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?