The case against mandating insurance coverage of birth control pills.

John Cochrane has a great article in the Wall Street Journal explaining why it doesn’t make sense to have your insurance company cover birth control pills. (HT Greg Mankiw) The argument is simple: Consumption of birth control is a predictable low-cost expense which insurance companies will simply pass on in the form of higher premiums. The problem is that if your insurance plan covers the pill, you have no (or a reduced) incentive to shop-around for more cost-effective options. That in turn reduces the incentives to develop and bring to market a lower-cost alternative. (Or a novel type of birth-control that may not be covered by health insurance mandates)

Some of you may argue that many insurance plans already covered birth control pills. That can be explained by the tax-treatment of employer-provided health insurance. If you have health-insurance through your employer you might have noticed that you do not pay income or payroll taxes on your health insurance.

So consider the situation where you have a marginal tax-rate of 20% and that birth control costs $100 per month. If your employer wants to give you money for birth control, he will have to pay you $125 extra per month. You pay $125 * 20% = $25 in taxes and are left with $100 for the birth control. On the other hand, if your employer hires an insurance company, he can just pay $100 to the insurance company and you get birth control. Of course, the insurance company would actually charge something between $100 and $125 for the privilege of helping you and him avoid some taxes. The end result is that the cost of health insurance and healthcare goes up.

Of course, the poor and the unemployed do not have employer-provided health insurance and do not benefit from this subsidy. They do however pay the increased premiums and birth control costs when they buy health insurance on their own or purchase birth control out of their own pocket. So really, this policy, no matter how well-intentioned, is a subsidy by poor people and the unemployed to the middle-class.

I do want to clarify that this relates to the use of the birth control pill as a birth control system. They are also used therapeutically to treat certain hormonal issues and a variety of other medical conditions and their insurance coverage in those cases do not raise quite the same issues.

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One Response to The case against mandating insurance coverage of birth control pills.

  1. cla says:

    Thanks for including the final paragraph. Is there any evidence insurance companies save money in the long run, by providing contraceptives and so reducing the number of unplanned pregnancies? When left to their own devices people don’t always do what is in their best long-term interests.

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