, pharmaceutical companies used to negotiating rebates with insurers have been forced into a consumer-facing model. Novo Nordisk reports that 50 percent of its Wegovy sales, including 90 percent of sales from the drug in pill form, are to patients who pay for it themselves. Half of Eli Lilly’s weight-loss prescriptions are also to self-paying customers.
Individual patients may be annoyed that insurance won’t pick up the tab on a pricey brand-name drug, but the result of widespread self-payment has been vicious price competition to win market share. At Wegovy’s launch in 2021, Novo Nordisk priced the drug at $1,349 for a month’s supply. Zepbound was approved two years later, selling at a list price of $1,060 per month, but with a $550 offer for insured patients lacking coverage. The dearth of coverage spurred the companies to advertise prices directly to consumers, which pushed them to keep cutting.
Today, a 2.4 mg dose of Wegovy costs self-paying patients $349 per month, down 74 percent from the initial list price. A similar dose of Zepbound costs just $299. The pill versions of each drug cost self-paying customers as little as $149 per month and no more than $299, depending on the dose.
Such a dramatic fall in costs is what happens when competition is allowed to work and price sensitivity isn’t smothered by third-party payments — a phenomenon all too lacking in the rest of American health care. But even as affordability improves naturally, governments are looking to swallow up the GLP-1 market. Thirteen states currently pay for the weight-loss drugs through their Medicaid programs (though several have recently dropped coverage). The resulting costs are mostly reimbursed by the federal government. This year, Medicare launched a pilot program outside Part D to cover weight-loss drugs at a subsidy of $195 per month, charging patients a mere $50 co-pay. That could cost the government up to $10 billion, and far more if the program is extended.
Aside from the fiscal burden, expanding coverage of GLP-1 drugs risks stifling price competition by allowing companies to raise prices charged to governments and insurers once patients are insulated, thus increasing their overall cost to Americans through higher taxes and premiums. That’s what happened when the Affordable Care Act mandated full insurance coverage of contraceptives without any cost-sharing: While out-of-pocket spending dropped to zero, real prices skyrocketed after years of holding steady. Those higher costs were inevitably socialized.
The price of GLP-1 drugs will probably keep falling, but only if patients have to pay for the drugs themselves. Governments should limit their appetite for providing short-term relief at long-term expense.