Lost in the entire controversy over whether the government can force all insurance to cover contraception is the question whether the government should mandate that coverage from any insurance.
The policy is: contraception must be covered in full at zero cost to the insured. No co-pay. No additional premium. This is excellent policy, I’m told, because by preventing unwanted or unplanned pregnancies, it prevents later, more costly, use of the health care system. Spend a nickel today, save a dollar next year.
But that strikes me as a completely unwarranted assumption. This is a subsidy of contraception, and the cost will therefore rise. Because the mandate completely insulates the consumer from costs, the costs will therefore rise by quite a bit. I think the only ones that will benefit are the pharmaceutical companies.
This is how it seems that things will play out:
1. Pharmaceutical company presently sells generic contraception for something like $10/month. This isn’t good for everyone– some women need specialized meds that are not available generically and can therefore cost quite a bit more– but for most people, the generics work fine. Because the generics work fine for most people, there isn’t a lot of market demand for development of new medicine, because they would be expensive and the generics already work for most, which means that a brand new expensive thing that does the same task as an existing generic thing will not be covered by insurance, or will have a great big co-pay. (Like the extra cost of Nexium, when generic omeprazole will do just fine.)
2. Mandate (in whatever form) enforced. Contraception is covered, 100% at no cost to consumer. No co-pay. No extra premium. Cost to be borne by the insurer, which means the costs are spread across everyone who is insured.
3. Now, the pharmaceutical company has incentive to make new contraceptive drugs. So, they get busy and make a few chemical tweaks in the lab, paint the pill a new color, and BINGO, a new patent is issued and then comes a press release expounding the virtue of their new contraceptive drug, Profitum.
4. Gotta sell the stuff. So, pharmaceutical company spends a few hundred millions on advertising. The publishers of Cosmo and Jane are about to reap a bonanza. The broadcaster of the next few Olympic Games will make a lot of money selling advertising during gymnastics and figure skating. The executives of the Oxygen and Lifetime networks are dancing in their boardrooms.
5. Well, phjarmaceuticals are very expensive to develop, and the manufacturer must recover those expenses. So, the the folks cost isn’t going to be $10/month like the generic that does the same thing, but $100. People like the new drug, and say, “Doctor, I want Profitum, not a generic.” After, all, the cost is the same: absolutely free. Meanwhile, the cost of generics, which is no longer subject to price competition, will drift up as well. So the thing that cost $10/month will wind up costing $15, or $20.
All this, so that contraception can go from being readily available at low cost, to readily available at zero cost. So, some percentage of women–those for whom $10/month was the determining factor– will begin using contraceptives. So, it may not be unreasonable to expect that the usage rates of contraceptive medication will increase by a few percentage points, while the cost of contraception increases by an order of magnitude.
Unless I am wrong somewhere above, this mandate will not save money. It will cost money– likely a lot of money. This cost will not be borne by government, but by individuals who will pay yet higher premiums, will have yet higher co-pays for everything else, and will have yet higher deductibles. Which means everyone that pays health insurance premiums will pay more and get less.
Everyone gets less, that is, except for the pharmaceutical company, and the folks that sell them ad space.
What am I missing? Even if you completely ignore the religious and “morality” arguments that have dominated the issue over the last month, how can this possibly make any economic sense?
Not the part about the no cost prescription drugs, which is extraordinarily rare, but the part about opportunists coming in to exploit the situation, and having it be legal because, well, in America, the government can’t do anything about that sort of thing. Their hands are tied and there is just not a darn thing that will pass.
will not be shaped like an IUD, sponge, pill or diaphragm but rather like this ($) ?
Your hypothesis is clever and compelling, I am just left wondering about some of the conclusions….and I freely admit that this is not my area of expertise. So, I am interested in learning.
My understanding is that most insurances direct the use of a generic unless a medical reason is provided. Is this not correct?
My Nexium/omeprazole example came from personal experience. I could opt for the Nexium if I were willing to pay more.
But I didn’t see much flexibility in the rule. The medicine must be covered, in full. No co-pay, no extra premium. This was the point of the testimony of that poor woman from GTown that made Rush Limbaugh embarass himself last week: the correct medicine is expensive for some, and thus should be free for all. Which means that the insurer couldn’t so what they do with Nexium. But if it is free, I don’t see any way to limit a cost explosion. Even if it is free, the drug companies can often circumvent the pricing done by the insurance companies, by reimbursing the co-pays (though not in Mass.)
In all of the fierce discussion during the last few weeks, I hadn’t thought about whether the policy is a good one in the first place. I am not convinced it is, at all.
The last sentence of the second paragraph should be “Even if it ISN’T free…”
My kingdom for a comment edit function.
and I don’t see how to have a reality-based discussion of so much speculation.
