Senate Insulin Proposal to Increase Prescription Drug Costs

The Senate may soon vote on the bipartisan Improving Needed Safeguards for Users of Lifesaving Insulin Now (INSULIN) Act, a bill designed to cap insulin user cost sharing at $35 per month. However, two recent Congressional Budget Office (CBO) reports show that the bill would actually increase overall health expenditures, resulting in higher net prices for insulin, higher premiums, and $23 billion of additional deficits over the next decade.

In addition to capping beneficiary cost sharing, the legislation creates an optional certification process for manufactured insulin products in an attempt to lower insulin prices. To get certified, a manufacturer has to reduce their list price down to the 2021 negotiated price (which is the price after rebates) paid by Medicare Part D and limit price increases to the rate of inflation going forward. The enticement for certified manufacturers is that their product would then get guaranteed coverage by Medicare Part D and private insurers and would no longer be subject to further price negotiations.

Though designed to hold costs down, CBO finds this mechanism would actually lead to higher net prices (the prices actually paid) for both Medicare Part D and Medicaid, due to Medicare Part D's coverage gap discount program and Medicaid's rebate formula. Because the certification is voluntary, manufacturers would only pursue it if doing so would benefit them financially. CBO expects the higher prices to directly increase insurance premiums for Medicare Part D plans and commercial health plans. Experts also worry the bill's poor design would limit future price competition in the insulin market by locking in manufacturer prices and profits at 2021 levels. 

CBO estimates that the legislation would increase deficits by $23 billion over a decade. Medicare Part D spending would increase by $8 billion, Medicaid spending would increase by $8 billion, and federal spending on private health insurance would increase by less than $1 billion. The bill would decrease revenues by $7 billion through the increased cost of Affordable Care Act (ACA) subsidies and the employer-sponsored insurance tax exclusion.

This is more costly than the House-passed version of legislation to address insulin costs, which also shifted costs and increased premiums but lacked the certification process and increased the deficit by $12 billion (not including unrelated provisions or offsets). When a provision to cap insulin copayments was included in the House-passed version of the Build Back Better Act, the provision only cost $1 billion. 

Fiscal Impact of Provisions in Insulin Act 

Source: Congressional Budget Office.

*Includes impact of federal subsidies for employer-sponsored insurance, Affordable Care Act, and Federal employee benefits.

Even if offset or passed concurrently with other prescription drug savings through the reconciliation process, the INSULIN Act's costly design wastes resources that could be better used to reduce the deficit or offset a continuation of enhanced ACA subsidies. 

Bipartisan cooperation to lower prescription drug prices for Americans is welcome, but rather than increase federal health care spending, increase premiums, and lock in profits for drug manufacturers, policymakers should seek to reduce prescription drug costs across the board and overall national health care spending.