Massachusetts Daily Collegian

The economic foibles of mandating contraception

By Harrison Searles

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The recent brouhaha regarding the Catholic Church and its related missions being forced to provide contraception as part of the health insurance that it must provide, a change against which its magisterium has taken a vocal opposition, has been everywhere in the media over the past couple of weeks.

Even the “compromise” that President Barack Obama suggested two weeks ago has done little to calm the storm that the mandate has stirred. However, this should not only be seen as a moral issue but also as an issue in which the economic logic of requiring insurance companies to carry insurance must be questioned. By doing this we see that the mandate is a policy not suited to solving the problems that it is aimed at.

Indeed, while the former is rightfully ubiquitous in the media with questions of the First Amendment and freedom of conscience taking center stage, the contraception mandate is also a clear example for why the Affordable Care Act (ACA) was not a proper solution for the multitude of problems facing American healthcare.

Rather than taking into consideration the heterogeneity of reasons why people consume a variety of healthcare goods, the ACA was written with the view that the problem is simply a matter of insurance and can be solved by simply forcing everyone in the United States to purchase health insurance.

However, this strategy has clearly been exposed as foolish by the fact that the Department of Health and Human Services (HHS) is requiring employers to provide insurance for contraception as part of the insurance the ACA mandates them to provide, even though it makes little economic sense to service such goods via insurance.

The reason for this is simple. Insurance, in economic terms, is a contract by which one party pays another a certain premium in order to cover for a large and untranslatable event. A classic example of this is fire insurance, in which an individual pays an insurance company a certain sum per pay period in order to ensure that if a fire were to burn down the insurance payer’s building, the company in question would take care of the expenses that the fire caused.

A technical term that is of use here is “consumption-smoothing;” insurance allows, among other things (including pooling of risks), for a large quantity of expenditures to be smoothed out into smaller ones across a far larger period of time. The consumption-smoothing property of insurance thus enables people to be prepared for a low probability event without having to hold a lot of money in their savings.

There are certainly many medical purposes for which insurance makes sense. The probability of getting into a car accident is very low and yet the costs are high enough that most would not be able to pay out-of-pocket without dipping into some substantial savings; here, insurance is a prudential choice.

However, there are other situations that make absolutely no sense paying for with insurance, and this category includes goods like toothpaste and soap. Both are clearly important for the maintenance of bodily health, but since they are low cost, high probability events, one can easily plan the expenses into one’s budget.

The question that now faces the ACA is whether the purchase of contraception is an expenditure that suffices the conditions for sensible insurance – those conditions being high cost and low probability. It is all too apparent that it does not. For one thing, the need for birth control is very easy to foresee, indeed it is even within the control of those who use the goods. Secondly, it is also low cost, with a pack of sixty condoms being available on Amazon.com at $15.99, most birth control pills being $15-50 per month. As a result, there is no need for the consumption to be smoothed out over time; instead, each person can easily figure out what their expenses would be and buy the necessary goods accordingly. There is simply no need to involve a middleman – the economic purpose in question can be readily provided for simply by individuals buying the goods themselves. There is no need to involve a middleman with the foreseeable effect of raising costs and, soon enough, prices along with them.

Nevertheless, HHS has added birth control to the ACA’s insurance mandate leading to the question: Why use a tool that is clearly not suited to the job? If it is the goal of ensuring that contraception is freely available to anyone who would desire to consume it, then it is moot. Birth control is already widely available for prices that are well within the range of even a minimum-wage laborer.

The problem, which can also be said of other aspects of healthcare, is that individuals happen to value other things more than contraception. Rather than spending the money on birth control, people may prefer purchasing other goods, accepting the risks involved in order to enjoy a wider range of consumption. There is nothing that a government program can do about this; irresponsibility is simply not something that can be legislated away.

Furthermore, if the HHS really wants to widen the availability of things like birth control pills, there is an easy answer: Deregulate them such that they can be sold over the counter. Is there really any reason why a well-informed consumer needs to go to a doctor in order to get a prescription for a drug whose effects and side effects are already well known?

Often, it is the pharmacist at the other end of the counter who knows more about a specific drug than does the doctor signing the prescription. By allowing such pills to be sold over the counter without the permission of someone within the American healthcare guild, the HHS would be able to both expand the access to such contraceptives and reduce their costs without having to create yet another mandate.

If the HHS and President Obama really think that contraception is not widely enough available, then they ought to explicitly subsidize it. After all, that would be a more efficient means of widening its availability since it does not force insurance companies to provide a service that they are not suited to provide.

It would also be a more honest means of going about the debate since by doing so, the government would have to admit they are taxing gays and lesbians, couples trying to have children, Catholics and the elderly – groups who have no demand for birth-control – in order to provide services for the rest of the society. In this situation, they would have to make an explicit case for why it serves the general welfare to supply more contraceptives than would be available under normal market conditions. However, seeing that birth control is clearly a good whose benefits are enjoyed most by those who pay the costs, the case that contraception is a Pigovian public good is so flimsy that it is no wonder that it is not being made.

In the end, the contraception mandate is not only a matter of freedom of conscience; it is also a matter of the government using clumsy policy in order to deal with imagined problems. Birth control is already widely available for low prices in the United States, so it clearly is not prudent policy to interfere with the market to increase its consumption. Worse, this goal is being pursued by making a good, whose consumption is already at low cost and high probability of occurrence, be covered by insurance, a contract best served for the purposes of consumption-smoothing.

All of this is evidence for the fact that healthcare simply cannot be solved by throwing insurance at people: The problems involved are of such different characters that insurance is simply not the answer to all of them. Worse, throwing insurance at people is not a pragmatic means of getting closer to a solution since it throws yet another nonsensical feature into an industry already ripe with so many dysfunctional elements.

The final legacy of this debate over contraception insurance may very well not be about Americans’ freedom of conscience, but that the government managed to skew one of the markets serviced so well by the current state of healthcare.

Harrison Searles is a Collegian columnist. He can be reached at [email protected]

Correction: In an editing error, the word “homosexuals” was published in the original version of this article. It has been changed to reflect proper and preferred nomenclature and adherence to AP Style to “gays and lesbians” in the sentence:  “It would also be a more honest means of going about the debate since by doing so, the government would have to admit they are taxing gays and lesbians, couples trying to have children, Catholics and the elderly – groups who have no demand for birth-control – in order to provide services for the rest of the society.”

2 Comments

2 Responses to “The economic foibles of mandating contraception”

  1. hmm on February 22nd, 2012 5:19 pm

    contraception isn’t an obvious public good? are you kidding? conservatives like you who complain about ‘entitlements’, education and all the other costs that go with bringing more people into society should really consider how much more economic sense it would make to have fewer people around in the first place. speaking of society, i agree that the individual mandate isn’t a good solution to the problem. healthcare is a social issue and a social good, and we should have a public option.

  2. Noah Davidson on February 23rd, 2012 12:43 am

    Pro life and organizations even said that a one-year delay does not address their serious concerns about being forced to comply with a position to which their faith is opposed. I read this at http://reallycheaphealthinsurance.com/religious-conservatives-angered-by-health-insurance-requirement-on-contraceptives/ and http://www.npr.org/blogs/health/2012/02/10/146693907/white-house-bends-on-birth-control-requirement-for-religious-groups. I think this is getting way too serious.

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