But I will say this. You have invoked economic principles, and in economics the way to understand costs is in terms of all costs and benefits, regardless who who experiences them. Your analysis is about the cost of a (hypothetical) new drug that is conjured up by market forces, but it is very partial.
If you want to make a statement about the cost or benefit of the mandate you also have to include the benefits of the the new drug (there often are, even if there is also price gouging) and also the benefits to women and families of comprehensive coverage (some of which might, actually, take the form of cost reductions).
It is entirely possible that once all costs and benefits are counted the net benefit is positive, evil Profitum notwithstanding.
already have been played out since we have 28 states that require coverage already? Plus, in those other states, major insurers could be covering contraception as well.
The entire premise don’t make such sense.
but my assumption is that most of those states don’t require that contraception be free, but rather that it be covered on the same basis as other prescription drugs and outpatient services. That’s certainly the case here in MA, and it’s also the case for federal employees.
Taking the argument seriously, even with a co-pay the coverage is an asymmetrical allocation of costs and benefits (not a “subsidy” as CMDad says) that should, according to CMDad, cause the consumption of contraceptives to reach economically inefficient levels.
Indeed the coverage offered includes by far the greater part of the costs (compared to a piddling copay), so we should see Profitum already if this effect were real.
But we already know that health-care goods do not behave like the standard market model in many respects.
A co-pay is the price signal to the consumer. That is why the co-pay for “primary care” is less than that for a specialist, which is less than that for the emergency room. If all are free to the consumer, then the emergency room gets a lot of common colds, at great cost generally.
Pharmaceutical companies spend a lot of time and effort to undo the price signal to the consumer. For me, Nexium costs a lot more than a generic that does exactly the same thing. If I want a “brand” drug that is more expensive, then I must pay more. In many states other than ours, the drug companies will reimburse the co-pay, to eliminate the price signal. Thus: (i) I can get omeprazole at a co-pay of $10/month, and the remaining $20 is carried by insurance; or (ii) I can get Nexium at a co-pay of $50/month, and the remaining $50 of the actual cost is covered by insurance. If the drug company gives me the $30 to cover the extra co-pay, then I might choose to prefer the non-generic. The result would be that the drug company makes $70 instead of $100, and the insurance plan pays $70 instead of $20. This phenomenon tends to drive the cost of prescription coverage up by a lot, which is why the practice is not legal in Massachusetts and several other places.
In other words, the “piddling co-pay” is the tool to control overall costs, and to make sure that someone is more likely than not to choose the less expensive option THAT DOES EXACTLY THE SAME THING.
So that is exactly what this new regulation does: it eliminates the price signal to the consumer.
I have acid reflux, caused by the CPAP regimen required to treat my OSA. A daily 20 mg dose of Omeprazole solves the problem. I shifted from Nexium to Omeprazole at the request of my insurer, with no problem. Perhaps I’m unusual, but the amount of the copay was not a factor.
There are certain unusual situations where a “name-brand” is medically preferred over its generic substitute. Medical necessity is the only driver that should matter in the decision of whether or not to use a generic versus a name-brand. I rely on my physician to make that recommendation. As far as I’m concerned, the co-pay is just another way for an insurer — armed with an army of spreadsheet jockeys to work the numbers — to shift as much of the cost of my needed prescriptions to me as they can get away with.
If other states have not figured out how to make medical necessity the deciding factor in this choice, that is problem for the other states to solve. The co-pay does nothing.
Going back to the Nexium/Omeprazole question, BCBS will not cover ANY Omeprazole prescription for a dosage under 40 mg. Their argument is that the drug is available in lower doses over-the-counter. Of course, the over-the-counter cost to me is significantly higher than the co-pay of this generic.
My physician is sympathetic, and therefore increased my prescription from 20 to 40 mg, and BCBS forces me to re-justify the prescription every six months.
The bottom line is that the co-pay does not affect my choice. The effort of BCBS to shift the cost of this medically-necessary medication entirely to me means that I take twice the dosage that I medically require — relatively harmless for Omeprazole, but still surely not wise from a medical perspective. I’d love to know the costs of an OTC preparation (including fancy packaging in 7-day blister-packs instead of a plain bottle with 90 caps) compared to prescription.
I’m pretty sure that Omeprazole is a case study in how the insurance industry drives up overall medical costs, with or without co-pays.
Two words: pill cutter.
(I bet you didn’t need the hint, but just in case…)
I appreciate the suggestion, though.
I think this exchange illustrates the difference between theory (“price signals” and such) and practice.
In theory, co-pays and generics lower overall costs of medical care. In practice, they lower insurance company costs, while raising the cost to consumers. Medically necessary Omeprazole over-the-counter, un-reimbursed by health insurance (because it is OTC), is far more expensive to me. That extra cost comes out of my bank accounts and into the bottom line profits of BCBS, CVS Pharmacy, and each company in the blister-pack supply chain.
