Government is the scourge of diabetics, not their savior
By Michael F Cannon
Congressional Republicans have rejected a proposal by Congressional Democrats that private insurance companies should limit their policyholders’ out-of-pocket insulin spending to $35 a month. The Republicans were right about that. The government is already driving up insulin prices. Further interventions would worsen the situation.
Diabetics need insulin to live. Insulin prices should fall over time, but have more than doubled in the last 10 years. Many diabetics struggle with these rising prices, sometimes with fatal consequences. A humane healthcare system would make insulin increasingly accessible to diabetics.
The government has inhumanely treated the US healthcare sector towards diabetics.
- To bring a new insulin product or delivery system to market, manufacturers must first go through the U.S. Food and Drug Administration’s extremely expensive processes for approving new drugs and medical devices. Elsewhere, my colleague Dr. Jeffrey Singer and I: “In 2019, the average estimated cost of each new drug approval is from $523 million in 1987 to $1.2-1.8 billion in 2000 to $3.2 billion in 2013, average annual real interest rates increased from 9.4 percent in the 1970s, 7.4 percent in the 1980s, and 8.5 percent from 1990 to the early 2010s.” The high cost of government regulation is holding back development new insulin products, reducing the number of insulin manufacturers and increasing the prices of all products that go through this process, both by requiring manufacturers to recoup these regulatory compliance costs and by enabling tacit price fixing (see below).
- Second, the government is increasing the cost of insulin by requiring diabetics to get a prescription before purchasing many insulin products. There is little point in requiring diabetics, who are very knowledgeable repeat insulin users, to obtain a prescription for every purchase. Canada allows diabetics to buy any insulin product without a prescription. If the FDA or Congress lifted these requirements, both the price of insulin and the incidental costs of obtaining it would decrease.
- Third, although US diabetics have a basic human right to travel to Canada to buy cheaper insulin without a prescription, the FDA is violating that right by banning US citizens from buying more than a 30-day supply. Removing this restriction would result in a drop in average insulin prices and make insulin more accessible to US diabetics.
- Fourth, the government is driving up insulin prices even further by promoting excessive levels of health insurance, both in “private” and state-subsidized insurance. As Cato scientists explain here, here, and here, over-insurance tempts providers to raise rates because highly-insured patients are less concerned about rate increases. The fact that the state shields consumers from the price of their health insurance then guarantees that consumers will rebel against attempts by insurance companies to negotiate lower prices, for example by excluding high-priced drugs or providers from coverage. When Congress capped contraceptive co-payments at $0, hormone and oral contraceptive prices skyrocketed.
- Cato research assistants Charlie Silver and David Hyman write Overweight: Why Americans pay too much for health care that government-sponsored overfunding allows collusion between insulin manufacturers to raise prices. Insulin manufacturers have little incentive to lower prices — and any incentive to raise them — because the government already shields diabetics so heavily from the price of insulin that lowering the price doesn’t give manufacturers a bigger market share.
- Fifth, the government discourages private insurance companies from structuring insulin co-payments to maximize the long-term health of diabetics. If insurance companies had lifelong relationships with their policyholders, they would have incentives to structure cost-sharing for insulin and other preventive care in a way that keeps their policyholders alive and paying premiums, while minimizing their policyholders’ long-term medical expenses. Insurance companies don’t have lifetime relationships with enrollees because Congress penalizes lifetime insurance. US tax laws penalize workers unless they take out employer-sponsored health insurance, a type of health insurance that disappears when workers change jobs. Given that Americans will change jobs, on average, a dozen times by age 52, insurance companies that invest in promoting cost-effective preventive care (e.g., insulin use) will not see the long-term benefits of that investment. Those benefits will likely go to one of their competitors, either another private insurance company or the government. Thanks to the government, insurance companies at best only have an incentive to maximize the short-term health of diabetics.
Had the government never intervened in the healthcare sector, private insurance companies might already be offering more insulin co-payments than Congressional Democrats are proposing without driving up insulin prices. Or maybe insulin prices would be so low that no one would feel the need to buy insurance to cover it. All we know for sure is that government attempts to limit insulin co-payments, like previous government interventions, will have unintended consequences that will make things worse for diabetics and all consumers.
If congressional and/or federal bureaucrats really wanted to expand access to insulin, they could do so tomorrow. But it would require them to give up some of their power. The fact that congressional Democrats and the rest of the federal government are not going to give up even a little bit of her power to help diabetics tells you where her heart really is.