State and local governments across the US are grappling with a growing problem: Expensive drugs to treat diabetes and obesity are threatening to drain their health care budgets.
State health plans and Medicaid offices are seeing eye-popping bills for Novo Nordisk A/S’s Ozempic, its sister drug Wegovy and similar medications known as GLP-1s. They’re a breakthrough for treating two of the most complex chronic health conditions. But with list prices stretching above $1,000 a month, the costs threaten to empty government coffers.
“It’s not sustainable,” North Carolina Treasurer Dale Folwell, who oversees state workers’ health insurance, lamented at a recent board meeting. “It’ll sink the plan.”
He isn’t the only official warning about the exploding costs. Connecticut imposed new hurdles for state employees seeking weight-loss treatment in July, after spending on the drugs rose 50% annually since 2020. Virginia tightened criteria for Medicaid enrollees seeking GLP-1s to treat obesity in June. An official in Delaware warned of a surge in Medicaid claims for the drugs since March and said the state may need to implement cost controls.
Demand for the drugs is poised to explode. Public attention has focused on the well-off looking for a quick way to lose a few extra pounds, but the reality is that type of customer represents a tiny fraction of the potential market for GLP-1s. More than one in 10 Americans have type 2 diabetes, and upward of 100 million suffer from obesity. Those rates are higher among the 19% of Americans who rely on Medicaid, the public health-insurance program that on average accounts for more than a quarter of state spending.
As Novo Nordisk, rival Eli Lilly &Co. and health advocates trumpet a growing list of benefits for patients, health-plan administrators fret about difficult decisions and the need to ration access. If an elementary school teacher who has type 2 diabetes is covered for the drugs, what about an overweight Medicaid recipient who’s not diabetic but has a heart condition? How about a police officer whose obesity is exacerbating her knee pain?
The answers to these questions will help determine the burden for taxpayers. It may also intensify debates about how much the public is willing to pay for prescription drugs in the US, where pharmaceutical companies can charge much more for drugs than in other countries.
The hand-wringing is another example of the profound effects rippling across society as use of the drugs increases. Already, Walmart Inc. says the medications are damping grocery sales, and restaurant chains including Chipotle Mexican Grill Inc. and Cava Group Inc. have predicted they will cause customers to eat more healthfully. A Jefferies Financial Group Inc. analyst forecast that the weight loss drugs could ultimately save airlines millions of dollars in fuel costs.
Comptrollers and treasurers who oversee states’ employee health plans have been among the most vocal officials to call out rising costs and the grim budget math.
Faced with the prospect of spending $30 million on GLP-1s last year, Connecticut Comptroller Sean Scanlon introduced a trial program that requires those who want the drugs to lose weight to first enroll in a lifestyle management program. Scanlon says data suggest growth in prescriptions has moderated, but not enough to seriously reduce the state’s costs.
The debate has played out most heatedly in North Carolina, where Novo Nordisk has three plants that make drugs for obesity and diabetes. On Oct. 24, the treasurer’s office recommended the state plan drop coverage for GLP-1s for weight loss. The plan was on track to pay $112 million in 2023 to cover the drugs, and a consultant projected that by 2030, it would lose a total $1.5 billion on anti-obesity medications. The forecast includes savings of $99 million in obesity-related medical costs.
Novo Nordisk, Europe’s largest company by market value, decried the proposal, saying in a statement the drugs “can ultimately save the health-care system and the economy billions of dollars.”