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July 18, 2022
The INSULIN Act
Higher insulin prices and less innovation
By Drew Keyes, Senior Policy Analyst
Congressional Democrats are mounting renewed
efforts to impose drug price controls. One effort is
contained in a new reconciliation proposal. Another,
separate measure specifically addresses insulin prices
in the INSULIN Act introduced by Senators Jeanne
Shaheen (D-NH) and Susan Collins (R-ME). This policy
brief examines the INSULIN Act and argues that the
proposal will harm patients through higher insulin
prices and reduced innovation while raising health
insurance premiums and government spending.
Insulin Prices in Context
That insulin prices remain top-of-mind for many
Americans is unsurprising given current U.S. health
trajectories. Over 11 percent of the U.S. population had
diabetes in 2019, including nearly 15 percent of adults,
and these numbers have been steadily increasing since
the turn of the millennium.
i
Nearly a quarter of Americans with diabetes require
the use of insulin, either alone or with oral medications.
These numbers are expected to grow.
Public perception is that insulin prices have been rising,
and certain individuals do face relatively high prices.
But the majority do not.
Pharmaceutical price changes are often more visible
because people pay more out-of-pocket for drugs. In
Medicare alone, Part D enrollees spent nearly $1 billion
out-of-pocket on insulin in 2019, four times the amount
spent in 2007.
ii
However, out-of-pocket (OOP) insulin
costs in Part D began to fall in 2015. For the trend since
2007, see Figure 1.
This recent trend extends beyond Medicare. Since
2018, OOP costs have fallen across all payers,
iii
as net
prices (what is actually paid after rebates to insurers
and pharmaceutical benefit managers) have been
declining since 2015.
iv
In fact, average monthly OOP
costs across all payers ranged from $21-$23 in 2021.
The average monthly OOP cost has fallen by roughly
$8 since 2018. Even list prices (which are sticker prices
before discounts) for insulins have begun to decrease
v
in a trend that the new and anticipated entries in the
biosimilar market will inevitably accelerate.
When considering drug pricing proposals, it is
important to understand the difference between list
prices and net prices. List prices can be prohibitively
KEY TAKEAWAYS
The INSULIN Act would increase net prices for
insulin. The bill would also increase Medicare and
commercial premiums.
The INSULIN Act misdiagnoses the underlying
problem. This misdiagnosis would endanger most
diabetic patients and would increase costs for many
who are facing already high insulin costs.
The INSULIN Act would stymie innovation. With at
least nine biosimilar insulins available or in the
pipeline, imposing price controls now would chill the
environment for future innovation in the space.
The INSULIN Act would burden the federal budget.
Due to the increased price for insulin, the bill would
substantially increase spending for Medicare and
Medicaid.
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The INSULIN Act
high, but most patients never have to face them. In fact,
less than 10 percent of individuals with private
insurance pay the list price of insulin.
vi
Even fewer
patients enrolled in Medicaid do. Net prices reflect
discounts, which are often sizeable, from negotiations
between drug manufacturers and insurance plans and
their pharmacy benefit managers (PBMs).
That most people face the net price, not the list price,
is important to keep in mind when considering the
INSULIN Act’s broad policies. When addressing the
needs of patients left vulnerable to list prices,
particularly within Medicare, policymakers must not
enact policies that will increase actual, or net, prices
for diabetic patients.
How the INSULIN Act Increases
Prices
The INSULIN Act is focused on the list prices of insulin
with the idea that lowering list prices, which the Act’s
authors aim to do, will reduce out-of-pocket spending.
And list prices are less relevant than net prices for
most people, including most diabetics.
The INSULIN Act contains three major components.
First, the proposal establishes a “voluntary” pricing
scheme for drug manufacturers. Second, drug
manufacturers can seek to have their insulin products
“certified” by dropping their list prices to their 2021 net
prices under Medicare Part D. Third, that price would be
locked, except for a metric to tie future price growth to
general inflation.
Figure 1
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The INSULIN Act
While this program is “voluntary,” the bill uses a three-
pronged approach to incentivize its uptake. First,
insurers would be prevented from receiving price
concessions (rebates and discounts) that are typically
passed on to consumers through lower premiums for
health insurance for “certified” insulin products.
Second, cost-sharing for such products would be
capped at the lesser of $35 or 25 percent of the (new)
list price. Third, certain utilization management tools,
such as prior authorization, would be prohibited.
“Certified” insulin products would also have
guaranteed placement on formularies under Medicare
Part D, Medicare Advantage drug plans, and all private
health insurance plans. These mandates, while
intended to correct existing market distortions, would
instead create new onesincluding undermining
insurer leverage in price negotiations, preventing plans
from promoting cost-effective options, and
undercutting competition. These distortions would
result in higher premiums for Americans across the
board, including among the insulin users whom the bill
aims to help.
In short, this bill would lock in prices for insulins based
on 2021 market dynamics, grant current insulin market
leaders guaranteed formulary placement, and then
finance these potentially higher prices by charging all
patients higher premiums. All these price distortions
would occur at a time when expanded competition from
at least nine biosimilar insulins should significantly
improve patient well-being and decrease prices (as
explained below).
