NAME Marija Sinkeviciute
TITLE OF THE ARTICLE Insulin $35 cap price now in effect, lowering costs
for many americans with diabetes
SOURCE AND DATE ACCESSED USA today
https://eu.usatoday.com/story/news/health/
2024/01/03/insulin-price-cap-diabetes/72093250007/
March 7, 2024
DATE OF THE ARTICLE January 3, 2024
DATE OF WRITTEN March 8, 2024
COMENTARY
WORD COUNT 800
UNIT OF SYLLABUS Microeconomics
KEY CONCEPT Efficiency
INSULIN $35 CAP PRICE NOW IN EFFECT, LOWERING COSTS FOR MANY
AMERICANS WITH DIABETES
SARAH AL-ARSHANI, KEN ALLTUCKER USA TODAY
A price cap on insulin from one of the three major manufacturers took effect on New Year's
Day, giving more Americans with diabetes more affordable treatments.
In March, Sanofi became the last of three companies that make up 90% of the world's insulin
market by value to announce price cuts. Novo Nordisk and Eli Lilly Co.'s plans had slashed
U.S. prices by up to 75% and 70%, respectively.
As of Jan. 1, 2024, Sanofi cut the price of Lantus by 78% and short-acting Apidra by 70%.
The price cuts will reduce the cost of the drug for most patients at $35 through either price
caps or savings programs.
The Paris-based pharmaceutical company said earlier that most people with private insurance
already pay $15 or less because of a copay assistance program. The drugmaker's program for
the uninsured also offers a 30-day supply for $35.
Analysts, politicians, and patient advocates have increasingly criticized drug manufacturers
for the prices set for insulin. In recent years, federal and state laws, Medicare and Medicaid
policies, and changing market dynamics for these older insulin drugs have influenced price
cuts.
But more needs to be done, said Elizabeth Pfiester, founder and executive director of
T1International, an advocacy organization for people with Type 1 diabetes.
Millions of people need the lifesaving medication. According to the American Diabetes
Association, spending on insulin has tripled in the past decade to $22.3 billion in 2022, and
the inflation-adjusted cost of the drug increased 24% between 2017 and 2022.
A 2020 survey from the Pfiester organization found that 1 in 4 people with Type 1 diabetes
rationed insulin because of cost. Patients also struggled to pay out-of-pocket for other
supplies such as insulin pumps, testing strips and continuous glucose monitors.
Lower drug costs: 3 major insulin makers have now slashed the price of the life-saving drug.
Here's why.
Your life in data: Explore our tool that shows what pharmacies pay for prescription drugs
Why is insulin so expensive?
Insulin prices charged by the three major drug manufacturers spiked over the past two
decades. From 2002 through 2013, the average price of insulin nearly tripled, according to
the American Diabetes Association.
A Senate Finance Committee investigation in 2021 found the drug price increases coincided
with lucrative rebate demands from insurers and pharmacy benefit managers, which are drug-
pricing middlemen that command steep rebates in exchange for favourable placement on
private insurance plan drug formularies.
In the past decade, these pharmacy managers began to pit manufacturers against one another
by excluding them from large blocks of patients through formulary exclusions, the Senate
Finance Committee reported.
An empty bottle of Insulin lispro by French multinational pharmaceutical company Sanofi is
photographed as an arranged illustration in London on February 21, 2019.
DANIEL SORABJI, AFP VIA GETTY IMAGES
Why insulin prices are starting to drop now
In 2022, a sweeping climate and health bill called the Inflation Reduction Act capped insulin
costs at $35 a month for Medicare enrollees. In February 2023, Biden urged Congress to
extend that out-of-pocket cap to younger Americans with private health insurance.
Washington, D.C., and 22 states have enacted cost-sharing limits for consumers purchasing
insulin, according to the American Diabetes Association.
Drugmakers also are bracing for a drug pricing change under Medicaid, the federal health
program for low-income families. Medicaid has required drug companies to pay rebates when
they significantly raise prices over time. However, the amount drug companies paid Medicaid
was capped in previous years.
The new provision, part of the American Rescue Plan Act passed in 2021, eliminates the
rebate cap beginning next year. In other words, drug companies could face significant
financial penalties starting this year, said Antonio Ciaccia, CEO of 46brooklyn Research,a
nonprofit that researches drug pricing.
The elimination of this Medicaid rebate cap, in particular, might be influencing drugmakers'
decisions to drastically cut insulin list prices, Ciaccia said.
"It's one thing for a drug manufacturer to offer something for free," Ciaccia said. "It's another
thing to literally pay for the privilege of doing so.".
***
This article analyses the impact of government intervention of ‘price cap on insulin’
benefiting diabetic Americans by lowering prices. This commentary discusses positive
externalities, inefficiency, applying maximum price on ‘lifesaving medication’.
