Earlier this month, President Donald Trump announced deals with drugmakers to reduce prices and expand access to GLP-1 weight-loss drugs like Ozempic, Zepbound, and Wegovy. Originally developed to help diabetics manage their blood sugar, the drugs mimic the natural hormone glucagone-like-peptide-1 (GLP-1). GLP-1s trigger the pancreas to release insulin at times of high blood-sugar levels, prevent the release of the blood-sugar-raising hormone glucagon, reduce appetite, and slow the movement of food through the body to promote feelings of fullness. Since GLP-1s became commonplace, the U.S. obesity rate has dropped from 39.9% to 37%.
The deal will apply to both injectable GLP-1 drugs and newer oral pills that are still pending approval by the U.S. Food and Drug Administration (FDA), which the administration promises to expedite. Drugmakers will offer injectable GLP-1s direct-to-consumer through the TrumpRx online portal at $350 a month, which the administration says will fall to a $250 monthly charge over time. They will be available to Medicare beneficiaries at a $50 co-pay, and to Medicaid beneficiaries for even less. If approved by the FDA, oral GLP-1 pills will be available for $149 a month. The deals are part of Trump’s “Most Favored Nation” (MFN) executive order, which threatens drugmakers that don’t lower their prices with massive tariffs, fines, and other penalties.
Prominent GLP-1 drugs are currently listed at retail prices of more than $1,000 a month, many times what they cost abroad. But few Americans pay this price since, it’s a starting point for negotiations with health plans. Relatively few plans cover the drugs for weight-loss purposes, but those that do acquire them for much less than $1,000. Surveys indicate an growing number of employers are offering plans that do offer coverage.
Since Medicaid acquires drugs for the lowest private-market price, and since they’re sold to Medicare Part B at the average private-market price, the government pays similar costs to private insurers. Though the deal won’t impact acquisition costs for private health plans directly, it is expected to give plans leverage to demand the same or similar prices to those offered to the government. For covered patients on private insurance, Zepbound is currently available for as little as a $25 monthly copay. Patients paying entirely out-of-pocket can currently buy GLP-1s for around $350-$500 a month, meaning the deal could save these patients up to $200 a month.
There’s much to love about making it cheaper to trim our love handles. But the deal comes with limitations and tradeoffs that we should consider before taking the whole cake (or, in this case, putting it down).
Limitations of the Deal
The deal’s price reductions will benefit many patients. But even this won’t be enough to make GLP-1s accessible for low-income Americans, who are more likely both to struggle with obesity and to rely on taxpayer-funded health care, unless Medicare/Medicaid coverage of GLP-1s expands significantly. A 2018 study found that, even for life-saving cancer drugs, out-of-pocket costs exceeding $100 caused a third of patients to abandon their prescriptions.
Only a dozen states’ laws permit Medicaid coverage of GLP-1s for weight loss, limiting the Trump deal’s benefits for beneficiaries. Trump could reach agreements with states to expand Medicaid coverage, but they’d each need to pass state-level legislation, which can be a cumbersome and uncertain process in the best of times. Similarly, without further federal legislation, Medicare is banned from covering GLP-1s for weight loss. Medicare can only cover GLP-1s for specific obesity-related ailments like diabetes and sleep apnea. The Trump deal would remedy this by extending Medicare coverage of GLP-1s to treat other ailments, like peridiabetes and certain cardiovascular illnesses, and for treating severe obesity in seniors. But this would only make GLP-1s accessible for 10% of Medicare enrollees, according to the administration.
Uncertainty around whether and how the deal would apply to differing GLP-1 dosages further limits its potential impact on patient access. Typically, patients are prescribed the lowest dose, and this is progressively increased until the appropriate dose for their body and needs is ascertained. The administration has only clarified prices for the lowest dosage. Though the deal commendably promises to expedite FDA review and approval processes for oral GLP-1 products that haven’t yet come to market, at the time of writing, no GLP-1 pills for weight loss (including those covered and expedited by the deal) have been approved.
The deal is also unlikely to make a huge difference in the long run, since patents on semaglutide—the active ingredient in Ozempic and Wegovy—expire next year. Patents on popular GLP-1 drugs’ delivery methods, formulations, and specific uses are set to expire in the 2030s. Once generics enter the market, prices will sink much further than even under the deal. Even before patent expiration, Medicare/Medicaid is expected to negotiate lower prices for Wegovy and Ozempic with drugmakers starting in 2026-2027 under terms of the Biden administration’s Inflation Reduction Act (IRA). (Pharma companies’ legal challenges against the IRA’s negotiation provisions’ constitutionality have been unsuccessful thus far, though the plaintiffs are expected to appeal to the Supreme Court.)
Do the Benefits Really Outweigh the Costs?
