Why Government Can't Solve All Human Problems: A Health Care Example

Here’s something nearly everyone can agree on: healthcare in the United States is too expensive. Private health insurance premiums rise inexorably well above the rate of inflation, and so do the costs of government subsidized healthcare like Medicare and Medicaid. And if you face a big medical issue without insurance, the bills could well come to more than you could ever pay.

So what’s the answer? To the Left, it’s easy: a “single payer” system, sometimes called “Medicare for all.” In simple terms, the federal government pays for all the medical expenses of everybody. The money comes out of the infinite pile of federal loot. No individual ever has to worry about a medical bill. Prominent backers of the “single payer”solution to healthcare costs include the likes of Bernie Sanders and Elizabeth Warren, as well as organizations like Physicians for a National Health Program.

The flaw in this approach is something that is not intuitive to most people. It is that once the government is paying, no producer has any incentive to reduce the price to attract more customers. That phenomenon is one of the fundamental reasons why over time capitalist societies get richer while socialist societies get poorer.

A great illustration of this phenomenon has occurred in recent months in the situation of the new miracle weight-loss drugs known as the GLP-1 inhibitors.

Here’s some history of the GLP-1s (from a June 2024 article published by Indiana University). The first of the drugs to get approved to go on the market was Ozempic (Novo Nordisk) in 2017. Mounjaro (Lilly) followed in 2022. Like most new drugs that come on the market in the U.S. under patent and after long and expensive development, their prices were initially set very high, basically unaffordable for most people unless insurance would pay for the drug as a medical expense.

The drugs were initially developed to treat type-2 (adult onset) diabetes; but they were soon recognized to have a notable side-effect of helping the patients to lose weight. In short order, doctors started prescribing the drugs for weight loss, and the manufacturers came out with separately-branded versions of the drugs oriented to the weight loss market. Novo Nordisk got its weight-loss version (Wegovy) approved in 2021, and Lilly got its weight-loss version (Zepbound) approved in 2023.

Once the weight-loss benefit was identified, spending on the GLP-1s started to explode. This August 2025 piece from the AMA collects data through 2023. Citing a study that is said to have captured 85% of retail drug spending and 74% of mail-order, the article reports that spending on GLP-1s went from $13.7 billion in 2018 to $71.7 billion in 2023, an increase of over 500%. And it’s fair to assume that increase at a comparable rate has continued since then.

During 2025, with spending exploding, insurers started to balk. One by one they declared that taking GLP-1s for diabetes was a medical issue, but taking them for weight loss was an uninsured discretionary expenditure. These decisions caused considerable gnashing of teeth, as lots of people who thought they were about to be able to lose weight after years of struggle found out that their insurer would not pay. Here’s a piece from PharmExec.com from August 2025, surveying the insurance situation at that time.

More and more insurance carriers are either not covering the medications or are making it more difficult for people that need GLP-1s for weight loss to get it. Previously, insurance carriers were pressured to add the medications to their plans. For example, employers were eager to offer healthcare coverage that included GLP-1s, as it made the jobs more attractive to employees. GLP-1 medications are expensive, costing anywhere from $499-a-month to $1,000-a-month, if not more. A new report from Reuters says that insurance companies are now being more restrictive of the drugs. Also, . . . many [employers] are . . . adjusting plans to drop GLP-1 coverage. As a result, patients taking GLP-1s for weight loss are finding it necessary to pay for the drugs directly, at full price.

If you were to ask Bernie Sanders about this, his immediate answer would be that it proves the case for single-payer health coverage. However, a funny thing happened once large numbers of people had to pay for these drugs with their own money. A price war has broken out among the manufacturers. The Wall Street Journal had the story on February 24, headline “Novo Nordisk to Cut U.S. List Prices for Ozempic, Wegovy by Up to 50%” (likely behind paywall). Excerpt:

Novo Nordisk plans to slash U.S. list prices for its popular weight-loss and diabetes drugs Wegovy and Ozempic by up to half starting next year. Under the changes, both Ozempic and Wegovy will list for $675 a month, effective Jan. 1, 2027. That is half of the current price tag for anti-obesity therapy Wegovy and a 34% cut for diabetes treatment Ozempic. The price cuts also will apply to pill versions of both injections, including one sold as Rybelsus. The reductions escalate a price war with rival Eli Lilly in one of the fastest-growing, most hotly contested categories in pharmaceuticals.

(Emphasis added.). Well, for starters, don’t believe for a moment that Novo Nordisk is going to hold the line on its prices all the way to next January. They’re trying to game as many customers as possible to buy the drug at the high price before it drops. But they are going to have to drop the price much faster than they want to keep from losing the market to Lilly. And by the way, there are reports that lots of other big players, from Pfizer to AstraZeneca to Sanofi, are in the process of jumping into this market.

So what’s going on? Again from the Journal:

Novo Nordisk is cutting its drugs’ list prices for the first time, executives said, especially to reduce high out-of-pocket costs for patients who are enrolled in high-deductible health plans or pay coinsurance that is a percentage of list price.

Sorry, but that’s just spin from the Novo Nordisk executives. This has nothing whatsoever to do with altruism toward the patients, and everything to do with trying to maintain market share in a business that is still very lucrative at much lower prices. There are millions of people out there who can’t afford to pay for these drugs with their own money at $1350 a month, but could pay at $1000/month, or $500/month, or maybe $50/month. As long as there are multiple competitors, the price will continue to drop until all these people can afford the product, at least until the price gets down to the cost of production.

This process is no different than the process that has driven down the price of computers, or smart phones, or flat screen TVs, to a small fraction of where those prices started out.

In the market for healthcare, of which pharmaceuticals are a big piece, the process of price competition is substantially prevented or slowed down due to government intervention and third-party payment. Once the government and/or insurers are paying, the manufacturers know that they don’t need to drop the price to reach additional customers with smaller budgets. The government and insurers can always pay.

Yes I know that there are other factors at play in keeping pharmaceutical prices high, notably long terms of patent protection limiting markets to a single producer. Still, the best way to get the overall level of expenditure on medical care under control would be to minimize the amount of that expenditure that comes from government and insurers. Instead, we generally head in the opposite direction.