Senate Insulin Bill Would Help Relative Few, Could Raise Premiums and Taxpayer Costs

Senate Majority Leader Chuck Schumer (D-NY) announced last week that a bipartisan insulin bill with his support will receive a vote in the Senate “very soon.” While that bill, the INSULIN Act, avoids some of the most harmful government price controls in other legislative prescription drug proposals, it would help a relatively small slice of the U.S. population facing high out-of-pocket insulin costs while potentially raising premiums and taxpayer costs for many more.

Sens. Jeanne Shaheen (D-NH) and Susan Collins (R-ME) released their draft legislation, the Improving Needed Safeguards for Users of Lifesaving Insulin Now (INSULIN) Act, last Wednesday, urging a vote in the full Senate “as soon as possible.” The House passed a related bill, the Affordable Insulin Now Act, in March on a 232-193 vote.

The major policy plank the House-passed bill and the Senate draft legislation share in common is an effective cap on out-of-pocket insulin costs – for Medicare Part D beneficiaries and many individuals with private insurance – at no more than $35 per month. Each bill would also prevent insurers in Part D and private coverage from applying a deductible to insulin products, effectively applying the $35 per month cap even before a beneficiary has hit their deductible.

In a previous critique of the House-passed Affordable Insulin Now Act,NTU pointed out that these provisions would limit out-of-pocket costs for some Americans using insulin but would not limit or control insulin prices charged by manufacturers, wholesalers, hospitals, or pharmacies.^[1] The result is that the cost for insurers and pharmacy benefit managers (PBMs) to obtain insulin would get pushed onto all beneficiaries of a particular insurance company’s plan or plans, likely increasing premiums for many. The non-partisan Congressional Budget Office (CBO) estimated the House bill’s insulin provisions would raise federal spending by $6.57 billion over 10 years while decreasing federal revenues by $4.79 billion in the same period.

The spending increases can likely be attributed in part to increased Medicare costs – insurers would raise Part D premiums due to the reduced insulin cost-sharing requirements in the bill, and since Part D requires seniors to pay only a fixed percentage of coverage costs, taxpayer-funded premium subsidies (and therefore federal spending) would rise. The reduced revenues can likely be attributed in part to increased private insurance premiums – insurers would raise premiums in the large and small employer markets due to reduced insulin cost-sharing requirements, and both employers and workers would sink a larger proportion of workers’ earnings into health premiums (exempt from federal income and payroll taxes) rather than wages (which are taxable), reducing the federal government’s tax collections. Increased premiums on the Affordable Care Act (ACA) marketplaces would also increase federal spending and reduce federal revenues; since most ACA marketplace customers don’t have to pay beyond a certain percentage of their income in premiums, rising premiums equals rising federal premium tax credit subsidies paid for by taxpayers.

NTU also criticized the deficit offsets in the House bill, for utilizing a “shameless budget gimmick that NTU and NTU Foundation have called out before: delaying a Trump administration ‘rebate’ regulation that was projected to raise federal government costs but was never likely to be implemented in the first place.” Congress just used this gimmick again in the recently-enacted bipartisan gun safety legislation, which President Biden has signed into law. While lawmakers may not be able to use the gimmick immediately for any bicameral insulin legislation, the “rebate rule” gimmick is a deceptive means for lawmakers to reach the false perception of new spending being ‘fully paid for.’

As mentioned above, a major policy flaw of the House-passed insulin bill is that it would reduce costs for some consumers but would not reduce prices insurers pay for insulin, spreading the burden instead to the individuals, families, employers, and taxpayers paying premiums in the individual, small employer, large employer, and Medicare Part D markets. The Senate bill attempts to address this cost-price mismatch in a manner that rejects the heavy-handed drug price control efforts of previous Congresses and administrations, but it still misses the mark in a way that would help few insulin users but potentially raise premiums for many.

The Senate’s INSULIN Act essentially allows insulin manufacturers to voluntarily pledge to keep their list prices fixed to “not … greater than the weighted average of the Medicare Part D negotiated prices for such insulin, net of all manufacturer rebates, received by plans in 2021.” That fixed price would apply to 2024, and in years after manufacturers could only increase their prices at the rate of inflation (measured by the consumer price index for all urban consumers, or CPI-U).

