I wouldn't like it, but I can see the justification for it, not only to protect the public but to protect the diabetic.
As Yogiraji points out, diabetic drivers are sometimes mistaken for intoxicated drivers and mistreated. As the same time, what's the difference between an intoxicated driver and a hypoglycemic driver? Not much. They're both hazards to everyone else on the road. The only differences is that one should be arrested, the other should be given medical treatment.
Since driving is a privilege and not a right, drivers ought to have the burden of proving they're capable of driving safely without creating a hazard to everyone else on the road.
It's not a HIPPA issue. HIPPA applies to information we give to medical professionals with an expectation of privacy and prevents THEM from revealing it to others. This kind of rule requires US to reveal the information knowing in advance that it will be revealed. If you don't want to reveal it, don't apply for a license. Or you could lie about it.