Insulin’s deadly cost: Ultrahigh prices in the U.S. mean many diabetics can’t afford the medication they need to survive

The plight of many U.S. diabetics, egregious in itself, is also a particularly stark example of a much larger phenomenon that touches virtually everyone in America: the extraordinarily high prices of prescription drugs, which in the U.S. typically cost multiples of prices elsewhere. Those prices are the end product of a health care ecosystem that has evolved over decades, filled with perverse incentives and populated with industry players—drugmakers, insurers, pharmacy benefit managers—that respond to the incentives they face. An increasingly urgent bipartisan effort in Washington aims to put new pressure on a system that has been driving prices higher for decades. But it’s a deeply complex challenge, and whether meaningful change will result is far from certain.

There’s no better way to understand this seemingly mysterious system, the machine that powers the world’s largest prescription drug market, than to examine the business of insulin. “When we’re first diagnosed, we get the scare tactics pretty early on,” says Gail deVore, who was diagnosed with Type 1 diabetes almost 50 years ago and is a vocal advocate for diabetics. “We’re told if you don’t take care of yourself you’re going to lose your eyesight or lose a kidney.” But she says that’s not what scares diabetics most. “In reality, the biggest fear that we have is not being able to afford insulin, which is the only thing that keeps us alive.”

At the heart of the insulin problem lies a deep mystery: How can people be dying or suffering for lack of a substance that is being produced today at a cost estimated at less than a dollar a dose? Finding the answer requires entering a parallel universe—a surreal world in which manufacturers compete not by cutting prices but by raising them; higher prices may bring lower revenue; some patients pay 50 times as much as others for the same insulins; and the highest prices are reserved for those least able to pay them. 

To peer into that world, start with a simple question: Why did a month of Sa’ra’s insulin cost $1,000?

The short answer is that it cost that much because she was required to pay for it with her own money. Since her insurance was a high-deductible plan, it wouldn’t cover her meds until she had spent the deductible out of her own pocket. That transaction would be directly between her and the pharmacy, so she’d have to pay the insulin’s list price plus a markup by the pharmacy, which in her case totaled about $1,000. Had she been able to meet the deductible, she would have benefited from a price rebate the insurer receives from the manufacturer, which could be substantial. Her monthly cost could have dropped to $50 or $100.

But where did that rebate come from, and why? To understand what’s going on, it’s necessary to step back and examine the structure of the market and the industry. 

There are two types of diabetes. Type 1 is an inherited autoimmune disease that prevents the body from making insulin, a hormone that regulates blood sugar. Without insulin, sugar builds up in the blood, which becomes acidic, and the patient dies. Type 2 is an impairment of the body’s ability to regulate blood sugar; being overweight, inactive, and over age 45 increase the chances of getting it. “The body just can’t keep up with the need to produce insulin,” says Steve Scala, a pharmaceutical industry analyst at the Cowen research firm and a former pharmacist. Most Type 2 diabetics don’t need insulin, but about 30% of them use it at some point to help control their blood sugar. About 34 million Americans have diabetes, reports the American Diabetes Association, of which 95% have Type 2 and 5% have Type 1. “Type 2 diabetics account for about 90% of the insulin market,” Scala says—less than their 95% share of total diabetics because not all Type 2 diabetics use insulin.

The ADA says diabetes is America’s most expensive chronic disease, not just because of the direct cost of treatment but also because it contributes to so many other diseases and disorders, notably cardiovascular disease, chronic kidney disease, and high blood pressure. While diabetics are about 10% of the population, they account for 25% of all health care spending in the U.S. and 33% of all prescription drug spending, says the ADA. Of the 770,000 Americans who have died from COVID-19, 40% were diabetics. 

As a business matter, diabetes is a vast market. So it’s surprising that all the insulin sold in America, and 90% of the insulin sold worldwide, is made by just three companies: Eli Lilly, Novo Nordisk, and Sanofi. None of the three companies made executives available to Fortune for interviews. In the U.S., most insulin is paid for by private health insurers (such as United Healthcare Group, Anthem, Aetna) and public insurance programs (such as Medicare Part D), plus government benefit programs (such as Medicaid). 

