David R. Henderson  

How to Cut the Cost of Contraceptives by Regulating Less

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In his "compromise" with Catholic critics, President Obama has said that various church-affiliated employers don't have to provide a contraception benefit in their insurance plans. However, insurance plans will have to provide such a benefit separately and must not charge the patient for the benefit. Of course, contraceptives cost something and so the insurance company will need to charge for it. How will it charge if it can't charge patients? By charging the employers who buy the insurance. That's why I put the word "compromise" in quotation markets. It's not really a compromise at all. The employers will still need to buy insurance that is priced to reflect the contraception benefit.

John Cochrane of the University of Chicago has written an excellent critique of the original Obama proposal before the "compromise." In it, he points out that contraceptives are not something that people would typically want to buy insurance coverage for. Insurance is for consumption smoothing: that is, we buy it for high-cost, low-probability events so that a low-probability hit one year will not drastically cut our real consumption that year. The outlay for contraceptives is relatively small and relatively high-probabiity for their users. So on neither of the two dimensions is the purchase of contraceptives what economists call an "insurable event."

An advisory panel to the department of Health and Human Services (HHS) argues that a regulation requiring such coverage is needed so that "women will have access to a full range of recommended preventive services." White House spokesman Jay Carney echoes the panel's statement.

Cochrane notes, correctly, that the panel and Carney confuse access and cost.

Cochrane himself, though, tends to confuse them. I'm guessing it's because he had limited space in his Wall Street Journal article. He writes, "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." So Cochrane has access to toothpaste and the cost is low. Had he tried to make a crystal-clear distinction between access and cost, he would have taken an example where one has access but the price is high.

Nevertheless, there is a way that the federal government now cuts access to contraceptives in a way that substantially raises the cost. Were the government to get rid of the regulation that does this, women's access to contraceptives would rise and the cost would fall.

What is the regulation? It's the one that requires contraceptive pills to be prescription drugs. If, instead, drug companies were allowed to sell contraceptives over the counter, access would rise and cost would fall.

But let's say that you think that's a little too much freedom for women to have. I don't think that, but it's not unusual that I'm in the minority here. I think women should be much freer than most people think. I think they should be free to buy foreign trucks without paying a tariff and should be free to buy goods from Cuba and Iran, to take two examples.

But, OK. Let's say I can't convince you. So how about this? Have the government keep insisting that contraceptives be prescription drugs--can't trust those women, don't you know--but let pharmacists decide whether to sell them to women who ask for them. In other words, cut the high-priced doctor out of the loop. This is done in many countries and, in fact, was done in the United States before 1938. Pharmacists often have more information about drugs than doctors do: fancy that.

With that little step, access would rise and cost would fall.


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COMMENTS (21 to date)
Robertgbob writes:

Under the proposed system, there is no co-pay or any direct cost at all associated with these pills. Users will presumably not engage in any price discovery and will eventually gravitate toward the most expensive birth control pills on the market and drive up birth control expenses across the market.

With regard to eliminating the prescription requirement, is there any reason anyone would want to use birth control pills other than for its advertised purpose? However, that would require taking on doctors which is a more powerful lobby than the Catholic Church.

Ken B writes:

An excellent post David. I especially like the point about pharmacists, as that is much more broadly applicable than just the pill. You don't need to go full libertarian to substantially reduce health-care costs this way.

jlv writes:

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Robertgbob writes:

I'm not suggesting that women don't react to different birth control regimens differently. I'm talking about the fact that at the margin, doctors will most likely resort to prescribing the most expensive pill first, because that is the way that there incentives are aligned. I'm not sure how that is particularly ignorant. It happens with just about every other drug on the market when price discovery is removed. See for example the prescribing of Lipitor when it was on patent versus Zocor off patent.

Tim Ozenne writes:

HHS now says that contraceptives ought to be available with no charge and that this is cheaper than having deductibles or copays. Why? Because it lowers prenatal and delivery costs paid by the insurance company. Indeed, HHS claims to have one (s)study showing a net savings. When government runs health care and seeks to minimize "costs," watch out. Health care costs will be lower if government pursues polices that have lower birth rates. This is where government with the power to mandate what we must buy leads to.
I expect the next step will be monthly cash incentives for avoiding conception, or for ending pregnancies.

Henry writes:

I like the women's rights angle. It highlights an apparent inconsistency in what women's rights activists think women should be able to do with their bodies.

Unfortunately, it can go the other way. If I were a pro-life politician, I would focus on trying to significantly increase abortion regulations under the guise of "protecting women".

Richard A. writes:

The popular diabetic drug metformin is another prescription drug that should be sold without prescription.

Generic alpha blockers for the aging male with a slow urinary flow are quite cheap and would save a lot if sold without prescription. Go to a doctor and he may prescribe an expensive brand named alpha blocker.

MikeP writes:

While I completely agree with the sentiment, this is a bit of a red herring.

Presumably annual checkups are already included as fully insured events in Dr. Obama's mandated universal plan. Any doctor will prescribe the birth control during this visit, thus adding no cost to the prescription itself.

Chris Koresko writes:

Richard A: You raise an interesting point.

I've been wondering for a while why so many libertarians are fixated on legalizing marijuana and other "recreational" drugs, and not on legalizing real medicine.

