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Insurers and drug-industry middlemen are cashing in on the weight-loss drug frenzy

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Robyn Phelps/Insider

Demand for drugs like Ozempic could boost health insurers’ bottom lines, according to BofA.
Insurers and the drug-industry middlemen they own stand to earn more as healthcare spending increases.
Insurers’ membership could also swell if the drugs help people live longer. 

For US health insurers, explosive demand for new weight-loss drugs likely means bigger profits.

The craze for drugs that help with weight loss, such as Ozempic and Wegovy, has shown no signs of abating. Prescriptions for this class of drugs, known as GLP-1 agonists, reached 9 million in the last three months of 2022, a 300% increase over the first three months of 2020, according to analytics company Trilliant Health.

The rapid rise of these drugs is surprisingly good news for health insurers, who could benefit from the growth in several ways, according to a September 22 report from Bank of America Global Research.

Insurers and the drug-industry middlemen they own stand to earn more as weight-loss drugs drive up healthcare spending, BofA analysts wrote. Meanwhile, if the drugs help people live longer, insurers could earn more from higher enrollment in their health plans.

Here are three ways insurers stand to gain from the rising use of GLP-1 drugs, which help with weight loss and Type 2 diabetes.

As weight-loss drugs drive up healthcare spending, insurers will make more money

Weight-loss drugs, which can cost around $1,000 a month, are driving up healthcare spending. And generally, the more money that people spend on healthcare, the more money health insurers can make.

Many health insurers don’t cover GLP-1 drugs for weight loss or have moved to restrict their use. But when they do pay for them, either for Type 2 diabetes or obesity, they can set health-plan premiums high enough to cover the cost and then tack on a profit margin.

Ozempic pens are assembled.

Li Ran/Xinhua via Getty Images

“If they target a 5% margin, then getting a 5% margin on a higher dollar amount is better than on a smaller amount,” BofA analysts wrote in the report.

The analysts wrote that they expect the new weight-loss and diabetes drugs to drive up spending for at least five years. But eventually, the drugs could help lower healthcare costs, if people who take them experience lower rates of heart disease, kidney failure, sleep apnea and other conditions related to obesity, they wrote.

Even as spending slows, health insurers would continue to benefit from the drugs. That’s because they are unlikely to lower their premiums to fully account for the savings the drugs drive, according to the report.

Insurer-owned middlemen will benefit from more prescriptions

Health insurers also will benefit from higher revenue and profits at their pharmacy benefit managers — drug-industry middlemen that negotiate with pharmaceutical companies for drug discounts  and manage health-plan members’ prescription drug claims. Cigna, CVS Health, and UnitedHealth Group own the three biggest PBMs.

As prescription-drug costs grow, PBMs would make more money, according to the BofA report. The analysts predicted that greater use of GLP-1 drugs could increase revenue at those units by 5% to 6% each year.

The firms’ earnings would increase an extra 0.5% to 1% each year — a significant amount as these companies typically grow earnings about 4% to 6% annually, the analysts wrote. 

Executives at Cigna and CVS recently told investors that the rise in GLP-1 drugs is positive for their PBMs.

“GLP-1 utilization does continue to build, which in the Evernorth business is a positive contributor to our earnings at this point in time, whether that be for diabetic indications or nondiabetic indications,” Cigna CFO Brian Evanko said in August. Evernorth includes Cigna’s PBM.

The drugs could help people live longer, which may lead to more health-plan members

In the long run, anti-obesity drugs could help to boost health insurers’ membership, if the drugs prove to reduce disease and ultimately help people live longer, BofA analysts predicted.

“If people live longer, then enrollment would also be higher,” the analysts wrote.

According to the report, health insurers likely would see the biggest impact to enrollment in Medicare Advantage, the lucrative, private alternative to the federal Medicare program that serves people 65 and older.

Many health insurers have invested in expanding their Medicare Advantage businesses, as the US population grows older and becomes eligible for those plans. Enrollment in Medicare Advantage reached 30.8 million in 2023, or more than half of all people eligible for Medicare, according to the Kaiser Family Foundation.

