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The results of a large clinical trial are putting more pressure on insurers to cover pricey weight-loss drugs. But this may threaten the very viability of private health insurance.
No doubt you’ve heard of Novo Nordisk’s (NVO) popular weight-loss drug Wegovy. The FDA first approved this medication in 2017 to treat diabetes as Ozempic, and later approved (under the brand name Wegovy) a higher-dose version to treat obesity in 2021. Demand for Wegovy has skyrocketed, with prescriptions for the drug soaring by +619% between December 2022 and May 2023. (The June figure in the graph below reflects a sharp decline in prescriptions due to new limits placed on starter doses.) Off-label use of a similar diabetes treatment from Eli Lilly (LLY), Mounjaro, has also soared.

In our recent piece about rising prescription drug costs (see “Are New Drugs Becoming Unaffordable?”), we included these weight-loss drugs as a leading example. The out-of-pocket cost of Wegovy and Mounjaro runs over $1,000 a month, or over $12,000 a year. The average working-age American spends around $9,000 a year on health care expenses, so we can surmise that a typical private insurer probably covers $5,000-$7,500 per person, per year. An additional $12,000 per year threatens to bankrupt not only those who are paying out of pocket, but the insurers who are footing the bill.
Historically, as many as two-thirds of employer plans have covered weight-loss drugs or treatments like bariatric surgery. The cost of the drugs is typically low—and while the cost of surgery is significant, few people undergo it. That’s how insurance is designed to work. It works best when it covers the cost of extreme, unusual, and episodic hazards—like the cost of treating a severe illness. Because the cost is extreme, people need the insurance. And because the hazard is unusual, they can afford it.
But what happens when the cost of a new treatment is extreme, yet the underlying hazard is neither unpredictable nor unusual? With 42% of Americans now considered obese by BMI metrics, the hazard in this case is hardly unusual. Nor is it episodic, since Wegovy works only so long as people keep getting monthly injections. When this happens, the basic logic of insurance breaks down. Moral hazard and adverse selection threaten to ruin plans that cover the hazard—and push growing numbers of people toward plans that don’t cover it. In the end, typically, the hazard remains uncovered by the entire industry. This is why, for example, private plans typically put strict coverage and dollar limits on such hazards as psychiatric treatment or long-term residential care.
Let’s return to Wegovy. What will be its fate?
According to Willis Towers Watson, an insurance advisory firm, the increase in Wegovy prescriptions has resulted in a +250% rise in costs for those individuals under employer-sponsored health insurance in the first two months of 2023 compared to all of 2022. Consultant Dr. Jeff Levin-Scherz estimates that even if just half of eligible employees use weight-loss drugs, the costs to employers of insuring all the individuals covered by their health plans could surge by +50%.
With the demand for these drugs showing no signs of slowing, employers, private insurers, and Medicare are facing growing demands to pay for them. Indeed, Novo Nordisk and Eli Lilly have spent nearly $1.3M this year alone lobbying for Medicare coverage. (A 2003 law bars Medicare from covering weight-loss medications, but backdoor eligibility criteria are available, such as being diagnosed as prediabetic.) Should Medicare decide to cover Wegovy, the pressure on private insurers would mount.
Even so, insurers have responded to rising costs by backing away. Several large employers, including the University of Texas System and Ascension Healthcare, recently announced that they will end coverage of these medications for their members or enact increased restrictions (e.g., limiting their use to people over a high-threshold BMI). The UT System made this decision after its costs for weight-loss drugs more than tripled to $5M a month in 18 months.
Last month, it appeared as if weight-loss drugmakers had secured their golden ticket to broader coverage. New data from a five-year clinical trial of over 17K people (funded, unsurprisingly, by Novo Nordisk) found that Wegovy cuts the risk of heart attacks and strokes by -20%. It was the first study to show that these drugs could have cardiovascular benefits for patients who are overweight but do not have diabetes. By demonstrating that the drugs have more than cosmetic benefits, these findings make it harder for private insurers and the government to justify their refusal to pay. This news sent NVO and LLY soaring.
But the pharma firms may have overreached. To be covered, a medicine can’t just be effective. It has to be affordable. Even promising research findings will not convince private plans to spend billions more. What’s most likely to happen is that private insurers will drag their feet until other players enter the market with lower-cost versions of the same drug. This is what happened with hepatitis C in the mid-2010s. Initially, Gilead Sciences was the only player in town with a very expensive treatment that cost $84,000. Prices began coming down only after new competitors sprung up. Those hoping for a cheaper weight-loss drug will get it. But it probably won’t be Wegovy.