The payers and the manufacturers rarely deal directly with each other; in between them are pharmacy benefit managers (PBMs), which negotiate drug price rebates with insulin makers and other pharma companies on behalf of insurers. The biggest U.S. PBMs are CVS Caremark, part of CVS Health; Express Scripts, part of Cigna; and OptumRx, part of UnitedHealth Group; together they hold about 77% of the market. The PBMs offer payers a simple value proposition: We specialize in negotiating rebates off the list prices of thousands of drugs on your behalf. You pay the list prices, and we collect the rebates, passing them along to you minus a bit to compensate us for our services. We use the massive buying power of our combined clients to negotiate big rebates; you save money and become more competitive.

In the rebate negotiations between drugmakers and PBMs, the PBMs hold a high card. On behalf of their insurer clients, they create formularies—lists of drugs categorized according to how generously the insurer will cover a drug’s cost for beneficiaries. Every drugmaker wants its drugs in a high tier of a formulary. To get there, it’s necessary for a drugmaker to make the PBM happy. How to do that?

Remember that PBMs don’t negotiate prices. They negotiate rebates. Their profits are largely a percentage of those rebates. Therefore bigger rebates mean higher PBM profits. And that’s their pitch to insurers: The bigger the rebate, the more you save, and the more we make—so our interests are aligned. 

Now consider the drugmaker’s perspective. If it sets a list price of $60 for a vial of insulin and negotiates a $10 rebate, its net price is $50. But if it posts a list price of $100 and negotiates a $50 rebate, its net price is the same, and the PBM will make more profit off that much bigger rebate, and thus be more willing to put the drugmaker’s insulin in the formulary’s top tier. 

For that reason, insulin makers face powerful incentives to raise list prices, even if their net prices barely change or even fall.

That is exactly what happened in the insulin industry over several years. For example, in 2013 the list price of a pen dispenser filled with Eli Lilly’s popular Humalog insulin was $57, and its net price after rebates was $26, according to data collected by a bipartisan Senate investigation of the insulin industry, published last January. By 2018 Lilly had almost doubled the list price to $106—bad news for patients like Sa’ra who had to pay cash at the pharmacy. But the net price Lilly received had fallen slightly, to $24. In between the list price and the net price, the PBMs’ rebates had almost tripled, leaping from $31 to $82. 

“A lot of observers think there is no reward for any pharmaceutical manufacturer coming in at a lower price than their competitor,” Jay Want, executive director of the Peterson Center on Healthcare, told Fortune last spring. “The win is when you come in at a higher price and then give a bigger rebate in order to be able to buy market share in that particular class.”

The pressure on insulin makers to raise list prices intensified from 2012 to 2017 as PBMs adopted a tough new tactic. Going beyond the threat of relegating drugs to a low-level tier in a formulary, they sometimes threatened to exclude them entirely, leaving just one competitor in a given class of drugs. For insulin makers, the prospect of being the exclusive insulin supplier in a major PBM’s formulary was so enticing that they increased rebates to amounts never before seen—70% or more, the Senate investigation found. They did it partly by raising list prices even higher and partly by accepting lower net prices.

For example, until 2014 Sanofi was able to increase rebates on its popular Lantus insulin for a decade by raising list prices so much that net prices also increased. After that, under growing pressure to enlarge rebates further, the company was forced to increase rebates by more than it increased list prices; net prices thus started declining, according to an internal document obtained by the Senate investigation. 

The result: From 2005 to 2016, Sanofi’s list price for a vial of Lantus more than quadrupled, to $248—more bad news for patients who had to pay retail. But its net price, the amount Sanofi actually received after rebates, peaked in 2014 at $119; within two years it had plunged to $87. 

The list price of Lantus has continued to rise and is now $284. Prices of other top-selling insulins are similar; the list price of Eli Lilly’s Humalog is $275 per vial, and Novo Nordisk’s NovoLog is $289. When the insulin is packaged in an injection pen, which makes injection more convenient, list prices are much higher—$354 for an equivalent amount of insulin in Lilly’s Humalog KwikPen, for example.

Which brings us back to Sa’ra Skipper’s $1,000-a-month insulin bill. Recall that patients like her, who are paying cash out-of-pocket as they try to meet their insurance deductible, or patients who have no insurance at all, must pay a price that reflects the list price plus a markup by the pharmacy. Now we can see the result. A vial of Humalog (list price: $275) recently cost about $350 at the pharmacy according to the GoodRx website; for the equivalent amount of insulin in a Humalog KwikPen (list price: $354), it’s about $435.

