Wednesday, February 8, 2012

The Real Trouble With the Birth-Control Mandate

(This is a Wall Street Journal Op-Ed. If you don't subscribe, there is a pdf on my webpage.)

When the administration affirmed last month that church-affiliated employers must buy health insurance that covers birth control, the outcry was instant. Critics complained that certain institutions should be exempt as a matter of religious freedom. Although the ruling was meant to be final, presidential advisers said this week that the administration might look for a compromise.

Critics are missing the larger point. Why should the Department of Health and Human Services (HHS) decree that any of us must pay for "insurance" that covers contraceptives?

I put "insurance" in quotes for a reason. Insurance is supposed to mean a contract, by which a company pays for large, unanticipated expenses in return for a premium: expenses like your house burning down, your car getting stolen or a big medical bill.

Insurance is a bad idea for small, regular and predictable expenses. There are good reasons that your car insurance company doesn't add $100 per year to your premium and then cover oil changes, and that your health insurance doesn't charge $50 more per year and cover toothpaste. You'd have to fill out mountains of paperwork, the oil-change and toothpaste markets would become much less competitive, and you'd end up spending more.

How did we get to this point? It all leads back to the elephant in the room: the tax deductibility of employer-provided group insurance. 

If your employer pays you $100 less in salary and buys $100 of group insurance for you, you don't pay taxes on that amount. Hence, the more insurance costs and covers, the less in taxes you seem to pay. (Even that savings is an illusion: The government still needs money and raises overall tax rates to make up the difference.)

To add insult to injury, this tax deduction does not apply to portable, guaranteed-renewable individual insurance. You don't get the tax break if your employer gives you the $100 and you buy a policy—a policy that will stay with you if you get sick, leave employment or get divorced. The pre-existing conditions crisis is largely a creature of tax law. You don't lose your car insurance when you change jobs.

Why did HHS add this birth-control insurance mandate—along with "well-woman visits, breast-feeding support and domestic-violence screening," and "all without charging a co-payment, co-insurance or a deductible"—to its implementation of a provision of the new health-care reform law? "Because it promotes maternal and child health by allowing women to space their pregnancies," says the HHS advisory panel. Because these "historic new guidelines" will make sure "women have access to a full range of recommended preventive services," says the original HHS announcement. To "increase access to important preventive services," echoes White House Press Secretary Jay Carney.

Notice the doublespeak confusion of "access" and "cost." I have "access" to toothpaste because I have two bucks in my pocket and a competitive supplier. Anyone who can afford a cell phone can afford pills or condoms.

Poor women who can't afford birth control are a red herring in this debate. HHS isn't limiting this mandate to the poor. We all have to pay. The very poor typically don't have employer-provided health insurance in the first place.

"Allowing women to space their pregnancies"? Was there some sort of federal ban on birth control before this?

It's not about "access" and it's not about "insurance." It's because Americans, when paying even modest co-payments, choose to spend their money on other things. They prefer a new iPod to a "wellness visit" to the doctor. As the HHS unwittingly admits: "Often because of cost, Americans used preventive services at about half the recommended rate."

Remember, we're supposed to be worrying about skyrocketing health-care expenses. Doubling the number of wellness visits and free pills sounds great, but who's going to pay for it? There is a liberal dream that by mandating coverage the government can make something free.

Sorry. Every increase in coverage means an increase in premiums. If your employer is paying for your health insurance, he could be paying you more in salary instead. Or, he could be lowering prices and selling his product to you and all consumers more cheaply. Someone is paying. Not even HHS tries to claim that these "recommended preventive services" will lower overall costs.

Here's a good mandate: Let's mandate that every time a government official says that the government is going to "help" some category of voter, he or she has to say who they are going to hurt in the same sentence. Because it has to be someone.

But what about the fact, you may ask, that unwanted children are a burden on society as well as to their mothers? Perhaps there is a social interest in subsidizing birth control? Perhaps there is—but if so, this is an awful way to do it.

If pills are "free," under insurance, the incentive for drug companies to come up with cheaper versions vanishes. So does their incentive to develop safer, more convenient, male-centered or nonprescription birth control. And by making pills free but not condoms, the government may inadvertently be contributing to an increase in sexually transmitted diseases.

