The Miracle Weight-Loss Drug Is Also a Major Budgetary Threat
Credit Daniel Jurman
By Brian Deese, Jonathan Gruber and Ryan Cummings
Mr. Deese was a director of the National Economic Council. Mr. Gruber is the chairman of the economics department at M.I.T. Mr. Cummings was a staff economist at the Council of Economic Advisers.
The U.S. health care system has struggled for decades with the tension between providing incentives for pharmaceutical innovation and keeping breakthroughs affordable for those who would most benefit from them. Even as countries around the world have stepped in to require lower-priced drugs for their citizens, the United States has been reluctant to do so. As a result, U.S. consumers pay the highest prices in the world for drugs, by a wide margin.
But the impetus for more fundamental reform may come from an unexpected place: America’s obesity epidemic. Many of us are aware that there is a new class of weight-loss drugs that offers enormous promise in addressing obesity. But there is far less awareness of the fact that these drugs also introduce an enormous risk to America’s taxpayers.
The magnitude of potential benefit and potential cost — roughly $15,000 per year per person — posed by these drugs suggests that policymakers may have no alternative but to step in and bring their costs in line with their social benefits. If policymakers succeed in doing so, we could build a model for drug price negotiation that enables an extraordinary medical breakthrough to improve both our health and our fiscal position. Or we could do nothing and create one of the biggest fiscal problems of the decade, with pharma companies profiting at the expense of the taxpayer and of equitable health outcomes.
Produced by the Danish pharmaceutical company Novo Nordisk, Ozempic and Wegovy are part of a new class of GLP-1 receptor agonists that regulate dopamine and help the body process sugar more effectively. Recent studies have shown that the drugs are effective at both reducing weight and preventing Type 2 diabetes, and their U.S. sales reached more than $13 billion in 2023.
These drugs have the potential to significantly reduce the expenses for obesity-related illnesses and for the condition itself, the cost of which is about $210 billion annually and growing. More than 40 percent of Americans are classified as obese, and that share is projected to reach nearly 50 percent by 2030. In 2021, 38 percent of Americans were estimated to be prediabetic, and in that year, an additional 12 percent were diagnosed as diabetic. We desperately need game-changing weight-loss innovations.
Unfortunately, these drugs are also very expensive, and current evidence suggests that users need to continue to take the drug indefinitely to keep the weight off.
Right now, Medicaid spends a relatively modest amount — roughly $3 billion — on these treatments because federal government health insurance plans generally cover them only for those with Type 2 diabetes. But the government may have a hard time limiting access, given how beneficial they may be for a broader set of people. The savings generated from treating obesity sooner generate a host of health benefits, including reducing the likelihood of someone suffering deadly conditions like heart failure, coronary artery disease and stroke. Restricting the usage of GLP-1s will become extremely difficult to defend because that is not in the public interest.
We have estimated the costs and savings for state public insurance programs, health insurance exchange subsidies and U.S. taxpayers from making this class of drugs more broadly available. Under reasonable assumptions and at current prices, making this class of drugs available to all obese Americans could eventually cost over $1 trillion per year. That exceeds the savings to the government from reduced diabetes incidence and other health care costs from excess weight by $800 billion annually.
This is a staggering sum. It is almost as much as the government spends on the entire Medicare program and almost one-fifth of the entire amount America spends on health care.