Diabetics typically require two to four vials of insulin a month, sometimes more, so it’s easy to see how a patient with no insurance or a high deductible could have to pay at least $1,000 for a month’s supply. 

Those patients are often people with low incomes, for whom cash retail prices are impossible to pay. In that situation, diabetics sometimes feel forced to ration their insulin, skipping doses or using less than prescribed to make it last longer. 

Rationing is extremely dangerous. Consider the widely publicized case of Alec Smith, a Type 1 diabetic in the Minneapolis area who lost coverage under his mother’s insurance when he turned 26 in May 2017. His mother recalled that she started talking to him about insurance three months earlier, but all his options were bad. As a restaurant manager he made too much money, $35,000, to qualify for Medicaid or for subsidies in the health insurance marketplace. The best plan they could find cost $450 a month with an annual deductible of $7,600. Alec’s doctor told him that without insurance, his insulin and supplies would cost $1,300 a month. 

In reality, the biggest fear that we have is not being able to afford insulin, which is the only thing that keeps us alive.

Gail Devore, diabetes advocate

Alec decided to go without insurance. Less than a month after his 26th birthday, three days before payday, he was found dead in his apartment with an empty insulin pen next to him.

His story attracted attention in part because his mother testified about it at a Senate hearing, but it isn’t unusual. One study found that 25% of diabetics have rationed their insulin. 

Those who survive rationing often endure lifelong damage. Poorly controlled blood sugar increases the chances of heart attacks, strokes, and a wide range of diseases. Travis Paulson, a Type 1 diabetic in Minnesota, says low income forced him to ration insulin for years, causing diabetic retinopathy, which can lead to blurred vision or blindness. “I’ve had 35 eye surgeries, reconstructive surgeries, all kinds of stuff done to my eyes,” he says. “I also have severe rheumatoid arthritis and osteoarthritis. And lupus.”  

To nondiabetics this all seems impossible. Surely there must be government assistance or private organizations to ensure that no one dies from lack of insulin, right? There are, but they aren’t enough. 

When asked why he didn’t apply for Medicaid, Paulson replies, “My assets totaled too much, and I would have had to give up my truck. It was better for me to go my own way than to lose everything I ever worked for just to get some help short term.” 

Iesha Meza, a Phoenix resident who went into a diabetic coma after rationing insulin, says she later asked her doctor what she should do. “He said, ‘The best thing you could do is quit your job and get on AHCCCS [or “Access,” the Arizona Medicaid program].’ I was like, ‘I don’t want to do that! I worked really hard to get my job,’ ” which didn’t offer insurance that would help her. “I did apply for [AHCCCS] and was denied because I made too much.”

Doctors typically aren’t much help on the financial issues of diabetes. “Most practicing physicians and prescribers don’t have any idea of what patients are paying for their prescription drugs,” says Jing Luo, an internist and faculty member at the University of Pittsburgh School of Medicine. “Whether a specific insulin is covered by the patient’s insurance formulary and what is the out-of-pocket possibility—that is way beyond what any individual physician will have a good grasp upon.”

All three insulin manufacturers offer broadly similar plans to help patients get insulin at low cost. Eli Lilly, for example, offers a discount card easily accessible online with which a patient “may pay as little as $35 per prescription per month,” the company says. That could be a great option for someone trying to meet a high deductible or without insurance. But those programs do not provide security; they can be rescinded at any time, and they carry expiration dates with no assurance of what might follow.

“The story of insulin is a poster child for everything that’s wrong with a free-market approach to drug availability,” says Arthur Caplan, the medical ethics expert at NYU. “It’s almost inexcusable morally.”

The story of insulin is a poster child for everything that’s wrong with a free-market approach to drug availability.

Arthur Caplan, Head of the Division of Medical Ethics at NYU Grossman School of Medicine

Government intervention is increasingly popular across the U.S. Eight states have imposed limits on insulin out-of-pocket costs or co-pays, but some of those laws don’t apply to uninsured patients or to Medicare, Medicaid, insurance based in a different state, or some employer-provided insurance. In addition, some don’t help people like Sa’ra Skipper, who couldn’t pay her deductible and thus never reached the point of making co-pays. “When policymakers do policy, they think of people on Medicare and commercially insured patients,” says Inma Hernandez, an associate professor and researcher at the University of California at San Diego. “It’s important to think of the uninsured and the patients that have not great coverage, because they are the ones that struggle the most.”