The taxes and spending we argue about are the tip of the iceberg. Salting mandated health insurance with birth control is exactly the same as a tax—on employers, on Catholics, on gay men and women, on couples trying to have children and on the elderly—to subsidize one form of birth control.

If the government wants to subsidize birth control, OK, pass an explicit tax, and sensibly subsidize all birth control. And face the voters on it. The tax rate and spending debates that occupy the media are a small part of the effective taxes and spending that the government achieves by these regulatory mandates.

There is also the issue of religious freedom. Our nation is divided on social issues. The natural compromise is simple: Birth control, abortion and other contentious practices are permitted. But those who object don't have to pay for them. The federal takeover of medicine prevents us from reaching these natural compromises and needlessly divides our society.

The critics fell for a trap. By focusing on an exemption for church-related institutions, critics effectively admit that it is right for the rest of us to be subjected to this sort of mandate. They accept the horribly misnamed Patient Protection and Affordable Care Act, and they resign themselves to chipping away at its edges. No, we should throw it out, and fix the terrible distortions in the health-insurance and health-care markets.

Sure, churches should be exempt. We should all be exempt.

(All health-insurance artilcles and opeds)


  1. In general, I agree with the sentiments of this blog, but I do wonder.

    "There is also the issue of religious freedom. Our nation is divided on social issues. The natural compromise is simple: Birth control, abortion and other contentious practices are permitted. But those who object don't have to pay for them. The federal takeover of medicine prevents us from reaching these natural compromises and needlessly divides our society."

    Hmmm. Does this mean the Amish or Quakers do not have to pay federal incomes taxes that go to the Department of Defense?

    Although I am not a complete pacifist, at some point the wars in Vietnam or Afghanistan began to strike me as ghastly displays of murder and mayhem for no real gain, supported only by interest groups (and their mouthpieces) that benefitted from the federal outlays. Can I stop paying taxes to support those wars? Afghanistan executes citizens who convert to Christianity, btw---my tax dollars are used for that?

    This issue does not seem so easy to resolve.

    1. It is a real dilemma, but there are two things. One, the Amish, and you both benefit from having military protection. The uses of that military are open to political change. Health care is a different issue because people have since the beginning done well without any federal involvement in their health care.

      second. Military protection is a function of government which is constitutionally mandated. Health care is certainly not. In fact you have to twist the Constitution to even permit it.

    2. More pertinently, the Amish don't pay Social Security taxes: they can't opt-out of the benefit of being defended, but they can and do opt out of the Social Security system on religious grounds. As a result, they are discharged from paying that tax.

    3. The ability to levy taxes and defend the country are legitimate powers of Congress granted by the Constitution. Forcing religions institutions to pay for contraception, on the other hand, is not in the Constitution (not to mention that forcing a church to violate its tenets is prohibited by the First Amendment).

    4. I keep seeing this objection. Cochrane makes this suggestion for a "national" "divide". The interests of the Amish, the Quakers, or the Occupiers versus the rest of the country do not a national divide make. The country arrived at this solution (legal, but no government financial support) through democratic legislation argued out between two roughly evenly divided opinion halves, and not a small parceling out to every small group.

  2. The real issue is breaking the mental association between health care and health insurance. They are not synonyms. Health insurance was invented by Hospitals and Doctors who promoted Blue Cross (for Hospital care) and Blue Shield (for Physicians charges) as a way to develop a customer base who could afford their services.

    In insurance theory, health insurance protects the assets of persons who could pay for expensive care out of their non-exempt assets. Since most people do not have much in the way of non-exempt assets, they have no reason to buy health insurance.

    The hospitals and the physicians were the driving force behind Obamacare. They are concerned that their cash flows will be impeded if people do not have health insurance.

    The growing crisis is that people subsidized by the government have bid the cost of health care up to the point where it is becoming truly unaffordable. Those subsidies include not only the tax exemptions but the 50% of health care expenses that are paid for by government. The solution that Obamacare provides for the crisis is to increase the subsidies and make more people eligible for them.

