What the insulin cap means for employers’ premiums | EBA

Up until this year, insulin was notoriously expensive, with more than one million diabetic Americans forced to ration their medication because they couldn’t afford it, according to a study by the Harvard Medical School and Cambridge Health Alliance. Fortunately, there has been some welcome change, but employers may need to prepare for higher premiums. 

The three biggest insulin drug manufacturers have recently capped their insulin prices, with Eli Lilly starting the trend in March after it limited its out-of-pocket cost of insulin to $35 per month. As part of the Inflation Reduction Act, pharmaceutical companies are already required to cap their insulin prices to $35 for Medicare Part D members, but Eli Lilly took it a step further, capping its price for all — regardless of whether they are insured. Just a few weeks later, drugmaker Novo Nordisk cut the prices of its fast-acting insulins by 70% to $72.34 per vial. Drugmaker Sanofi followed, dropping to $35 as well. Together, these three companies make up roughly 90% of the insulin market.

Read more: What the Inflation Reduction Act means for employer-provided healthcare plans

This marks a turning point for the pharmaceutical industry, whose high costs can be attributed to pharmacy benefit managers, the middleman between drug manufacturers and employers and government-backed health plans. While PBMs are meant to negotiate prices on behalf of health plan providers, they have been accused of adding on more costs in the form of rebates for the sake of upping their profits, consequently inflating drug prices.

“What Eli Lilly did is bypass the PBM middleman,” says Louis Tharp, executive director at the Global Healthy Living Foundation, a nonprofit that advocates for those with chronic illnesses. “All they did was cut out all the costs that PBMs add to the drug. Now they directly sell you the drug and still make a profit.”

However, employers may be punished for the loss of profits PBMs are bound to see in the private sector — especially if more pharmaceutical companies take a page out of Eli Lilly’s book. In a similar vein to the Inflation Reduction Act, which allows the government to negotiate Medicare drug prices, this insulin cap will give PBMs an excuse to raise prices elsewhere, underlines Tharp. 

“The PBM will say if rebates go away, then your premiums will go through the roof,” he says. “So what can the employer do to counteract this and sustain the credibility of their healthcare plan?”

Read more: The State of Healthcare 2023: Is your benefits game plan working and designed to endure?

In other words, employees may find themselves paying more for their medication through their employer’s plan than what they would pay if they bought it directly from the drug manufacturer uninsured. And while Eli Lilly capped insulin for private plans too, PBMs can target other drugs on employers’ health plans.

Robert Popovian, chief science policy officer at Global Healthy Living Foundation, notes that employers will have to become more vocal about setting boundaries with PBMs if they want any shot at keeping their health plans affordable. 

“Put language in your contracts that mandate the PBM to show you the flow of money for every dollar they’ve collected, and know how much of that money is being put back into your coffers as an employer and helping to reduce those premiums,” says Dr. Popovian. “Don’t settle for no.”

Read more: Transparent prescription prices put money back in employees’ pockets

The fight for lower drug prices has been a decade in the making, as PBMs made it harder and harder for patients to afford their medication, explains Tharp. Whether it’s by restricting the use of copay cards or refusing to reveal how much of the negotiated cost-savings they are truly passing on to employers, PBMs can bring a host of challenges.

“It’s all designed to reach one objective,” says Tharp. “To increase the profit of the PBM by increasing the cost of the drug to the patient.”

But ultimately, Eli Lilly’s move is good news for the 8.4 million Americans who rely on insulin to live. Without insulin, patients with type 1 diabetes suffer from diabetic ketoacidosis, potentially causing death within days. 

Read more: Insurance, and assurance: How Paytient is helping employees pay for healthcare without breaking the bank

“Every medicine is important for every patient,” says Dr. Popovian. “But the consequences of not having insulin are immediate.”

Dr. Popovian is hopeful other drug manufacturers follow Eli Lilly’s lead, believing that pharmaceutical companies will be better off without the infamous middleman. “You’re giving away 60% or 70% of the fees to PBMs, but getting 100% of the political backlash for having these high prices,” he says.

As for employers, Dr. Popovian encourages them to be part of the movement toward transparency in the healthcare industry — the federal government likely can’t do it alone. 

“PBMs have bamboozled employers, federal and state governments into believing there cannot be transparency on the pharmaceutical side,” says Dr. Popovian. “But transparency reduces prices and, most importantly, helps patients.”

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