As Fortune went to press, the Senate was debating the Build Back Better bill as passed by the House, which included a $35 monthly cap on insurance co-pays for insulin. Senate Majority Leader Chuck Schumer, who says his father-in-law died of diabetes, accused Republicans of considering elimination of the cap. He warned them not to “attempt to kill this provision … I will do everything I can to keep this provision in the BBB bill.”

Some patients find their own solutions. For about two years Travis Paulson got his insulin in Canada. As in many other developed economies, the government there buys prescription drugs and offers manufacturers a take-it-or-leave-it price. Most manufacturers take it. Bringing prescription drugs into the U.S. from other countries is illegal, but Paulson says he told border guards and local law enforcement what he was doing, and “nobody had any problem with it.” Without insurance, his insulin cost him $350 per vial in the U.S., and he needed three or four vials a month. “I found that I could get that same $350 vial of insulin in Canada for $20 out of pocket, no insurance, no nothing,” he says. “You don’t even need a prescription.” It was a good solution for him but not for everyone; he lives only 70 miles from the Canadian border. 

Paulson may deserve a medal for ingenuity. Today he gets insulin through Medicare even though he’s only 49 years old. His multiple medical problems qualified him for disability coverage, and he uses an insulin pump, a small device that delivers insulin through the day. After “becoming an expert at Medicare and their codes and how things need to be billed, and then making friends with a few people at Medicare,” he recalls, he got his insulin classified as equipment for the pump. Then he got a local pharmacy to spend weeks adjusting its internal computer systems to make the arrangement work. He says the whole project took three years.

A few obvious questions: Why must diabetics resort to such heroic measures? Why isn’t the insulin market like the market for most other drugs? Typically, new drugs are priced high; eventually the patents expire, and other manufacturers churn out generic versions at a fraction of the original cost. FDA research finds that when three or more generics enter a given drug’s market, prices can plunge by 80%. That would transform life for diabetics.

But it hasn’t happened with insulin because insulin isn’t a chemically synthesized drug like, say, ibuprofen (marketed as Advil, Motrin, others). It’s a biologic, meaning it’s produced by living cells; the hugely popular anti-inflammatory drug Humira is a biologic, for example, as are the Pfizer-BioNTech, Moderna, and Johnson & Johnson COVID vaccines. 

Biologics are far more complex than chemical drugs, requiring an entirely separate procedure for approval of generics. Insulin has been produced by drug companies for almost 100 years. But under U.S. law it wasn’t even possible as a practical matter for independent companies to create insulin generics—as most consumers understand “generic”—until last year. 

The generic drugs that patients are familiar with are exact copies of an original, branded, chemical drug molecule. For example, if a doctor writes you a prescription for Lopressor (a blood-pressure drug), in most states the pharmacist can legally substitute a cheaper generic version without getting the doctor’s permission. 

But with biologics, regulators don’t use the term “generic.” They use the term “biosimilar” because biologic molecules are so large and complex that it’s virtually impossible for anyone but the patent holder to create an exact copy. It is possible, however, to create a molecule that is very close to the original and functionally the same; for example, there are five approved biosimilars for Genentech’s Herceptin breast cancer drug.

But even those are not what consumers would call generics because they’re not legally substitutable for the original at the pharmacy. A true generic, as consumers would understand it, is what regulators call an interchangeable biosimilar. And until last summer, no interchangeable biosimilar for insulin or any other biologic had ever been approved.

The landmark day—“a momentous day” in the words of acting FDA Commissioner Janet Woodcock—was July 28, when the FDA approved Semglee insulin as an interchangeable biosimilar for Sanofi’s Lantus insulin. Momentously for the industry, a fourth company is now competing in the U.S. insulin market for the first time in decades. Semglee is made by Viatris, formed last year as a combination of Mylan Pharmaceuticals and Pfizer’s Upjohn division. Such new competition from products like Semglee, Woodcock said, has “the potential to greatly reduce health care costs.”