    The predictable consequence of Obamacare is that it will drive the costs up even faster.

    There are two stable solutions to the underlying cost problem. One is true socialized medicine. The one is a true unsubsidized free market. An approximation of the first can be created by a very rigid system of price controls.

    Adopting either solution will create enormous losses of jobs and write downs of capital assets.

    Since the health care blow up will probably be conjoined with a fiscal catastrophe of the Federal Government, the ultimate shape of a solution is impossible to project.

    1. Great point. Unfortunately, the Patient Protection and Affordable Care Act, and the majority opinions of the Federal Judges who have upheld it to this point, have pointed out that "de facto" health insurance DOES equal health care. It's the most frightening part of the decisions so far (6th Circuit's was the most terrifying) that now there is a federal legal precedent equating health insurance with health care.

    2. The widespread adoption of modern health insurance was largely a creation of employers, not insurers, during WWII wage controls as way of offering addition compensation immune to income taxes.

  3. The pre-existing conditions crisis is largely a creature of tax law

    Really? I was finding myself in complete agreement until I stumbled on this. I apologize, but that just makes no sense. Pre-existing conditions crisis is a function of high levels of adverse selection in all matters of health. Surely, you won't attempt to claim that adverse selection in health is the same as in car insurance ?

    1. The bottom links in the post go to several long articles on pre-existing conditions and how to fix them. In short, I don't think adverse selection is in reality nearly as big an issue as people make of it, while preexisting conditions are a contract issue that's fairly easy to solve in a free market.

    2. Thanks, I'll read the articles and try to make heads or tails out of this. Certainly that seems to be the major area of disagreement. Economists who are for a large government role in healthcare are thinking that adverse selection is too high for the market to function. One thing about the free market: it assumes that insurers would compete with each other. But they would not. In absence of strict regulations, they would collude with each other in order to simply not cover sick people, or cover them but then find clever ways to minimize the payouts after the fact. Sure, explicit collusion is illegal. But what about "industry conferences". What are those for ?

    3. I'm doing some work on theoretical adverse selection right now, using the results of the new Pre-Existing Condition Insurance Pools in the 50 states as the baseline (worst case) scenario. The costs in those pools are incredible, running roughly 10x HHS estimates overall and as much as 50x estimates in Alaska and Colorado.

      Seems like there are a whole lot of very sick people out there without health insurance and if a window for insurance opens up for them (and them alone) they can burn through a ton of money in a short period of time.

    4. @Bertaut:

      As expected if covered by insurance, because pre-existing usually means chronic, e.g. asthma or diabetes, i.e. predictable:

      "Insurance is a bad idea for small, regular and predictable expenses."
      Exactly so.

  4. I thought it was less about the tax breaks and more about the fact that we have employer-provided healthcare to begin with. If everyone paid a tax and we received government-stewarded healthcare (single-payer model), I don't think this conscience issue would be much of a factor. Also, isn't the fact that people would rather spend money on a cell phone or iPod just more evidence for why the entire system should be put in the hands of government? I'm sure people would make the same decisions if defense and public safety were up to them. Pay the firefighters on the off-chance that your house might catch fire or buy the new shiny object? How is that any different?

    1. It is different because firefighters benefit everyone but a doctor visit (usually) only benefits the person making the visit.

      Firefighters are a public good: non-rival and non-excludable. Before them, if anyone's house caught on fire, there was a decent chance the whole town would burn down. Visits to a doctor are generally a private good. (The only exception is for infectious disease, which, as Cochrane notes, is an argument for subsidizing condoms and not contraceptive pills.)

    2. > Also, isn't the fact that people would rather spend money on a cell phone or iPod just more evidence for why the entire system should be put in the hands of government?

      No, no it's not. Unless you believe that we should turn our lives over to the government. Should government select my college major because it would better for society for me to be an engineer instead of the mediocre artist?

      Why should government care if I get a colonoscopy at age 50 let alone force me to pay for it regardless if I do it or not?

    3. >I thought it was less about the tax breaks and more about the fact that we have employer-provided healthcare to begin with.