Ultimately, this is a price control bill. However, it’s a
particularly perversely constructed price control bill
that actually guarantees higher prices by linking to
CPI-U for permissible price increases. (A side note: CPI-
U, as further explained below, has been higher than
inflation for prescription drugs over the past decade.)
Through price ceilings, the bill risks triggering
shortages in both the short- and long-term because the
proposed framework effectively de-links insulin pricing
from the market realities that impact insulin. Instead of
price changes being a function of demand and supply,
this framework ties them to general inflation. This type
of government control could prove particularly
problematic in the event of supply chain disruptions or
other drivers of unforeseen surges in production costs,
where price increases signal that more supply should
go to insulin production.
While the price ceiling would be “voluntary,it would
create strong financial incentives that would have
dangerous effects below the surface. In the short term,
manufacturers who stand to financially benefit from
this new system would likely choose to participate and
drive up costs for payers by reducing health plan
leverage and obtaining preferred formulary placement.
The bill would offer drug manufacturers a guaranteed
price that would extend indefinitely into the future and
guarantee those products formulary access, thereby
reducing the ability of competitors to tend to enter the
market. Some manufacturers might use the threat of
Market Memo
Price Controls
When government sets a maximum allowable price
(price ceiling) below the market-clearing price (the
price at which quantity supplied equals the quantity
demanded), shortages occur. The economics are
similar to those caused by a tax on the industry
whereby the government arbitrarily makes certain
products less profitable than they would otherwise
be. The business responds to the regulations by
cutting production, reducing quality, and shifting
costs elsewhere. These actions clearly harm
consumers.
The shortages caused by the government’s price
controls lead businesses to reduce or even stop
production, as investments in the price-controlled
product are artificially disincentivized. In the case of
a price ceiling, production that could have occurred
is simply lost never to occur due to government
regulation. Actions taken in response to that
artificial information perpetuate a distorted market.
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The INSULIN Act
certification to negotiate higher net prices with PBMs
and issuers.
The Congressional Budget Office (CBO) estimates that
the bill would “increase in the average net price of
insulin resulting from the certification process.
vii
The
resulting increased costs would cost Medicare $8.2
billion over a ten-year period and increase the federal
deficit by $23.3 billion over the same period.
The “voluntary” nature of the framework also creates
an uncertain environment for future innovation.
Congress could use the INSULIN Act’s bureaucratic
model as the basis for more sweeping pharmaceutical
price controls in the future such as making the insulin
program compulsory in the future or expanding it to
other categories of drugs.
The cap on out-of-pocket expenses would simply force
insurance companies to increase premiums. It is
important to consider that health insurers try to spread
costs among members. When a federal mandate
requires that a plan charge less for a certain product,
other plan members foot the bill through higher
premiums.
How the INSULIN Act Undermines
Innovation
Insulin innovation has been substantial over the last
100 years. The insulin used today has changed
substantially since its discovery in 1921. The discovery
of insulin analogs has led to better management
through tools such as insulin pumps, pens, and inhalers.
The next frontier for insulin innovation is the
introduction of biosimilar insulins. Biosimilars function
similarly to generics for biologic products such as
insulin. A biosimilar pathway was created by the
Affordable Care Act, but it is only recently that
biosimilar insulins have reached the market. Now that
biosimilar insulins can meet FDA approval, there are
already two FDA-approved biosimilar insulins with at
least seven
viii
more in the pipeline.
Biosimilars have the potential to improve competition in
the insulin market and drive down prices. The INSULIN
Act would stymie this type of innovation. By locking in
the current pricing structure for insulin, there would be
two negative incentives: 1) current market leaders
would lock in favorable formulary placement at current
prices, reducing the incentive for price competition
from biosimilar competitors; 2) the price ceiling would
lessen incentives to create better insulin products. In
doing so, not only would prices for biosimilars remain
stagnant, but brand name prices would also remain
stagnant due to less downward pressure from
biosimilars in future years. Biosimilars can cost
between $100 to $300 million to develop.
ix
Reducing
their ability to compete with existing products would
likely lead to many fewer products coming to market.
While the quality of insulin would be negatively
affected, the price patients pay for insulin in the
future would necessarily increase because of this
effect. The INSULIN Act would guarantee that in the
long term, prices would become and remain artificially
high because of the reduction in biosimilar competition
and the distortive price ceiling. This reality is
particularly troublesome at the very beginning of
biosimilar innovation expansion.
The effect on innovation goes beyond the insulin
market, however. As discussed, price ceilings can
produce shortages. Those shortages could occur
throughout the pharmaceutical industry as necessarily
less capital flows into it.