David R. Henderson writes:

@MikeP,
Potentially good point but here’s why I don’t think that will be true long-term. I expect that sooner or later, ObamaCare, if upheld by the Supreme Court, will lead to price controls on doctors. How will doctors respond? By unbundling. They’ll charge x for a general visit and y for a visit to talk about contraceptives, etc.
Also, my point still applies to people who, despite the fines for not getting health insurance, persist in not getting health insurance. Who’s most likely to do that? Young, healthy people who would rather pay a $750 per year fine than a $5,000 per year health insurance premium.

MikeP writes:

Fair points -- especially for the remaining uninsured, who wouldn't be insured by the cow the Administration is having over this nonissue anyway.

dnb writes:

A better explanation needs to be given on why birth control is not OTC. Birth control is not a medication in which one dosage form is going to work for every woman. Yes pharmacists do know more about drugs than doctors. But that doesn't mean a pharmacist can just hand a woman BC without some type of patient checkup

Larry writes:

I have no idea whether these drugs expose users to significant risks. Safety is the only reason I can think of for keeping them behind the prescription wall.

That said, the reason to insure people for contraception, etc., is to get people other than fertile women to cover the costs. That enables such women to remain sexually active with lower risk of pregnancy. Arguably that results in lower total health care costs (both for handling pregnancies and for the offspring's health care). It's not crazy (although it may be incorrect) to claim that society is better off with fewer unplanned pregnancies.

The principle generalizes to other health care areas. Corrupting the insurance notion to include routine activities doesn't have to mean that that total costs move higher.

My preferred way to handle such situations is to arrange the system so that good behavior (preventive care, etc.) is covered, while giving patients incentives to consider the cost of same. Something like "here's money to cover your preventive costs for this year. Don't forget to send us your completion certificate, to ensure you get the increase for next year. As usual you keep any money left over."

Even if someone else actually pays, it is still possible to get the consumer/patient to care about costs.

MikeP writes:

The only reason to keep drugs behind the prescription wall is if they are (a) phenomenally lethal if accidentally misused or (b) authentic public health concerns, such as last-line antibiotics that will become useless if misused.

Sam writes:

No objections to having it be a behind-the-counter, non-prescription drug. Pharmacists can screen out smokers over 35, which seems to be the risky category for severe adverse events (stroke).

What level of liability, though, would the pharmacist have to bear if an adverse event does occur? Currently that's handled through the physician's malpractice insurance (since the physician is prescribing), but if the pill were available over the counter, the physician wouldn't be involved and it wouldn't reach the doc's malpractice insurance. So is it then on the pharmacist?

A lot of good would be done by deregulating medication supply. But there will be secondary costs (and secondary benefits), too.

Greg writes:

The pill is a prescription drug???? Why? Here in Europe it's a common thing to buy. It not THAT cheap, I think it's about £10 for a pack of 4 or something although one can get free pills from NHS but one needs to go to a special emergency contraceptives clinic which are usually much harder to find than a chemists'. But by far the most important contraceptive is the condom and one can buy that very easily, even in America.why is that not insurable???

Mark Mc writes:

Great Post David!

Strike up a conversation with a pharmacist someday, they have a ton of knowledge. Unfortunately, public licensing rules mandate that they receive a great deal of education to practice and then prescription rules ensure they aren't allowed to use that education.

Daublin writes:

I suspect the idea is not so much to make contraceptives cheaper. The idea is more to force people to buy contraceptives even if they don't want them, and thus get more people using contraceptives the way that Obama pictures all good people should do.

Think about the position, under either Obama proposal, of a person who is not interested in contraceptives but is buying one of the health insurance plans that is covered. Maybe they are celibate. Maybe they've had a vasectomy. Maybe they are in a committed couple, and only one of the two people is going to use birth control. Maybe--imagine this--a couple is trying to have a child. In any such case, Obama wants people to buy the contraceptives anyway.

In short, the idea is that it's not really up to an individual whether contraceptives are worth the cost. Obama has figured that out for all of us.

Ken B writes:

Richard A asks a good question:

I've been wondering for a while why so many libertarians are fixated on legalizing marijuana and other "recreational" drugs, and not on legalizing real medicine.

There could be a truth-in-advertising issue here. I have talked to a number of people who call themselves libertarian but who are really liberals who want to end the drug war; they still support a great deal of regulation and intervention.

In general I have had little success convincing people that drugs other than pot should be legalized, even blood pressure pills. I HAVE found people more receptive the pharmacist or nurse-practitioner idea. It clearly reduces costs without letting the great unwashed roam free is the appeal I think. Even small steps are worth taking.

Anne Pennisson MD writes:

wrong.
There are significant risks with contraception and metformin.
This is why a patient must be screened by
a physician.
I am a female physician and have many concerns about this article.
Birth control is affordable.
As for doctors deliberately prescribing the most expensive -that statement was the most ignorant post I have seen !
I do not think quality care needs to be compromised to produce a freebie !
My daughter pays 20 bucks every 3 months for her pills. Annual pap if indicated can be done in most routine clinics and health departments.
When I was a younger woman and a college student these were nonissues.
The issue I see is religious not medical.

Dave R writes:

I like the point that insurance is intended for high-cost, low-probability events. This is true, but we have forgotten this when it comes to our health insurance. We don't need insurance to cover routine doctor visits and eye glasses, dental cleanings, condoms, vasectomies or the pill. These things are not expensive, and they are all anticipated or chosen. If an insurance company wants to cover these items, that's its choice for a premium program. If the Affordable Health Care Act is going to succeed, it needs to define a "minimal level" of care that must be covered and let individuals choose to upgrade as desired.

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