      The former causes the latter. We only seek employer provided health insurance because of the employer health insurance tax deduction. Otherwise we'd all get it on our own, likely via associations such as professional organizations, churches, etc, and in which case we would give do care to what we buy, unlike now.

      >Also, isn't the fact that people would rather spend money on a cell phone or iPod just more evidence for why the entire system should be put in the hands of government

      That seems to a common, but irrational, reaction in my view. Why assume that "people" will not make good decisions (i.e buy iPods) but then government which is consists of "people" will suddenly become rationale when spending other people's money?

  5. Excellent Article. I like your proposed mandate. Ayn Rand advocated a similar position in her essay on Man's Rights: whenever an alleged right is claimed, always ask "at whose expense?"

  6. "Because it has to be someone."

    Well - no. Government can be a win-win. A pareto-optimal level of government will still involve some level of government.

    So far as eliminating the tax subsidy of employer health care plans goes: I think that the US would have a single payer health care system within five years of such a change.

    1. Odd assumption when several others that have had SP are or have moved away from it: Dutch entirely out, Canadians courts legalized previously illegal private clinics on a denial of "human rights" rationale of all things.

  7. John

    Help me out here on the second order effects.

    Let's assume that family planning reduces unwanted pregnancies (which I believe is fair and supported by the evidence)

    Let's also assume that fewer unwanted pregnancies means fewer abortions.

    Doesn't this mean that you favor policies that result in more abortions?

    Life is like that John; it creates paradoxes. But you have to admit, Obama is pursuing a policy that will result in fewer abortions. Why don't you congratulate him for that?

    Now, lets deal with this religious freedom thing but let's balance such against that the constitutional right of employees to pursue their calling. Cato just filed, per Barnett, a magnificant brief with the supreme court on the property right of every person to pursue their chosen occupation or calling. So what you have here is a conflict of fundamental propositions (we don't; your side is free to exercise its beliefs as they wish), per Cato.

    Now which trumps, property or religious conviction? And, just to make it interesting, lets assume that my religious conviction is that you ought to be my slave.

    Now, where do you come out?

    I would suggest you don't have an answer because your position is a polemic. There is no mandate to use these services, so there is no interference with belief or exercise.

    Now, just for fun, let's really think about the problem. Let's just assume I am a Christian who correctly reads the Bible and I believe that the big rich should pay much higher taxes, to support social programs, based on my religious beliefs.

    Now when you and the other Catoists and Rush and your fellow travelers charge me with Class Warfare, aren't you insulting my religion, aren't you interfering with the free exercise of my religion? So, if you are so concerned about such things, why have we never heard you voice calling Cato or Rush down for the way they talk about people who religiously believe that the big rich should pay higer taxes

    1. Well JLD, you obviously didn't read this post. As far as I know, John may not be a particularly religious person. From the context of this article, it is certainly possible that he's far to your left on the issues of abortion and birth control (I know I am, and I am in more or less complete agreement with John on this topic).

      This is more than a question of religious freedom, it's a practical question of what policies will yield the best outcome. John rightly points out that this has nothing to do with availability or access--it isn't means tested, so everyone has to pay for birth control for even rich people who want it. The truth is, people have preferences, and often prefer things that the people in power would rather they not prefer. The crux of the issue turns on whether you think people are happier when they do what they prefer, or when they do what the people in power prefer.

      I personally wish more women made responsible choices about birth control (and abortion, for that matter, which is to say, I would rather they choose to have one, when the alternative is having an unwanted child). However, I'm not presumptuous enough to believe that I should actually be put in charge of these people's lives.

      What conflict do you see between personal and religious freedom here? I'm not sure what you think you're talking about.

      Also, you obviously don't seem to have a lot of interest in ferreting out the actual views of people with whom you disagree, but so you know going forward, Cato and Rush have wholly different ideologies. On social issues (like abortion), Cato is generally far to the left of Obama (as am I). On economic issues, Cato is generally far to what is now considered the right of Rush (also, like me).

      Also, insulting a persons religion isn't interfering with that person's right to its free exercise. Forcing that person to participate in something that their faith forbids, is a very different matter. As an example, if your hypothetical pious Catholic wants to donate a bunch of money to the poor as per his religious beliefs, that's fine. Personally, I don't think that such a method will have much positive effect (although it will likely have a better impact, or at least a less damaging one than government spending), but no one is trying to make it illegal.