Other considerations
One overlooked consideration stems from a policy in
the American Rescue Plan Act that lifts the cap on
Average Manufacturer Price (AMP) rebates within
Medicaid beginning in 2024. Removing the cap will lead
to larger rebates for certain drugs with rising list
prices, including a sizable number of insulin products.
x
By artificially lowering the list prices for drugs, the
INSULIN Act will likely result in lower rebates for many
states’ Medicaid plans. CBO confirmed this in its
analysis, estimating that the bill would increase
Medicaid spending by $7.7 billion over a ten-year
period due to lower rebates. This situation would create
two economic distortions within the already flawed
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The INSULIN Act
Medicaid Drug Rebate Program, which sometimes
forces drug manufacturers to pay Medicaid to place
their drugs on formularies. Policymakers should work
to fully understand the impact that provisions in the
INSULIN Act would have on such plans and what effect
inserting yet another artificial distortion into federal
health programs would have on patients.
Further, the pricing scheme used in the bill deserves
closer scrutiny. Tying the price of insulin to any inflator
is problematic as it would create an arbitrary metric
divorced from consumer preferences and market
conditions. CPI-U, the inflator which the scheme
adopts, is an especially poor fit during explosive CPI-U
growth that has dwarfed increases in prescription drug
prices, particularly over the past year. In fact, tying
price increases to CPI-U would drastically inflate
consumer costs for many products, further straining
family finances.
Conclusion
As policymakers consider the INSULIN Act and other
drug pricing proposals, they must fully understand the
effects such proposals would have on patients who rely
on the drugs. In this case, innovators are on the verge
of bringing several biosimilars into the market.
i
“Prevalence of Both Diagnosed and Undiagnosed Diabetes.” Centers
for Disease Control and Prevention, 2021.
https://www.cdc.gov/diabetes/data/statistics-report/diagnosed-
undiagnosed-diabetes.html.
ii
Cubanski, Juliette, and Anthony Damico. "Insulin Out-Of-Pocket
Costs in Medicare Part D.” Kaiser Family Foundation, 2022.
https://www.kff.org/medicare/issue-brief/insulin-out-of-pocket-
costs-in-medicare-part-d/.
iii
“The Use of Medicines in the U.S. 2022.” The IQVIA Institute, 2022.
https://www.iqvia.com/insights/the-iqvia-institute/reports/the-use-
of-medicines-in-the-us-2022.
iv
“Diabetes Costs and Affordability in the United States.” The IQVIA
Institute, 2020. https://www.iqvia.com/insights/the-iqvia-
institute/reports/diabetes-costs-and-affordability-in-the-united-
states.
v
Hayes, Tara O’Neill. “Insulin Prices: An Update.American Action
Forum, 2022. https://www.americanactionforum.org/insight/insulin-
prices-an-update/.
vi
Glied, Sherry A. and Benjamin Zhu. “Not So Sweet: Insulin
Affordability over Time.” The Commonwealth Fund, 2020.
https://www.commonwealthfund.org/publications/issue-
Proposals must enhance such competition, not stymie
it as this bill would do. Government-erected barriers to
competition and innovation would reduce access to
care and increase costs. Moreover, this proposal harms
patients with higher prices and premiums and harms
taxpayers with higher costs of federal programs.
The INSULIN Act cannot be viewed in a vacuum. That is
as true for its policies, which affect the entire economy,
as it is for its timing, given the current push to enact
sweeping drug pricing legislation through reconciliation.
The price controls used in the INSULIN Act are a
precursor to the wider controls featured in the
reconciliation bill. Both proposals would fail to do what
naturally brings down prices: enhancing competition.
Both proposals would also inhibit the flow of capital
needed to bolster the ecosystem that produces the
remarkable innovation American patients have enjoyed
for decades.
About the Author
Drew Keyes is the Senior Policy Analyst at the Paragon
Health Institute. Prior to working at Paragon, Drew
served as a Congressional staffer for a decade, most
recently for the House Republican Study Committee.
briefs/2020/sep/not-so-sweet-insulin-affordability-over-time.
vii
“Estimated Budgetary Effects of the Improving Needed
Safeguards for Users of Lifesaving Insulin Now Act, as Posted on
the Website of Senator Jeane Shaheen on July 11, 2022.
Congressional Budget Office, 2022.
https://cbo.gov/system/files?file=2022-07/INSULIN_Act.pdf.
viii
Biehn, Brian and Connor Nell. “U.S. Biosimilar Report.”
AmerisourceBergen, 2022. https://www.amerisourcebergen.com/-
/media/assets/amerisourcebergen/biosimilars-page/sgs-
biosimilars-usmarketlandscape-
030722.pdf?la=en&hash=FA7F301EDB23DCECBBBA87FF70A8E9F
7E8DF49E1.
ix
Chen, Ying, Alex Monnard, and Jorge Santos da Silva. “An inflection
point for biosimilars.” McKinsey & Company, 2021.
https://www.mckinsey.com/industries/life-sciences/our-insights/an-
inflection-point-for-biosimilars.
x
Dolan, Rachel, Rachel Garfield, and Elizabeth Williams. “Costs and
Savings under Federal Policy Approaches to Address Medicaid
Prescription Drug Spending.” Kaiser Family Foundation, 2021.
https://www.kff.org/medicaid/issue-brief/costs-and-savings-under-
federal-policy-approaches-to-address-medicaid-prescription-drug-
spending/.