A new class of anti-obesity drugs promises to revolutionize how Americans lose weight. Over the past year, sales of semaglutide (branded as Ozempic, Wegovy, or Rybelsus) have surged, fueled by excitement on social media as the drug outperforms all other weight-loss products.
America’s elevated obesity rate accounts for much of its relatively high medical costs and poor health outcomes. Encouraged by lobbyists, lawmakers from both parties have rushed to cosponsor bills to repeal Medicare’s exclusion of weight-loss therapies from its prescription-drug benefit. They argue that covering effective weight-loss drugs could generate major savings by reducing the incidence of heart disease, cancer, and stroke.
Yet, given the breadth of interest in weight loss and the high prices of these pathbreaking drugs, the cost of adding weight-loss-drug coverage to Medicare could be enormous. Thus far, no firm evidence of offsetting savings has materialized. Given that Medicare’s current commitments are already unaffordable, policymakers should rely on Medicare Advantage plans to cover semaglutide with their current funds—which is unlikely to occur without substantial price reductions.
Initially developed to control blood sugar in diabetes patients, the new class of appetite-suppressing drugs, known as glucagon-like peptide 1 (GLP-1) agonists, represents a big advance over the previous generation of weight-loss therapies. In clinical trials, patients taking semaglutide lost 15 percent of their body weight over two years, compared with 3 percent weight loss among those taking a placebo. Other studies have found that semaglutide use reduced several cardiovascular risk factors.
Since its establishment, Medicare’s Part D prescription-drug benefit has excluded weight-loss drugs, given policymakers’ concern with the drugs’ high cost, low effectiveness, and largely cosmetic benefits. Medicare currently covers semaglutide for diabetes treatment but will not pay when doctors prescribe the drug off-label for weight loss.
The burgeoning cost of Medicare is the factor most responsible for the national debt’s projected surge in coming decades. In 2020, Medicare costs outpaced those of national defense for the first time; within a decade, Medicare spending is projected to be double that of the total defense budget. These costs are largely due to Medicare’s expansion to cover new services and therapies, not to the growing number of retirees or higher medical-care prices.
Users need to consume semaglutide continuously, or they risk undoing their weight loss. The Institute for Clinical and Economic Review estimated that the drug’s annual average expense, including rebates and discounts, is $13,618. In other words, purchasing a year’s supply of semaglutide for an obese retired couple would cost taxpayers roughly the same amount as buying them a new Toyota Camry every year.
Given that 45 percent of Americans express interest in taking a safe and effective prescription weight-loss drug, and 52 million receive Medicare Part D (expected to cover 93 percent of drug costs in 2024, and funded 86 percent by taxes), adding coverage for semaglutide to Medicare could cost up to $254 billion per year. Even if user uptake and adherence is lower than expected, the cost dwarfs the projected annual Medicare savings from covering the drug—$18 billion, according to a supportive study.
Enhancing preventative medical services is valuable to patients’ wellbeing but rarely saves money. A recent observational study of privately insured patients using GLP-1 agonists found essentially no offsetting health-care-cost reduction in the first year. Fewer than a third of patients continued to use the drug for the full year, and their total health-care costs soared, from $13,048 to $25,850, while those in a matched control group saw their health-care spending decline slightly, from $11,955 to $11,539.
The Congressional Budget Office recently noted that “at their current prices, [anti-obesity medications] would cost the federal government more than it would save from reducing other health care spending.” CBO suggested that the “targeted” provision of these drugs to specific high-cost cases might save money but said that doing so “would be challenging to implement.”
The traditional Medicare benefit is poorly suited for such finely tuned experiments. Once the program establishes payments for new medical services, interest-group politics tend to make that coverage hard to roll back, even when it provides limited benefit. By contrast, under Medicare Advantage, private insurance plans pay predetermined amounts for beneficiaries’ health-care services, and can fund additional preventive services for specific patient cohorts for whom such coverage may reduce costs. Medicare Advantage plans therefore have an incentive to provide semaglutide to those seniors for whom the drug is most useful, without increasing the burden on taxpayers. Nonetheless, the high cost of semaglutide means that no Medicare Advantage plan currently covers the drug for all its enrollees, though that might change as prices decline.
The purpose of insurance is to spread the cost of rare adverse events across many policyholders, each with fairly low risks of suffering injury. That scheme allows each individual to protect themselves from major losses at low cost. Pooling risks does little, though, to help make weight-loss drugs more affordable because such drugs are a routine, predictable, and uniform expense associated with a condition that 74 percent of Americans wish to alleviate.
Therefore, little preventative or insurance justification exists for adding coverage of weight-loss drugs to Medicare. While such an expansion might be popular with voters, the new taxes needed to finance it surely would not be.
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