For your theory to be correct, there ought to be some effect from reducing the price per year from (say) $600 to $60.
I’m not saying that copays do not affect consumer behavior (they certainly do) just that all the effect can’t be located in the relatively small copay, while we see none from the much larger payment.
Sounds as though you’d be for this if there were a copy, is that right? How big of one?
And more so than the larger “asymetrical allocation of costs” (another way of describing “subsidy”) because the co-pay cost is borne by the person making the choice. If everything is free, then everyone wants the “best” product, even if the actual “extra” benefits are minor indeed.
Why would you suppose that a cost that is deliberately made invisible, or nearly invisible, to the consumer would affect consumer behavior? Is this particular product different from all other products?
I’m not sure I for this because it seems like the entire point is to remove the copay and premium cost. If the policy is: all insurance plans cannot exclude X, I think that that is great.
But the entire point here is to ensure that contraception is not only covered, but completely free, ostensibly to save all of the costs of these unwanted pregnancies. But it just seems rather obvious, upon reflection, that the policy is not well designed to achieve the goal. That is because the policy is set to increase the contraception use among those people who are (i) working at a job that has employer-provided health insurance; and (ii) choose not to use contraception because of cost. That strikes me as a small population to warrant such a global change in coverage policy–particularly a policy that seems so likely to increase cost in the aggregate.
So, I guess I would support a shall-cover rule, so long as co-pays exist and change relative to the cost of the particular product purchased.
Let’s be honest, you don’t give a damn about the dollars and cents here. Your desperate rationalization, eschewing any kind of research into the matter, screams of that.
This is all about your religious dogma, a dogma you would like to force on as many other people as possible. You lost your war on contraceptives 50 years ago. Please spare us.
Now, let’s stop giving a bad name to men everywhere and let women have control over their own damn bodies? Ok? Thanks.
old html code, new html code… it doesn’t seem to matter. Never works.
Here’s the link to the video I had embedded and worked on the preview, but not on the final submission.
http://youtu.be/XF3SKZRNTuw
What does the data say?
Policy Solutions for Preventing Unplanned Pregnancy
It will be a bonanza of savings if increased access to birth control reduces the number of unplanned pregnancies by even a small amount. Since this is a data-free argument conducted completely in the realm of hypothesis, a vast savings of money is probably more likely than the relatively miniscule cost of birth control, even of Profitium (and that is itself an extreme example that might never come to pass). One can buy a fantastic number of birth control pills for the cost of just one C-section.
However similar to previous drugs, every NEW drug faces significant hurdles in the form of testings, stability trials, clinical trials and FDA approval for trials in humans. This process takes years and mucho dinaro. If you swizzle in the cost of advertising, you’ll end up with a nut so big it’ll take a decade to amortize… against an existing and established drug and no guarantee of a a significant rate of return on your advertisements… It’s a long shot.
Your most optimistic projection is to see the new drug on the market in four to seven years, unless the ‘chemical tweaks’ create problems in any portion of the pipeline (stability, toxicity, side-effects, interactions, reactions, etc…), whereupon it’ll be ten or more years, if ever. Your most pessimistic projection is that the ‘chemical tweaks’ are a complete bust and you get nothing out of your efforts. Bup-to-the-kiss.
And anyways, even if you do bring a successful drug to market in ten years… by then, we’ll have single payer and the government will be buying in bulk and negotiating your prices down to next to nothing. You’ll be glad to get those prices too, because you won’t have distribution costs, packaging headaches, advertising and Doctors to kickback. So there’s that…
Aside from the above mentioned prohibitive costs of drug development, you’ve completely excised the Insurance agencies from this picture you posit. You know, the ones who’ll actually be paying the benjamins here… Although insurers and pharma often get quite cozy, they’re not that cozy… and the insurers can and will find ways to steer people to the generics, for instance, in their negotiations with hospitals and clinics for bulk purchase, which puts added pressure on your route to profitability for this new drug.
You will only be “paying more and getting less’ if you believe contraception is a recreational drug: that is to say you only take it to allow yourself consequence free sexual activity. I, personally, would pay more under the clear understanding that access to contraception for all women would indeed be paying more and getting more. (my teen-aged id is having a grand ole chuckle at that last sentence….)
seems to revolve around the idea that we should just keep our pants on unless we’re prepared to pay for our own contraception or pay for the consequences.
This seems to ignore two critical things:
1. Throughout mankind’s history, we’ve never been able to keep our pants on, regardless of consequences. Families, neighborhoods, entire nations have befallen because of ill-advised intercourse. Desperately poor people have been producing offspring for all time, as have the enslaved, the infirmed, and so forth. They *knew* sex brought the stork, and yet. It turns out that sex is a mighty powerful thing, and to suggest that people not participate like they shouldn’t participate in jaywalking or in drinking light beer is just nonsense. It doesn’t match our entire historical record.
