Could GLP-1s Save Medicare $245 Billion? The Healthcare Economics Case

Medicare doesn't cover GLP-1 medications for weight loss. Legally, the program cannot—a statutory provision from 2003 explicitly excludes coverage for drugs used for "anorexia, weight loss, or weight gain." But that prohibition was written before medications existed that could reduce heart attacks by 20%, prevent diabetes by 73%, and lower mortality by 19%.

Now, researchers at the USC Schaeffer Center for Health Policy & Economics have modeled what would happen if Medicare did cover GLP-1 medications for obesity. Their conclusion: net savings of up to $245 billion over 10 years—even after paying for the medications themselves.

How a Costly Drug Creates Savings

At first glance, the math seems backwards. GLP-1 medications cost roughly $12,000-15,000 per patient per year at list prices. Medicare enrolls over 65 million people, many of whom have obesity. How could covering an expensive drug produce net savings?

The answer lies in what obesity costs the healthcare system—and what preventing obesity's consequences saves.

Obesity is not a standalone condition—it's a gateway to dozens of expensive medical problems. The $173 billion annual cost of obesity in the U.S. healthcare system comes not primarily from treating obesity itself, but from treating its consequences: diabetes, heart disease, stroke, certain cancers, sleep apnea, fatty liver disease, kidney disease, and orthopedic problems.

GLP-1 medications don't just produce weight loss. Clinical trial data shows they prevent or delay the expensive consequences that drive healthcare costs. The SELECT trial demonstrated a 20% reduction in cardiovascular events—heart attacks and strokes that cost $50,000+ each to treat acutely, and far more in long-term care. The 73% reduction in new diabetes cases prevents a lifetime of glucose monitoring, medications, and complications management.

The USC Schaeffer Analysis

The USC team modeled Medicare coverage scenarios using clinical trial data, drug pricing assumptions, and healthcare cost projections. Their key findings:

The $245 billion figure represents net savings—after accounting for the cost of medications. The model projects that Medicare would spend significant amounts on GLP-1 drugs, but save even more on avoided hospitalizations, procedures, and chronic disease management.

The analysis assumed drug prices would decline over time as competition increases and potential future generic entry occurs. It also assumed that not all eligible beneficiaries would use the medications—uptake rates and adherence affect the projections substantially.

Individual Patient Economics

The macro savings reflect individual-level economics. Research quantifies what weight loss saves per patient:

For a Medicare beneficiary with obesity and related conditions, the math often favors medication even at current prices. A patient who achieves 15-20% weight loss and avoids developing diabetes saves the healthcare system more than the medication costs—while also living longer and healthier.

The Current Medicare Exclusion

The statutory exclusion of obesity drugs from Medicare dates to the Medicare Modernization Act of 2003. At the time, available weight loss medications were minimally effective and carried significant risks. The exclusion reflected skepticism about the medical value of "diet pills."

Two decades later, the landscape has transformed. GLP-1 medications produce clinically meaningful weight loss, reduce cardiovascular events, and have demonstrated mortality benefits in rigorous trials. The FDA has approved these drugs for chronic weight management—recognizing obesity as the medical condition it is.

The Political Landscape

Multiple pieces of legislation have been introduced to allow Medicare coverage of obesity medications:

The Treat and Reduce Obesity Act: Bipartisan legislation that would lift the statutory prohibition and allow Medicare to cover FDA-approved obesity treatments. Introduced multiple times but not yet passed.

Budget reconciliation discussions: Some proposals have included obesity medication coverage as part of broader healthcare spending packages, though none have advanced to law.

CMS administrative actions: The Centers for Medicare & Medicaid Services has explored whether cardiovascular indications for GLP-1s might enable coverage through different pathways, but statutory limitations constrain administrative flexibility.

The political challenge is straightforward: upfront medication costs are visible and immediate; downstream savings are dispersed and delayed. Lawmakers face pressure about drug spending today while savings accrue over years and may not be directly attributable to coverage decisions.

The Employer Insurance Perspective

While Medicare debates coverage, employer-sponsored insurance has rapidly expanded GLP-1 access. The employer market provides a preview of what broader coverage might look like:

Current spending: GLP-1 medications now represent 10.5% of total employer insurance claims—up from negligible levels just a few years ago. Some estimates project this could reach 15-20% of pharmaceutical spending.

