How to Cut the Cost of Contraceptives by Regulating Less
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.