Semglee is reducing costs already, at least for patients who have to pay retail at the pharmacy. The average retail price for Semglee being offered without the interchangeable designation was recently around $120 per vial versus $350 for Lantus. That’s a big help for patients who have high-deductible insurance or no insurance. But it’s worth remembering that insulins cost only $20 to $30 a vial in many developed economies, suggesting that U.S. prices could come down much further. That won’t happen unless more interchangeables for the same product come into the market, which they won’t if their manufacturers can’t make a solid profit not only with retail customers but also with the millions of patients whose insulin purchases are covered by insurance.

Thus much depends on the negotiations over list price, rebates, and formulary placements of interchangeable Semglee. “I could imagine the reference drug [Lantus] is going to increase the discount [rebate] to try to make up for the price difference and retain as much of the market as possible,” says Hernandez. So it’s conceivable that even with new competition from Semglee, PBMs and insurers could still award Lantus a higher spot on the formulary and perhaps even exclude Semglee because they’d make more money with Lantus. Or Viatris might be forced to increase Semglee rebates to the point at which profits from the product might be slender. If Semglee turns out to be a financial disappointment, prospects for more interchangeables could dim. Sanofi and Viatris declined to discuss their competitive strategies.

Without attracting much notice, insulin makers’ annual double-digit price increases have moderated lately. Outsiders are not entirely sure why. Increasing outrage across the political spectrum could be a factor. Or maybe the manufacturers have reached a point where the higher-price, higher-rebate strategy has gone as far as it can go. Without access to the contracts between manufacturers and PBMs, it’s hard to know for sure. But it’s worth noting that last year Eli Lilly’s sales of its top-selling insulin, Humalog, fell 11% in the U.S. The company said the decline was “driven by lower realized prices”—that is, prices after rebates and fees—even though volume increased.

More broadly, insulin may no longer be a growth business. A new analysis by the Cowen research firm predicts that from 2020 to 2025, worldwide insulin industry sales will decrease 2% annually even as the number of diabetics increases. “There’s always going to be a place for insulin,” says Cowen analyst Steve Scala, “but [treatment] is evolving into other therapies.”

That’s because Type 2 diabetics are 90% of the market, and they don’t need insulin to survive. For them, pharma companies are developing new drugs that are more effective and bring advantages that insulin doesn’t have. The hottest drugs in the field are called GLP-1 analogs, which are rapidly becoming the top therapy for Type 2 diabetes. “They’re injected once a week, while insulin is injected at least once a day,” says Scala. “They lead to weight loss—most Type 2 diabetics should lose weight—while insulin leads to weight gain. They also have cardiovascular benefits.” Lilly’s bestselling drug is no longer an insulin; it’s Trulicity, a GLP-1. 

There’s always going to be a place for insulin, but [treatment] is evolving into other therapies.

Steve Scala, Cowen equity analyst

By 2025, for the first time in history, insulin will no longer be the most used drug for diabetes overall, Cowen forecasts, though it will still be the only drug that can save the lives of Type 1 diabetics. While the big three manufacturers continue to develop new insulins, they’re increasingly focused elsewhere.

For Type 1 diabetics, the brightest prospect is not a new insulin but a cure. Most of them don’t want to hear about it. They’ve been told for years that a cure is just around the corner. The research is full of promise, but no one dares to guess when a cure might be ready.

For now, the greatest help for Type 1 diabetics is not manufacturers’ programs or laws or even interchangeable biosimilars, but what they call the T1D community. “Every day, people reach out to me via Twitter and Facebook and say, ‘I need help, can you help me find insulin?’ ” says Gail deVore. Her typical response is something like, “Well, it just so happens that a friend of mine just dropped some off to another friend, and she’s got extra, so let me put you in touch with her.” Giving prescription meds to others is illegal, but no one seems to worry much about that.

On Twitter and other platforms it’s easy to find people pleading for money to buy insulin. GoFundMe.com recently listed 12,779 fundraising campaigns with “insulin” in the title. “Diabetes is not a club you want to belong to,” says deVore, “but if you’ve got to belong to a club, this is the one to belong to, because we take care of each other.”

It’s a good thing. Arthur Caplan says, “The greatest advance you could make with insulin is to control or manage financial toxicity.”

Until that happens, America’s Type 1 diabetics will never sleep easy. 

This article appears in the December 2021/January 2022 issue of Fortune.