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Comment by tashi | Hacker News Reader

Their claim is that if the pharma companies lowered the cost of insulin but then refused to give rebates to insurance companies for it, the insurance companies would stop covering insulin for diabetic patients? And they're using a diagram created by a pharmaceutical trade group to explain this? I'll be honest: I'm skeptical.

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It’s a pretty… lame argument. The insulin maker is saying they want to lower the price for you, but hose the insurance company.

Frankly, we should nationalize insulin production and stop people and insurance plans from going broke buying it. Imagine if Medicaid wasn’t paying usurious margins for a commodity that has been around for a century.

Unfortunately this is pretty accurate. Pharmacy Benefit Managers (PBMs) are contracted by insurers to set the formulary, in effect the list of drugs the insurer will pay for. They negotiate to lower drug costs, usually via manufacturer rebates.

Where this is perverted, is that the PBMs have complex compensation schedules wherein they receive a percentage of drug rebates. Their goal is to secure the largest rebate possible. Thus, either negotiate more effectively OR pressure manufacturers to increase list prices and give larger rebates. In practice, the latter happens most often. Insurers don't mind high list prices because they get large rebates and it encourages people to stay insured. Net prices (pharma revenue) on off-patent insulin have declined consistently since mid-2000s [0].

However, insulin is inexcusably expensive due to legacy regulation about equivalence for biologics and sticky patient preferences. Even current net prices are 2-5x too high relative to what a competitive generic market could produce.

[0] https://www.fiercepharma.com/pharma/net-prices-for-insulins-...

All these complicated incentives make it hard to figure out who's responsible, so let me ask a question:

What if a manufacturer lowered the price of insulin to $10 a month and gave no rebates at all? Would insurance companies refuse to cover it and pharmacies refuse to carry it?

I think the problem is that this isn't in either of their interests. The insurers benefit from high prices because it scares people into staying insured and, IIRC, the laws limit the percentage of their profits, so a percentage of a higher number means more profit. The drug companies more obviously benefit from high prices.

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