Employer cost-benefit analysis: Forward-thinking employers are covering GLP-1s based on projected healthcare savings and workforce productivity gains. Early data suggests employers who cover these medications see reduced diabetes, cardiovascular, and musculoskeletal claims over time.

Coverage restrictions: Most employer plans implement cost controls—prior authorization requirements, step therapy, quantity limits—to manage utilization. These restrictions reduce immediate costs but may limit the population-level benefits.

What Critics Say

Not everyone agrees that Medicare GLP-1 coverage makes economic sense. Critics raise several concerns:

Drug pricing uncertainty: Current list prices are high, and negotiated prices under Medicare Part D remain substantial. If prices don't decline as projected, savings calculations change dramatically.

Adherence questions: Clinical trial results reflect motivated participants with full support. Real-world adherence is often lower, reducing actual benefits while costs remain.

Budget impact: Even if long-term savings materialize, covering millions of Medicare beneficiaries creates substantial near-term budget exposure. Policymakers must fund current spending with future savings assumptions.

Opportunity cost: Money spent on GLP-1 medications can't be spent elsewhere. Some argue that resources would produce greater health benefits if directed toward other interventions.

The Medicaid Question

Medicare isn't the only government program grappling with GLP-1 coverage. Medicaid—which covers low-income Americans—faces similar decisions, often with tighter budgets.

Currently, Medicaid coverage for obesity medications varies by state. Some state Medicaid programs cover GLP-1s; many don't. This creates geographic disparities where low-income patients' access depends on where they live.

The irony is stark: obesity rates are highest among lower-income populations that Medicaid serves. The program covers treatment for obesity's consequences—diabetes complications, cardiovascular hospitalizations, dialysis—but often won't cover medications that might prevent those expensive outcomes.

International Comparisons

Other countries' approaches to GLP-1 coverage offer perspective:

United Kingdom: The NHS initially resisted covering obesity medications but has expanded access as evidence accumulated. Cost-effectiveness analyses drove coverage decisions.

Denmark: Where Novo Nordisk is headquartered, coverage is relatively available, though cost concerns persist.

Canada: Provincial coverage varies significantly, with ongoing debates about cost-effectiveness thresholds for obesity treatments.

Australia: PBS (Pharmaceutical Benefits Scheme) coverage for obesity medications has expanded, with cost-effectiveness requirements.

No country has perfectly solved the coverage-cost balance, but the U.S. stands out for explicitly prohibiting coverage in its largest public insurance program—a policy dating to an era before effective treatments existed.

The Equity Dimension

The Medicare exclusion has equity implications. Medicare beneficiaries without coverage options include:

Low-income seniors: Those on Medicare alone (without supplemental coverage or means to pay out-of-pocket) have no access to medications that could prevent expensive complications.

Disabled beneficiaries: Medicare covers many younger disabled individuals whose obesity may significantly impact their conditions and quality of life.

Dual-eligible populations: People eligible for both Medicare and Medicaid—often the most vulnerable—face coverage gaps from both programs.

Looking Forward

The $245 billion question isn't whether GLP-1 medications provide value—the evidence increasingly confirms they do. The question is whether healthcare systems will restructure coverage to capture that value.

Several factors suggest eventual Medicare coverage:

Evidence accumulation: As long-term data confirms benefits, the case for coverage strengthens.

Pricing evolution: Competition, biosimilars, and negotiation may reduce prices, improving cost-benefit ratios.

Political pressure: As millions of Americans use GLP-1s through other coverage, demand for Medicare inclusion grows.

Framework shift: Growing recognition of obesity as a chronic disease—not a lifestyle choice—challenges the rationale for exclusion.

The Bottom Line

The USC Schaeffer projection of $245 billion in Medicare savings represents a provocative challenge to current policy. If accurate, the government is not saving money by excluding obesity medications—it's paying more to treat preventable complications while denying beneficiaries access to effective treatment.

Whether that projection proves correct depends on drug pricing, real-world efficacy, uptake rates, and other factors that models can only estimate. But the direction of the evidence is clear: GLP-1 medications prevent expensive healthcare events. The statutory exclusion from Medicare reflects a 2003 view of obesity treatment that no longer matches clinical reality.

The $245 billion question will eventually be answered—by policymakers, by economists, and ultimately by health outcomes. The debate isn't whether GLP-1 medications work; it's whether coverage policy will catch up to the science.

Last updated: January 2026. Economic projections from USC Schaeffer Center for Health Policy & Economics and related research.