Health economics 101: contraceptives pay for themselves, usually, babies don’t

Why some economists are no help at all to the family.
Carolyn Moynihan | Jul 11 2014 | comment  



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If anyone thought the controversy over Obamacare’s contraceptive mandate finished with the Supreme Court’s decision it’s time to think again. Over the past months the battle has been framed as conscience rights versus contraceptive rights. Now that conscience has won the first fight on points, a second round could be fought over money.

According to health economists writing in the New York Times and The Incidental Economist blog, another troubling effect of the Supreme Court’s Hobby Lobby ruling is that insurers may lose money by having to cover the full cost of contraceptives, unless they raise premiums. 

But don’t be fooled; it’s neither the insurance industry nor women’s health that these two experts are primarily defending, but contraception itself. Why? Because it’s more cost-effective than having a baby.

It’s true that Austin Frakt and Daniel Liebman are concerned that some insurers may face costs they can’t recoup and that premiums may rise a little. As for the health issue, Liebman adds this disclaimer to the beginning of his analysis: “Contraceptives’ primary benefit is the betterment of women’s health, not cost savings. Nothing below or in Austin's Upshot post that links to this should imply otherwise!”

And yet, as Nicole King pointed out last week, no-one who has thought about it for two minutes, let alone studied the contrary evidence, could believe that swallowing synthetic hormones or having foreign bodies in your reproductive tract for years on end is a way for women to get better health.

The economists’ cost-effectiveness argument is actually more believable. It’s crass, anti-woman and even inhumane, but it makes a certain kind of economic sense.

The thing that has got Liebman, a research assistant at the Harvard School of Public Health, and Fract, who has several governmental and academic affiliations, consulting their files and tapping at their keyboards is the Hobby Lobby Court’s assertion that contraceptive coverage is “cost neutral” for insurers because the upfront costs are “balanced by cost savings from lower pregnancy related costs and from improvements in women’s health.”

This, they think, is doubtful, because the “cost of contraceptive coverage is immediate, and the possible offsets (reduced pregnancies) are downstream, often years in the future.” Society as a whole benefits from this “downstream” effect and the woman who doesn’t conceive avoids all sorts of costs, but the insurer who bears the full cost upfront, probably not.

In showing why that is the case they reveal the utilitarianism driving the US government’s “compelling interest” in free contraception and policies undermining the American family.

Here’s Frakt in The Times:

That contraceptive coverage might not be cost saving might seem counterintuitive. After all, relative to the cost of delivering a baby, let alone raising a child, contraception is inexpensive. Though prices vary, the pill can cost less than $50 a month. An IUD costs about $1,000 and is effective for several years. As any parent knows, children cost many multiples of this. Indeed, a Brookings Institution study found that expanding family planning services to Medicaid beneficiaries saved $5.60 for every $1 invested.

That such crass calculations are shaping academic work and government policy is not exactly news, but it’s seldom spelled out so shamelessly. Do health economists ever think about people in their family setting? After all, the family is the first custodian of individual health and the basis of social wellbeing, and economists would be better employed in putting a price tag on its contribution to national prosperity than in rationalising its extinction.

What follows, given all the claims about women’s absolute need for free contraception, adds irony to insult. The fact is, says Frakt, that because contraception is “so cost-effective” most people are willing to pay for it themselves, and most employed people probably can afford to (since it’s working women that this argument is largely about).

Therefore when employer-sponsored insurers pick up the tab for contraception, not very many more pregnancies are avoided – most people were already using and paying for contraception…
But when they begin to fully cover contraception, insurers take on its full cost, ‘crowding out’ the willingness of individuals to self-insure for it. Therefore, the government’s accommodation of religious organizations’ objections to covering contraception (obliging insurance companies to pick up the cost of the coverage, with no offsetting premiums or cost-sharing from either employees or employers) may impose a cost on insurers, even though contraception is cost-effective for society as a whole.

In other words, as well as representing a probable loss to some insurers, the contraceptive mandate is simply unnecessary, as most of the women who really want it will pay for it anyway, and those who want it but can’t afford it could get it through Medicaid.

Frakt concedes that the cost to insurers is relatively small, and that the government can and may reimburse some insurers. Liebman says that even if premiums increase the effect would not be “exorbitant”.

So what are they really worried about? The answer seems to be: anything that could discourage anyone from providing or using contraception. As Liebman notes in wrapping up his piece, “There are undeniable economic benefits of contraception for society as a whole, as well as a multitude of social benefits that could fill many posts of their own.”

What benefits would they be? Keeping women in the workforce longer? Make it possible for young women to have sex before they have found a reliable man to wed? 

If US health economists really valued women’s health and freedom they might do something about the exorbitant cost of having a baby in the United States. Liebman cites costs ranging from $18,000 to $50,000. No wonder the single thing that only women can do, and the thing most of them want to do, is not “cost-effective”.

Carolyn Moynihan is deputy editor of MercatorNet.



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