Biden’s Midnight Spending Binge

The Biden administration’s lame duck status does not appear to have deterred it from further inflating federal spending.  Although federal law specifically prohibits Medicare from covering weight-loss drugs, the outgoing administration has tried to do exactly that – daring its successor to pay for a benefit which could cost tens of billions of dollars, or to incur the wrath of disappointed beneficiaries.

Over the past few years, anti-obesity drugs such as Wegovy or Zepbound have been brought to market and enjoyed surging popularity.  They are proven to be effective at helping people lose weight; but this tends to come back if patients stop using them – which is not uncommon, due to associated side-effects.  Yet, the average net price of over $5,000 per year is steep, and so the drug industry has lobbied aggressively for insurers and entitlement programs to cover it.

Whereas Congress must generally pay for expansions of appropriations under pay-as-you-go budget rules, the Centers for Medicare and Medicaid Services (CMS) can add new procedures and services to the Medicare program without identifying offsetting savings or additional revenues.  The steady expansion of Medicare benefits has therefore become the most important driver of rising federal spending. 

Under this authority, CMS has already authorized Medicare payment for anti-obesity medications as a form of treatment for type 2 diabetes and cardiovascular disease.  States may also claim federal funds to purchase them for Medicaid beneficiaries.  But federal law specifically prohibits Medicare from covering drugs for weight loss purposes. 

Nonetheless, the newly-issued regulation claims that: “Given the changes in how the medical community has come to regard obesity as a disease… it would be more consistent with current medical views” to reinterpret the prohibition of payment for “weight loss” drugs to exclude “the treatment of obesity.”  If implemented, this regulation would expand Medicare, force state Medicaid programs to cover anti-obesity medications, while also pushing private insurance plans to follow suit.

In its proposed regulation, CMS claims that the expansion of coverage would increase Medicare and Medicaid costs by $40 billion over ten years.  These may prove to be substantial underestimates.

CMS assumes that only 10% of those made eligible would initiate treatment, with half of those giving up after only two months.  It also assumes that the expansion of eligibility would cause no uptake in utilization among the 73% of Medicare beneficiaries that it suggests are already eligible.   CMS admits that true obesity rates may be almost twice as high as those in its cost estimates – and they would surely increase further if an “obesity” diagnosis was necessary to qualify for payment.  These estimates owe much to current utilization levels, which are temporarily suppressed by substantial constraints on supply. 

Although advocates hope that anti-obesity medications may generate substantial offsetting medical savings, preventative services rarely save money.   A recent study of patients prescribed anti-obesity medications found healthcare costs increasing by $7,727 and essentially no offsetting savings during the first year. 

It would be little surprise if this single executive order ends up costing more than all the savings generated by the Department Of Government Efficiency put together.  Nonetheless, it may be politically hard for the incoming Trump administration to block.  Manufacturers who stand to gain billions of dollars from the expansion of federal payment to anti-obesity drugs are sure to spend a fortune mobilizing beneficiaries to deter any change of direction.

The legal basis for the rule is certainly questionable – particularly in a post-Chevron era.  The statutory prohibition on payment for weight-loss drugs does not exclude obese beneficiaries.  While congressional leaders may be reluctant to challenge a popular rule in court, this may not be true for states – who would have to pay for up to half of the increase in Medicaid costs.

There is no need for haste in expanding coverage for anti-obesity medications; particularly given the uncertain and potentially enormous cost to taxpayers.  Congress will better understand the potential costs and levels of utilization it waits for the markets to mature.  Waiting until patents for these drugs begin to expire would allow taxpayers to get a much better deal too.

Chris Pope is a senior fellow at the Manhattan Institute.