By Benedic N. Ippolito and Joseph Levy

The insulin market has long been in the crosshairs because of the frustratingly
high prices faced by many consumers. Unfortunately, the latest congressional
proposal to tackle this issue is likely to do more harm than good.

The recently released INSULIN Act aims to solve a core frustration in this market—some consumers face very high out-of-pocket costs for insulin they need. In its effort to lower cost sharing, however, this bill would likely undermine competition and raise costs more broadly.

The insulin market is the poster child for one of the most
frustrating pricing trends in health care. While insurers purchase drugs at
negotiated “net prices,” some individuals’ cost sharing is based on substantially
higher “list prices.” There can be very large differences between the two,
meaning some consumers face much higher prices than their insurer. Nowhere is
this truer than in the insulin market.

To address this problem, the INSULIN Act would encourage drug
makers to lower their list price down to the average net price from 2021. In
exchange, insurers must increase access to these products. Cost sharing must
not exceed $35 per month and insurers cannot impose additional administrative
barriers to accessing products.

In effect, the bill would freeze the market in its current state.
Any insulin with a price at the 2021 level (plus inflation) would be guaranteed
preferential access. That would provide little incentive for drug makers to
lower costs any further, since it would be hard to distinguish themselves from
the other preferred products. This is a problem because insulin prices are clearly
falling.

As an example, we illustrate recent trends in the monthly price of
long-acting insulins. List prices are relatively high and have grown over time—the
reason some patients pay high cost sharing. However, new competitors have
reduced the net price of insulin, lowering market-wide costs.

In aggregate, spending on the entire class of products is on a
promising trajectory and there is reason to think this will continue as lower-cost
copycat products continue to enter the market. In trying to reduce
out-of-pocket spending of some consumers, policymakers should be wary of
interrupting competitive forces that are lowering insulin costs more broadly.

Perhaps unsurprisingly, the Congressional Budget Office estimates that this bill would increase the deficit by $23 billion. This is more expensive than a prior bill that placed a limit on cost sharing but likely would have impeded cost competition less.

If policymakers want to retain this general approach, at a minimum
it would be wise to inject some competition into the proposal (e.g., by giving
preferential access to only the lowest price insulin within a class). Alternatively,
one could address the core issue more broadly by severing the link between list
prices and patient cost sharing. For example, they could disallow cost sharing
based on list prices and instead require it be a function of net prices (or an
estimate thereof).

The goals of the INSULIN Act are sensible, but its likely unintended consequences pose a concern worth taking seriously.

Benedic N. Ippolito is a senior fellow in economic policy studies at the American Enterprise Institute, where his research focuses on public finance and health economics. Joseph F. Levy is an assistant scientist in the Department of Health Policy and Management at the Johns Hopkins Bloomberg School of Public Health, in Baltimore, Maryland.

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