The costs that accompany the deal’s significant—albeit limited—benefits could be severe. Lifestyle illnesses are a leading cause of premature death and lower quality of life, as well as an ever-increasing financial burden for patients, taxpayer-funded health care, and the federal debt and deficit. This makes GLP-1s and other weight-loss innovations a potential gamechanger. Treating obesity means preventing or reducing future hospitalizations and treatments for cardiovascular and other ailments. A reduction in weight of 25% lowers health-care spending for an individual by approximately $2,849 annually, with even greater savings for individuals with conditions like diabetes, hypertension, and arthritis.
But the benefits of GLP-1s and new GLP-1 products likely go far beyond weight loss and treating diabetes. Early evidence indicates they could reduce cravings for (and treat addiction to) alcohol, cannabis, nicotine, opioids, cocaine, and methamphetamine. Researchers are even considering whether GLP-1 drugs can treat compulsive behavior like gambling.
Innovations like GLP-1s exist because companies expend billions of dollars on repeated trials (most of which won’t yield a commercially viable drug), on FDA-approval processes, and on bringing drugs to market. These costs have gone up even further recently, due to higher trial-failure rates and growing costs of conducting breakthrough research. Pharma companies raise funds based on expected future profits, secured by the temporary monopoly conferred by existing and future drug patents. The Congressional Budget Office (CBO) finds that a pharma company has to secure a profit margin of 62.2% from its successful products just to ensure a 4.8% return on all its overall assets.
Patents guaranteeing temporary exclusivity don’t just protect and encourage new drugs and active ingredients. They also protect and provide incentives for innovative new formulations, dosage forms, and methods that benefit a wider range of patients; are more convenient for or suited to the needs of existing patients; or that better utilize ingredients to treat new conditions.
Price controls imposed by threat of force—such as under the president’s MFN order and the IRA’s drug-price-negotiation program—undercut expected revenues and raise significant uncertainty about the profitability of future research, which could result in products being subjected to future price controls. This discourages productive research that may hold massive social and economic benefits, including high-paying STEM jobs. Historically, strong pharmaceutical revenues in the U.S. market—secured by strong patent protections and a lack of price controls—have contributed to making it a global leader and hub for pharma R&D. This has given Americans access to the most and newest cutting-edge medicines before the rest of the world.
Even under the status quo, research indicates that drug companies often capture and internalize only a fraction of the social benefits they produce through drug sales. Americans are rightly frustrated by high prices on patented drugs, especially when they’re compared to prices in other nations. But fewer new patented drugs and other medical innovations also mean fewer low-cost generics than would otherwise exist, since there is nothing for generic manufacturers to replicate. MFN-like policies could yield 167 to 342 fewer new approved medicines over an 18-year period.
New patented drugs come with upfront costs for taxpayer-funded health care, should Medicare/Medicaid coverage include them. But studies indicate there are net fiscal savings, as new innovations that improve health and treat or prevent disease reduce costly future hospital stays, with hospitalizations accounting for a substantially higher share of federal health-care spending than medicines. This contradicts the notion that price controls on existing patented medications will save taxpayers money.
Price controls also cause long-term shortages. Since drug reimbursements are a significant revenue source for health providers, lower reimbursement rates also risk driving provider closures, especially in rural areas and other regions that may already be underserviced.
Trimming the Fat Without Cutting the Muscle
When it comes to its commendable goals of making GLP-1 drugs cheaper and accessible to more Americans, the administration has many options that don’t entail damaging price controls, which could drive shortages and diminish the incentives for future pharma R&D.
Rather than simply using expedited and streamlined FDA approvals as a “carrot” for deals with drugmakers to lower their prices, this policy should be universalized. That would lower the expected and actual costs of bringing new drugs and medical innovations to market. It would further encourage more pharma R&D investment, could result in lower prices passed on to consumers and public and private health plans, and get drugs in patients’ hands faster, while helping cash-strapped research firms to attract capital. It would also support the administration’s commendable initiative to reduce burdensome regulations that make U.S. businesses and industry less competitive.
The administration could also boost competition, leading to lower prices, if it were to direct the FDA to allow more GLP-1 drugs to be sold over the counter, rather than requiring a prescription. This might seem like a controversial proposal at first blush, since not all the drugs’ long-term consequences are yet known. Known common side effects include diarrhea and nausea, with occasional incidence of pancreatic inflammation and a link to a form of thyroid cancer in very rare cases involving patients who have a genetic predisposition to the disease.
FDA decisions on whether to allow over-the-counter (OTC) sales of approved drugs are based on factors that include the risk of misuse and the drug’s complexity. But the FDA allowed Ibuprofen to be sold OTC in 1984, just 10 years after it was approved as a prescription drug, despite risks of ulcers, kidney damage, cardiovascular ailments and hypertension.