‘Three companies make up 90% of the world's insulin market’ – market structure of
oligopolies acting with monopoly power as they each have big shares of the market therefore
is a price maker.
Insulin markets equilibrium
is at QpcPpc, however insulin selling companies such as Novo Nordisk, Sanofi used to
charge (Pm) and sell at a quantity (Qm) to maximize their profits where MR and MC
intersect due to monopoly power. Biggest part of abnormal profit (PmADP1) goes to
‘middlemen’, they increased their prices causing ‘1 in 4 people with diabetes rationed’.
Therefore, every fourth consumer are willing to pay more for restricted choices, hindering
optimal resource allocation, making it allocatively inefficient. Monopolistic pharmaceuticals
set prices above MC, causing potential barriers accessing insulin, misallocation of resources,
creating a DWL (ABC) due to monopoly pricing when the ‘average price of insulin tripled’.
Therefore, loss of surplus for consumers and producers.
Due to monopolistic practices, absence of competition among ‘middlemen’ like PMBs, no
incentive to lower prices for retailers making it inefficient. Pharmacies have to pay ‘steep
rebates for favourable placement’ on drug prices which contributed to price hikes, making
abnormal profit (PmADPpc) for ‘middlemen’. However, the elimination of the Medicaid
rebate cap, American Rescue Plan would decreases prices on insulin; firms would ‘face
significant financial penalties’ that ‘influence drug makers decisions to drastically cut insulin
prices, making it accessible to ‘lower income families’ as ‘Millions <…> need lifesaving
medication’. Furthermore if the rebate cap is taken away manufacturers may use previous
pricing strategies, insulin being more expensive.
By implementing price ceiling, which is set below market equilibrium, consumers would
benefit from lower prices.
Marginal social benefit curve
- society’s demand curve, B - social optimum but the real demand is MPB creating an
external benefit (AC) like lower healthcare costs, healthier workforce attending work.
Enduring benefits beyond individuals diabetic Americans can contribute more effectively to
the workforce, pay taxes, and enhances productivity and national output of USA.
Insulin equilibrium at Q1P1, however amount needed is Q2 which will provide most benefits
to society, emphasizing the shortage and undersupply.
’Spending on insulin has tripled’ with inflation ‘the cost<…>increased 24%’ making people
ration ‘because of cost’. Decreasing purchasing power of the consumers making inefficient
for them. Sanofi ‘capped insulin cost $35 a month’ (Pc), below market equilibrium (C) which
decrease prices from P1 to Pc giving diabetic Americans ‘affordable
treatments’.With‘Medicaid rebate cap’ making accessible for ‘low-income families’.
However, it leads to disequilibrium where excess of demand creating shortage as quantity
demanded (Q4) is higher than quantity supplied (Q3), creating extension in demand,
contraction in supply resulting in underproduction of social optimum. This limits access of
‘lifesaving medication’ making it cheaper but inefficient for insulin consumers.
When price ceiling is imposed Q3 operated. This creates DWL where social surplus benefits
are lost to society because resources aren’t allocated efficiently. Indicating the price cap,
makes D>S that society doesn’t get enough insulin. Moreover, consumers would gain/loss
surplus, consumers who can afford insulin are satisfied with lower prices as ‘states enacted
cost-sharing limits for consumers purchasing insulin’. Furthermore ‘low-income families’ can
access it, but they face shortage due to price cap. Producers are affected because selling less
at a lower price causing their revenue drops from Q1P1 to PcQ3. Loss of producer surplus
transferred to consumers, DWL resulting in inefficiency.
Market equilibrium at P1Q1.
Implementing price ceiling will decrease the price P2($35). Because maximum price is set,
MC will effectively become horizontal as every unit will be sold for same, fixed price of 35$
making Pmax=MC2. Creating an extension in demand and providing Q2 units insulin to meet
it. Therefore eficiency established, no surplus is lost. This means by implimenting Pmax
would solve allocative inefficiency in the market.
Capping the price leads to extension in demand, contraction in supply and an increase
consumer surplus. It can improve allocative efficiency but in the long run of monopoly, price
cap has negative effects on producers as profits will decrease, firms profits will reduce after.
Causing reduced funding for R&D leading to dynamic inefficiency having negative impact
on consumers by decreased medication development.
Ultimately, Inefficient allocation of resources within the healthcare because system
prioritizes power over provision affordable insulin to Americans. Higher prices and reduced
availability of insulin is underutilizing potential positive impact. Inefficiency in lack of
competition is seen in unfair drug pricing tactics where drug costs do not align with patent
needs. ‘Analysts<...>criticized drug manufacturers’ gaining politic favour among satisfied
diabetic Americans due to price ceiling. However, intervention of market benefits consumers
with lower prices, removal of inefficiency and lower healthcare casts for government
promotes productive workforce.