    2. I'm not presumptuous enough to believe that I should actually be put in charge of these people's lives.

      Grow up. Gov't is in charge of people's lives. When a state legislature sets the tax on gasoline to build roads, it is voting on the number of people who will live or die. Virtually every gov't choice is a question of life or death.

      We cannot avoid being in charge of people's lives. I admit that truth. I am sick and tired of people, like you, who deny that they are out to be in charge of people's lives, which is why I pointed out that the conflict is between the alleged religious beliefs of some and the property right of all to pursue their chosen work.

      It seems pretty easy for me to conclude that the right to pursue one's occuption entitles one to receive health care on the same terms and conditions as everyone else, regardless of the identity of one's employer.

    3. "It seems pretty easy for me to conclude that the right to pursue one's occuption entitles one to receive health care on the same terms and conditions as everyone else, regardless of the identity of one's employer."

      and the rights of an employer? we can argue about whether or not health insurance should be part of employer/employee relationship...but right now it is. so i could just as easily say it seems pretty easy for me to conclude that the employER should have the right to pursue the health insurance options of their choice, regardless of what the president or you think.

  8. Insurance must provide birth control + Must buy insurance = Must take birth control. I'm just sayin...

  9. Hi John,

    Could you explain( or point me to a reference) "If pills are "free," under insurance, the incentive for drug companies to come up with cheaper versions vanishes. So does their incentive to develop safer, more convenient, male-centered or nonprescription birth control. " Wouldnt there be cost-pressure from insurance companies and innovation-pressure from women selecting what to spend their benefits on?

    1. It depends on the nature of the insurance. If the insurance is government subsidized, they have no reason to consider cost--the taxpayers are picking up the tab anyway. To a limited, but real degree, that's essentially what's happening under Obamacare. Even before Obamacare, by nature of the way government treated health insurance (by way of tax policy), the healthcare field was already less efficient than it otherwise would have been.

    2. Take from a health insurance economist, our industry has so thoroughly muddied the payment waters that any notion of cost pressure on providers or drug manufacturers from our insured is mostly out the window. Insurance companies are increasingly unable to put cost-pressure on providers or drug companies because larger and larger chunks of their revenue come from the really, horrible paying government-insured patient. Private carriers are constantly staked over a barrel publicly to make sure we keep paying 150-200% more than medicare or medicaid does.

      Might want to think about that when you start thinking "single payer." You put our healthcare system on a diet of Medicare-level payments as their BEST payor and health innovation will not only come to a standstill, it will quickly start to regress. Quickly.


    3. Thanks, that helped me understand how the politics of the situations screws things up. But from a more theoretical perspective, in a properly functioning insurance market, is it necessarily true that zero copay options will necessarily lead to higher costs and less innovation?

  10. So what are the actual reasons for subsidizing contraception? Is it an issue of women's rights, or does it come from the idea that preventative measures save us money in the long run?

  11. Kyle--Actually, our Founding Fathers detested and loathed standing militaries, and want to lengths to ensure we could rely on citizen militias. Later, as a nation, we generally over-ruled the counsel of the Founding Fathers, and have established a permanent and mobilized military.

  12. Not to be all fan-boy, but Professor Cochrane has developed a devastating critique of the deficiencies of the PPACA. I think the key social problem is to get consumer "skin in the game." Certainly, insurance is necessary so that unanticipated health problems do not devastate an individual's accumulated wealth. But the current system offers little incentives to consumers to shop for best value for non-emergency health care. A system with high deductibles, and catastrophic caps would work better. But we should start a process to divorce insurance from employment, as that skews incentives as well. For example, those with existing conditions are limited in job mobility and we encourage over consumption of health care as a good, because health insurance coverage is not a taxable benefit.

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  14. Your column on the real issues with the contraceptive mandate caught my attention when you mentioned the rules might hamper development of male-centered birth control by private industry. I have an abiding interest in the development of male centered birth control methods, having followed the subject since the 1990s, advocated for the work, and myself participated in clinical trials. I think new male contraceptives will change the culture in ways that people do not now understand, but that the changes will better everyone's lives.