GLP-1s aren’t addictive. So long as they are sold with proper labelling instructions that outline the potential risks of use and misuse, there’s no reason why these drugs can’t be sold OTC. This would reduce the time and expenses borne by public and private health plans and patients in securing a “permission slip” from a health-care provider, and free health-care resources for patients who are in more dire need. It would also encourage more sufferers of substance-abuse disorders to try the drugs and see they help, without the social stigma, shame, or potential health-plan premium increases that could accompany a formal disorder diagnosis. Furthermore, and as summed up by Jeffrey Singer of the Cato Institute:
Prescription drugs usually carry higher price tags than do OTC products, mainly because insurance covers prescriptions but not OTC purchases. When people pay out of pocket, they look for better deals, which pressures companies to keep prices competitive. Once insurance takes over the cost, shoppers stop paying attention to price and drugmakers can charge the deeper-pocket third-party payers more without worrying about losing customers.
Rather than threatening U.S. industry and companies with tariffs in its negotiations to lower drug prices, the Trump administration can use its ongoing trade talks with other nations to secure higher prices from foreign public insurers for U.S. pharmaceutical companies’ patented drugs as a “carrot” in exchange for agreements with those companies to lower the prices that Medicare and Medicaid pays. Under the status quo, since other nations’ public insurers (unlike the United States) use their monopsony power as buyers to suppress the prices they pay to U.S. drugmakers for patented drugs, the United States indirectly subsidizes these products for the rest of the world.
Offsetting reduced U.S. market revenues with an uptick in revenue from foreign markets would also offset the disincentives to invest in research and innovation. Additionally, it would lead to lower prices in the U.S. private market. The status quo encourages drugmakers to inflate what they charge to private plans and patients above market-clearing levels in order to drive up prices paid by Medicare and Medicaid, which are pegged to the private market, as Medicare and Medicaid are by far the largest U.S. drug purchasers.
Other procompetitive reforms that would lower the prices of GLP-1s and other drugs include relaxing restrictions on importing limited quantities for personal use, allowing for interstate (nationwide) insurance purchases, and abolishing tax penalties against non-employer-sponsored health plans. Congress could also replace or reform the Medicare 340B program, which allows tax-exempt hospitals to obtain drugs at bottom-barrel prices, while marking up the prices they charge to patients and their health plans without passing on the savings.
The Pros and Cons of Expanding Medicare/Medicaid Coverage
Expanding taxpayer-funded coverage of GLP-1s also comes with tradeoffs. It’s true that making these drugs accessible to more patients could improve public health and lower public health-care spending over time by preventing potential future hospitalizations. But the extent to which this would offset the additional costs of acquiring the drugs will vary significantly by patient and is hard to know ex ante. An increase in Medicare/Medicaid GLP-1 purchases without price controls would also encourage drugmakers to hike prices charged to private plans and patients in order to secure more revenue from Medicare/Medicaid. Expanding Medicare/Medicaid coverage of a drug would also generate political pressure to force private plans to cover the same drugs under state or federal regulations. Such mandated benefits limit competition and are a significant driver of increased health-plan costs and premiums.
Proposals to expand Medicare/Medicaid coverage of GLP-1s for weight loss likely should include a sensible limitation. Individuals with a body mass index (BMI) of more than 30 are classified as obese. Research finds that, for each percentage point uptick in BMI over 30, there is an average increase in annual health-care spending of just $326. But the results vary significantly based on how obese individuals are:
For an adult with a baseline BMI of 30, losing 5% of their bodyweight was projected to lower annual healthcare spending by $441. The same 5% loss in someone with a starting BMI of 45 could save more than $1,400 annually.
Other research finds that premature mortality rates are roughly the same for individuals across the 20-35 BMI range, even though a healthy BMI ranges from 18.5 to 24.9. This indicates that significant public interventions to target obesity (such as through Medicare/Medicaid coverage of GLP-1s for weight loss) are hard to justify for the mildly obese (BMI < 35).
They may be easier to justify for those with morbid or Class III obesity (BMI >40), who comprise around 9.4% of U.S. adults. Morbid obesity significantly increases the risk of serious health issues, including type 2 diabetes, cardiovascular disease, osteoarthritis, and various cancers. While BMI is itself an imperfect determinant of or proxy for unhealthy weight, this threshold could nonetheless provide an effective benchmark for limiting public-health spending on weight-loss drugs in the absence of other comorbidities, should taxpayer-funded coverage of these drugs expand.
For those who don’t meet coverage thresholds for GLP-1s, allowing them to be sold over the counter would increase competitive pressure, leading to lower prices. By contrast, stimulating demand by expanding insurance coverage would likely drive costs up for those who aren’t covered.
Policy decisions come with tradeoffs. When it comes to price controls and coverage mandates, the costs usually outweigh the benefits.