2. We don’t ask people to pay for the consequences of impregnation today. We subsidize maternity leave. We subsidize the parents with tax deductions and credits. We provide the offspring with public education. If the adults in the family are on assistance, we provide more in light of the ‘nother mouth.
—
Items 1 and 2 aren’t going away. The conservative lizard brain crying for “personal responsibility” ignores the realities of 1 and 2. Human beings as a species simply aren’t wired to not have sex and, when they do, our society is built around subsidizing the family who procreates. In light of that, why shouldn’t the taxpayers come out as net-savers of money by helping people who don’t want to be parents not be parents?
Sorry, but I think all of this is a rationalization invented to support the conclusion that CMD (and the USCCB) have already come to. No rationale is offered for step 3 — CMD simply postulates an “incentive”. All this hand-waving is just that — hand-waving. The economics of contraception versus unintended pregnancy have been clear for a very long time. The speculation here stands all that on its ear.
I grant you that the health insurance industry is itself a bizarre world of contradictions and unintended consequences. To elaborate on CMD’s example, BCBS has been trying to block coverage of my Omeprazole prescription for years now (acid reflux is a very common side-effect of CPAP treatment) — even though the relatively minor cost of that prescription pales in comparison to the diagnostic costs of the many expensive procedures needed to rule out all the serious ailments that masquerade as “heartburn”. The on-going BCBS attempts to restrict coverage of CPAP itself is another example of fiscal insanity.
Nevertheless, BCBS does ultimately cover both my Omeprazole and CPAP treatments. Presumably, BCBS may figure out that it costs them more to perform their end of the handsprings they force my doctors and I to jump through than if they simply acknowledge that these two treatments are effective, affordable, and have been for the 15 years I’ve been using them daily. Unless, of course, we accept the possibly-true premise that it is cheaper for BCBS to allow me to die (by withholding life-saving treatment) than to provide effective treatment for another few decades. Are all the “pro-life” advocates prepared to allow insurance companies to choose death over paying for effective and affordable treatment, because allowing the patient to die is more profitable?
Even the health insurance industry cannot undo economic facts forever. The costs of unplanned pregnancy are astronomically higher than the costs of contraception, and adding the co-pay to contraception is a drop in the bucket. Perhaps the health insurance industry will attempt to gouge the market for excess profits from contraception, but that problem is surely easier to solve by regulating the health insurance industry than by denying an obvious cost advantage to both society and to women.
The contraception mandate is likely to save society money, health care industry gouging notwithstanding. Since we are given that unintended pregnancy is orders of magnitude more expensive than contraception, then if the health care industry somehow attempts to make contraception more expensive, it is the health care industry that is broken — not the mandate.
In short, the speculation here strikes me as a conclusion looking for an argument — and so far, the search has failed.
In case you haven’t noticed, there’s actual data on this.
And the verdict is? It doesn’t just save money, it saves a lot of money.
If Big Business thinks contraceptives saves them money, I’m willing to guess they know what they’re talking about more than your biased and dogmatic quackery.
… I’m uncomfortable with this line of argument and defense regarding contraception. Reading over this whole thread, it occurred to me, that it is, once again, mostly men here (myself included) hashing this out over, of all things, cost effectiveness. It has devolved into a rather dry economic exercise in pill pushing.
Bottom line: even if contraception tripled the cost, I would still be for contraception. I would be for womens health, and, in particular, womens control over their own health care, with cost being quite secondary, in all circumstances.
I’m uncomfortable with the notion that it has to be both righteous and cost-effective to do it. I do not assert, Ryan, that such is your view, only that the entire conversation, of which you are part, skews in that direction… And, for my part, I’m beginning to regret the impetus I’ve added here.
When I speak of the “costs” of unexpected pregnancy, I mean much more than just money. I think we talking about something more profound than “a rather dry economic exercise in pill-pushing”. Nevertheless, I enthusiastically share your reaction to the curious gender mix of the discussion — is the BMG community overwhelmingly male?
I like and share President Obama’s response to all this. I think the women of America will prefer this plan to the alternatives being offered. I think the women of America will make up their minds based on large number of factors, this being just one.
As the father of three daughters, one still a minor, I welcome this much-needed contraceptive mandate. The women in my life will, of course, choose their own paths. I’m very glad that the administration I helped put in office has offered them this option.
though experiments, but much prefer empiricism, and although economists too often confuse their work with hard science, it’s the best we have. So in addition to Ryan’s and Kirth’s links, here’s another from the NYT.
I long for the day when decisions are based on needs and outcomes, not ideology. Metrically, we have a long way to go. Ideologically, we have even farther to go.