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Robyn Phelps/Insider

Demand for drugs like Ozempic could boost health insurers’ bottom lines, according to BofA.
Insurers and the drug-industry middlemen they own stand to earn more as healthcare spending increases.
Insurers’ membership could also swell if the drugs help people live longer. 

For US health insurers, explosive demand for new weight-loss drugs likely means bigger profits.

The craze for drugs that help with weight loss, such as Ozempic and Wegovy, has shown no signs of abating. Prescriptions for this class of drugs, known as GLP-1 agonists, reached 9 million in the last three months of 2022, a 300% increase over the first three months of 2020, according to analytics company Trilliant Health.

The rapid rise of these drugs is surprisingly good news for health insurers, who could benefit from the growth in several ways, according to a September 22 report from Bank of America Global Research.

Insurers and the drug-industry middlemen they own stand to earn more as weight-loss drugs drive up healthcare spending, BofA analysts wrote. Meanwhile, if the drugs help people live longer, insurers could earn more from higher enrollment in their health plans.

Here are three ways insurers stand to gain from the rising use of GLP-1 drugs, which help with weight loss and Type 2 diabetes.

As weight-loss drugs drive up healthcare spending, insurers will make more money

Weight-loss drugs, which can cost around $1,000 a month, are driving up healthcare spending. And generally, the more money that people spend on healthcare, the more money health insurers can make.

Many health insurers don’t cover GLP-1 drugs for weight loss or have moved to restrict their use. But when they do pay for them, either for Type 2 diabetes or obesity, they can set health-plan premiums high enough to cover the cost and then tack on a profit margin.

Ozempic pens are assembled.

Li Ran/Xinhua via Getty Images

“If they target a 5% margin, then getting a 5% margin on a higher dollar amount is better than on a smaller amount,” BofA analysts wrote in the report.

The analysts wrote that they expect the new weight-loss and diabetes drugs to drive up spending for at least five years. But eventually, the drugs could help lower healthcare costs, if people who take them experience lower rates of heart disease, kidney failure, sleep apnea and other conditions related to obesity, they wrote.

Even as spending slows, health insurers would continue to benefit from the drugs. That’s because they are unlikely to lower their premiums to fully account for the savings the drugs drive, according to the report.

Insurer-owned middlemen will benefit from more prescriptions

Health insurers also will benefit from higher revenue and profits at their pharmacy benefit managers — drug-industry middlemen that negotiate with pharmaceutical companies for drug discounts  and manage health-plan members’ prescription drug claims. Cigna, CVS Health, and UnitedHealth Group own the three biggest PBMs.

As prescription-drug costs grow, PBMs would make more money, according to the BofA report. The analysts predicted that greater use of GLP-1 drugs could increase revenue at those units by 5% to 6% each year.

The firms’ earnings would increase an extra 0.5% to 1% each year — a significant amount as these companies typically grow earnings about 4% to 6% annually, the analysts wrote. 

Executives at Cigna and CVS recently told investors that the rise in GLP-1 drugs is positive for their PBMs.

“GLP-1 utilization does continue to build, which in the Evernorth business is a positive contributor to our earnings at this point in time, whether that be for diabetic indications or nondiabetic indications,” Cigna CFO Brian Evanko said in August. Evernorth includes Cigna’s PBM.

The drugs could help people live longer, which may lead to more health-plan members

In the long run, anti-obesity drugs could help to boost health insurers’ membership, if the drugs prove to reduce disease and ultimately help people live longer, BofA analysts predicted.

“If people live longer, then enrollment would also be higher,” the analysts wrote.

According to the report, health insurers likely would see the biggest impact to enrollment in Medicare Advantage, the lucrative, private alternative to the federal Medicare program that serves people 65 and older.

Many health insurers have invested in expanding their Medicare Advantage businesses, as the US population grows older and becomes eligible for those plans. Enrollment in Medicare Advantage reached 30.8 million in 2023, or more than half of all people eligible for Medicare, according to the Kaiser Family Foundation.

Read the original article on Business Insider
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