Health insurers are struggling with the cost of weight-loss drugs, including in Philly

In 2024, Independence Health Group, the for-profit parent company of the nonprofit Philadelphia-based health insurance company Independence Blue Cross, reported a net loss of $239 million, despite generating $32 billion of revenue, citing a "sharp increase in medical and pharmacy costs."

One driver behind these losses is the rapid growth of weight-loss medications, including glucagon-like peptide-1 receptor agonists, known as GLP-1s, such as Ozempic. The medication helps individuals control blood sugar levels.

In 2023, Independence Health Group spent $350 million on GLP-1 medications for members, but that grew to $500 million by 2024.

The Philadelphia-based insurance group, which operates in 32 states and Washington D.C., also saw less profitability in its Medicaid and Medicare programs as the cost of care outpaced rate increases last year. At the same time, people eligible for Medicaid coverage required more health care than what was expected.

Big changes to Medicaid

During the height of the COVID-19 pandemic, Medicaid coverage was provided continuously for three years in a row without annual determinations about whether recipients qualified for benefits. That ended in 2023; since then, states have been redetermining Medicaid enrollment every 12 months.

"I think it was really hard for states and health plans to really determine … what the health needs of the people who were remaining on the program were going to be," said Elizabeth Williams, a senior policy manager for Medicaid research with the health policy group Kaiser Family Foundation, or KFF.

"Health plans are noting that they're seeing higher health needs and higher costs for the people that have remained on the Medicaid program," she added.

And for Medicaid patients who need GLP-1 medications, Pennsylvania is one of 13 states nationwide that allows approval for the treatment of obesity.

The 12 other states are California, Delaware, Kansas, Mississippi, North Carolina, Virginia, Minnesota, Wisconsin, Michigan, Massachusetts, New Hampshire and Rhode Island.

A surge in weight-loss drugs

Nationwide, the number of GLP-1 prescriptions increased by 400% between 2019 and 2023, according to a survey conducted by KFF. That has translated to $3.9 billion in gross spending by Medicaid on GLP-1s in 2023, compared to $1.9 billion in 2022. On average, these medications can cost about $1,000 a month per person.

Insurance companies usually set their premiums about a year in advance with contracted rates, meaning they cannot adjust prices during the year and that losses must be recouped later.

And there's a limitation on how health insurers spend collected premiums. The Affordable Care Act requires insurance companies to spend at least 80% of the premiums they collect on health care costs and quality improvements, with the remainder for overhead like administrative costs.

"They basically have to recover that money by raising their prices for the following year and hoping that people basically stay with them as a plan," said Ben Handel, associate professor of economics at the University of California, Berkeley, and a research fellow at the National Bureau of Economic Research.

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And with weight-loss medications, the popularity of brand-name prescriptions, coupled with many people being eligible, meant many expensive claims piled up.

"The number of people who could choose to use a weight-loss drug or a GLP-1, it's a really big group of people," Handel said.

About 42% of adults with private insurance under the age of 65 could be eligible for GLP-1 medications, according to the U.S. Food and Drug Administration.

"The headwinds and pressures we experienced at Independence Health Group were felt across the health care industry, including both Blue plans and publicly traded insurers," said Juan Lopez, Independence Health Group executive vice president, chief financial officer and treasurer, in an email.

Higher costs nationwide

Blue Cross Blue Shield associations in Michigan, Massachusetts, New York, Arkansas, Rhode Island and Vermont were all in the red last year, too.

All the Blue Cross Blue Shield health insurance organizations are independent nonprofits. Revenue and losses are based on collected insurance premiums, in addition to other revenue streams like investments, compared to how much was paid out for health care costs for members.

In Michigan, Blue Cross generated $40 billion in revenue, including insurance premiums, but had a net loss of $1.7 billion in 2024. The insurer spent $1.1 billion on GLP-1 drugs last year, a 29% increase from the year before.

In Massachusetts, its Blue Cross provider generated $9.7 billion in revenue but posted a net loss of $224 million in 2024. The insurer spent $300 million on GLP-1 medications in 2024, 50% higher than in 2023.

In Arkansas, Blue Cross generated $2.9 billion in revenue but had a net loss of $226 million in 2024, and cited weight-loss drugs as one reason for higher costs.

In Rhode Island, Blue Cross generated $2.2 billion in revenue but posted a net loss of $115 million in 2024 — higher medical costs, including for weight-loss medications, were to blame.

In Vermont, Blue Cross lost $62 million in 2024, but it was not immediately clear what its total revenue was last year.

In Pittsburgh, the Blue Cross association known as Highmark Health Plan generated $22 billion in revenue in 2024, which included insurance premiums, but posted a net loss of $166 million. Highmark blamed increased prescription drug costs, including weight-loss medications.

Shrinking health coverage

On Jan. 1, Independence Blue Cross stopped offering health insurance benefits for GLP-1 medications prescribed solely for weight loss for individuals who get insurance through their employer, Medicare Advantage and the Affordable Care Act. Independence Blue Cross is still providing coverage of the medication for patients with prior authorization and eligible illnesses, such as type 2 diabetes and cardiovascular disease.

"Independence Health Group continues to focus on opportunities to expand our coverage to more consumers, families, businesses and other organizations even as we navigate a complex and evolving healthcare environment," said Gregory Deavens, Independence Health Group president and CEO, in a news release.

For every $1 of insurance premiums collected, Independence Health Group spent about $0.91 on health care claims in 2024. That's up from roughly $0.88 in 2023.

The last time Independence Health Group was in the red was nine years ago. At the time, individuals with health plans and Medicare members were using more medical insurance, and the costs of specialty and brand-name prescription drugs were higher.

Spikes in prescription drug costs tend to be cyclical because there are some years where new treatments are released, like in 2015 and 2016, when many specialty drugs were added to the market, said Matt Rae, associate director of the Program on Health Care Marketplace at KFF.

"I think that there's some concern that's happening now," Rae said. "Partially because we have so many amazing new treatments that employer plans and private plans want to cover, because they have [the] incredible ability to change people's lives, but they come with huge price tags. By far and away, the big one is the GLP-1s."

It's unclear whether Independence Health Group will continue to experience financial losses in the coming years. It has already curbed future spending on some high-cost prescriptions. And it's exploring options for other high-cost drugs like Humira, an injectable, biologic medication approved by the FDA to treat arthritis. The manufacturer's list price for Humira is $7,000 a month.

"As we look ahead to the remainder of 2025 and into 2026, we have several efforts underway to address the increase in medical and pharmacy costs across Independence Health Group, including our work to transition from high-cost drugs, like Humira, to biosimilars," Lopez said.

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