The INSULIN Act dangles a number of incentives before insulin manufacturers to convince them to essentially voluntarily fix their list prices:

• Insurers and PBMs would not be able to collect rebates or seek further price concessions from manufacturers for insulin products with fixed prices;
• Insurers would not be able to charge beneficiaries more than $35 per month out-of-pocket for those fixed-price products, and would not be able to require a beneficiary hit their deductible before applying the $35 per month limit;
• Insurers would not be able to use “utilization management tools, such as prior authorization or step therapy” to limit access to or coverage of fixed-price products other than for safety reasons.

The theoretical incentives for manufacturers are that their fixed-price products would not be subject to some common insurer limits on coverage, would be less expensive to their insured customers than they are now (i.e., the $35 per month cap), and would not be subject to further, private-sector insurer-manufacturer price negotiations.

Of course, there’s a flip side to each of these concessions. Utilization management, cost-sharing, and price concessions are all tools insurers use not only to reduce the health costs borne by the company for specific conditions and treatments but also to keep premiums and premium increases low for their entire insurance pool from year to year. Constricting these tools for certain products could be helpful to the beneficiaries who use them and pay for them, but it comes at the expense of all beneficiaries in an insurance pool. And, in the case of Medicare Part D, the ACA’s premium tax credits, and the employer-sponsored health insurance tax exclusion, prohibiting these cost management tools comes at the expense of taxpayers as well.

Data indicates that possibly a few million Americans would benefit from marginally reduced monthly costs for insulin, and that an even smaller slice of Americans who pay exorbitantly for insulin would benefit the most. Public data from the Kaiser Family Foundation’s Health System Tracker indicates that anywhere from a fifth to a third of people using insulin products on the private insurance market pay more than $35 per month out of pocket right now – likely a few hundred thousand people in total across the nation. The median savings for someone on the ACA individual marketplace who pays more than $35 per month now (i.e., not the full population of people on insulin in the private insurance marketplace) would be $27 per month, and savings would be $19 per month for beneficiaries on the small and large employer markets.

 

A Commonwealth Fund study further indicates that insulin affordability is a struggle for a relatively small portion of people taking insulin, and that the financial struggle is greatest, unsurprisingly, for those who are uninsured regardless of income level and for those who are privately insured but have low levels of income.

The INSULIN Act’s out-of-pocket caps might assist individuals in the latter category, while the voluntary list price fixing might assist the uninsured – who often pay based on the list price.^[2] However, the bill risks raising premiums for many more Americans – and federal health program costs for taxpayers – when more innovative private-sector efforts or collaborative public-private partnerships might yield similar savings for the uninsured and low-income privately-insured without the INSULIN Act’s likely increases in premiums.

First and foremost, the entry of generic insulin products helped drive a decline in the retail price of insulin products by about five percent from the beginning of 2019 through late 2021, according to GoodRx data, even as many other products experienced price inflation in mid- to late 2021. There are generic alternatives now for at least five insulin products, with more likely to come.

Second, industry disruptors like Mark Cuban’s Cost Plus Drugs are stepping in of late as direct-to-consumer wholesalers for generic products and offering significant savings to consumers. Though Cuban’s company doesn’t currently offer insulin products, some of their non-insulin diabetes medications are currently marked at 72 percent, 81 percent, or even 91 percent off retail prices.

And third, some Medicare Part D plans are already offering $35 per month caps on insulin costs for seniors through a voluntary public-private partnership. NTU praised this initiative, the Part D Senior Savings Model, when it was introduced in May 2020 as an example of private companies and the government working together to lower costs.

Congress could wait out these private-sector innovations – particularly the development of generic insulin, which is driving down the cost of insulin products and will do so even more as additional competitors reach the market – rather than making hasty policy that raises premiums in the individual, small employer, large employer, and Medicare Part D markets. The INSULIN Act is not the most prudent policy approach at this time.