    If the new contraceptive rules impede development of male methods, that would be a poor outcome indeed. But unless you know something I don't, there is presently no private free-market investment in male contraceptives development for the new rules to thwart; big pharma left the male contraceptives development arena long ago and has ever since shown no interest in returning. Development comes from WHO, HSS, and NGOs such as the Gates Foundation and the New Male Contraceptives folks, ever since. In fact, the situation in the United States for new male contraceptives development is already not particularly promising; I predict the great breakthroughs will come from other countries.

    If you would care to suggest exactly how the new rules might be changed to avoid hindrance of male contraceptive methods, I would most sincerely like to hear them. You might not have expected your thoughts would be used along these lines, but I thank you for your thought provoking discussion.

  15. First of all, I congratulate Derek on the appropriateness of taking up the issue of pharmaceutical male contraception on Valentines Day! Seriously, the willingness for males to take the burden of pharmaceutical contraception off the shoulders of women would be a much better Valentine's present that flowers or candy.

    However, Derek is too polite about the partisan nonsense that Cochrane is trying to retail through the WSJ. So let me take the opportunity to cut a bit deeper into the blather that Cochrane is trying slip by.

    To begin, we all know the 30,000 foot economic argument Cochrane is making:

    “Hey, by pouring more money into today’s technology, you make it more difficult for there to be a breakthrough for newer technologies.”

    While that argument may make sense from within a mindless application of general equilibrium theory, it is absolutely zany when it comes to public health policy.

    Would Cochrane advocate that the government put a “fossils fuels” type tax on the consumption of current contraception technology to encourage research and development and eventual economic consumer choice of, in this case, male contraceptives?

    Or would he have the government stay altogether out of business of trying to promote new medical technologies? You know, the theology of “the market left to itself will do it better.”

    In short, does Cochrane seriously want to maintain that had there been materially less involvement of the Federal government in medicine over, let’s say, the past 50 years, the innovation spike in medicine would have been even equal to – let alone greater than – what it has been?

    For that sort of argument Wolfgang Pauli, someone who was an actual rather than a wannabe physicist, had the appropriate response:

    "Not only is [that argument] not right, it's not even wrong!"

    Which brings me to the specific fatuousness of Cochrane’s attack on the HHS’ contraception rules. In terms of health care economics, it is difficult to imagine a statement more obtuse than the following one made by Cochrane:

    “Insurance is a bad idea for small, regular and predictable expenses.”

    Does Cochrane have even the barest understanding of the overwhelming economic benefit, in terms of holding down costs in the health care system as a whole, of preventive medicine? Has Cochrane ever compared the costs of maternity – and abortions, for that matter – to the costs of cheap, reliable, and safe contraception? Not on an individual basis, but on a population basis?

    If he had, he might not be so tempted to retail the O’Hannity and Catholic bishops’ meme that somehow this question is about the “additional” costs of contraception? This is about saving econometrically validated, enormous sums of money in the health care system as a whole. If the bishops would get off their ridiculous First Amendment high horse, they would hammer the insurance companies for a refund on the premiums for every one of their employees who opted for contraceptive coverage.

    It may make Cochrane feel good to sneer about how some people will readily spend their money for a new iPod rather than for a co-pay for contraception drugs, an HPV vaccination for their 11-14 year old, a flu shot, or myriad other preventive medicines and protocols.

    But a sneer is no substitute for sound public health care policy.

  16. "How did we get to this point? It all leads back to the elephant in the room: the tax deductibility of employer-provided group insurance."

    I'm sorry, but I totally disagree. It's employer provided group insurance in the first place creating the problems. With a government provided scheme this really wouldn't be an issue.

    In addition, when you say that prexisting conditions is a simple contract issue that the free market can easily solve, you assume there is no adverse selection, when there are plenty of papers just last year (e.g. Finkelstein et al 2011) arguing that it is much higher than thought of before, even ignoring the heterogeneity dimension.

  17. I do agree with every point. have shared this with world! Birth Control


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