President Joe Biden signed the Inflation Reduction Act into law this afternoon, with a package that includes sweeping climate and tax initiatives and the biggest change to health care policy since the Affordable Care Act was passed in 2010.
The new law works to bring down skyrocketing drug prices, one of the most intractable problems in the U.S. health care system. It will allow Medicare to negotiate some drug prices and place a $2,000 yearly out-of-pocket maximum for beneficiaries’ medicine costs. One drug in particular became the focus of intense debate in Congress: insulin.
The drug millions of Americans with diabetes rely on has become increasingly unaffordable, and advocacy groups and lawmakers have pushed for years to take action to help consumers. The Inflation Reduction Act places a $35 monthly cap on insulin prices for Medicare patients, providing relief for the 3.3 million beneficiaries who use some form of insulin, according to the Centers for Medicare and Medicaid Services.
The original proposal would have gone much further and capped the price of insulin for Americans with private health insurance as well. But as the bill moved through Congress, Republicans stripped the initiative after the Senate parliamentarian ruled that a private insurance cap wouldn’t comply with the budget reconciliation process, which Democrats used to pass the bill.
Here’s what you need to know about high insulin prices and the new law.
Why insulin is so expensive in the U.S.
In the 1920s, insulin’s three discoverers sold the patent to the University of Toronto for $1 each, because co-inventor Frederick Banting said insulin “belongs to the world.” But in the last century, the opposite has become true in the U.S., as the price of insulin has risen dramatically: the average price nearly tripled between 2002 and 2013, according to the American Diabetes Association.
In 2021, the Senate Finance Committee released a report examining the list price of insulin products by three major manufacturers. They found that one commonly used insulin had increased $101 from just five years earlier, while another saw a $159 increase during the same period.
The reasons for this are complicated. Drug pricing involves multiple stakeholders ranging from manufacturers to pharmacies to health care plans, a complex chain that often makes it difficult to trace the source of the price increases, says Murdock. “There is a lack of transparency,” she says. “Prices have risen dramatically with little explanation.”
The cost to manufacture insulin has not increased over the years, according to Chandra; in fact, the average net cost of the most commonly used insulins is 20% lower today than in 2007, according to a study commissioned by the Pharmaceutical Research and Manufacturers of America, or PhRMA. But Murdock cites “evergreening,” a process in which manufacturers slightly change the formulation or the delivery method of a drug in order to extend their patents, as one possible factor for the increase in prices to consumers.
Amitabh Chandra, a professor of public policy and business administration at Harvard, says that while evergreening is part of the problem, it isn’t the only factor. Demand for the latest formulations and middlemen also drive up prices. “Pharmacy benefit managements have a strong incentive to negotiate really aggressive rebates with insulin manufacturers,” says Chandra. “But when they negotiate those rebates, they don’t share them with the payers. So there are some huge problems in the supply chain here.”
How the Inflation Reduction Act will affect insulin prices
For the 1 in 3 Medicare beneficiaries who use insulin, the Inflation Reduction Act will mean a decrease in the out-of-pocket price of insulin, with co-pays capped at $35 a month. And while they won’t directly impact insulin prices, other provisions in the law, such as allowing Medicare to negotiate prices and placing a $2,000 annual cap on out-of-pocket costs, will provide further relief for Americans on Medicare who use insulin.
However, the bill will not impact the overall price of the drug—just the copay amount—meaning that insulin will continue to be a financial burden for those not covered by Medicare. “It’s reducing the patient out of pocket [cost], but we’re not actually reducing the price that manufacturers charge and receive for their product,” says Chandra.
How diabetes advocacy groups reacted to the bill
For advocacy groups such as the American Diabetes Association, the new law contains the kind of policy change they’ve pushed for over many years. “This is a historic moment, to see a national copay cap on insulin,” says Murdock.
“It’s wonderful to see our years of advocacy work pay off with this long-awaited insulin affordability bill. This pivotal legislation will help our patients who have Medicare and struggle to afford their insulin,” said Endocrine Society President Ursula B. Kaiser in a statement.
But the fact that privately insured patients won’t see this benefit as Democrats originally intended means the fight isn’t over yet. “Today’s passage of the Inflation Reduction Act by the U.S. House of Representatives represents progress for the more than 3 million people on Medicare who use insulin, but we need to do more to ensure insulin affordability for everyone.” JDRF, a Type 1 Diabetes advocacy group, wrote in a statement before Biden signed the bill into law.
Where the fight to lower costs could go next
Some drug manufacturers offer copay caps that can help insulin users pay, but the eligibility requirements can make them difficult to access. A low-cost insulin by a non-profit drugmaker is set to enter the market in 2024. For now, advocates are pushing for policy change on the local level and national level.
According to the American Diabetes Association, 22 states and Washington D.C. have implemented insulin copay caps ranging from $25 to $100 for 30-day supplies, which some advocates are looking to expand across the country. Others are lobbying for Congress to consider the bipartisan INSULIN Act introduced in the Senate in July, which would encourage insulin manufacturers to lower list prices and cap the monthly insulin costs for insured diabetics at $35.
“What no one thought would be possible five years ago is now closely within reach,” says Murdock, “and we’re determined to be in this fight until we get it.”
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Contributor: Simmone Shah