Thursday, February 23, 2012

Contraception Insurance Math

By Mike Dorf

Most of the coverage I have seen of the imbroglio over the scope of the religious exception to the contraception insurance mandate has focused on the conflict between interests in health care and religious interests in avoiding contributing money to support acts that individuals and institutions deem immoral.  Fair enough.  That is indeed the core question.  But there is another, more mundane, aspect to the controversy that has me puzzled.

My puzzlement concerns the economic assumptions behind the compromise policy that President Obama has now settled upon.  Under this compromise, religiously-affiliated institutions (like Catholic hospitals) that object to paying for employee insurance policies that include contraception coverage will not be required to contribute to the cost of such contraception coverage, but the employees will still be eligible for such coverage from the insurers themselves.  According to the White House, insurers will want to cover contraception because doing so saves money in the long run: The costs of health-care for an unintended pregnancy run into the tens of thousands of dollars in obstetrical bills and baby care (assuming that the insured switches to family coverage post-birth), whereas the costs of contraception are much lower.

We can put aside the cost of providing abortions, which are lower than the costs of prenatal care, but which do not figure into the health insurer's calculus  because private health insurers are not required to provide abortions.  Any employer with a moral objection to providing employees with health insurance options covering contraception will also have a moral objection to providing health insurance covering abortion.  Thus, for the insurance company, providing contraception coverage for free is cost-effective if it saves money over prenatal and baby care.

So now we have the following question: Wouldn't any well-run health insurance company offer contraception coverage without a government mandate to do so?  Assuming that the underlying economic assumptions are correct, I think the answer to this question has to be yes.  And that in turn leads to a further question: So why does the government need to mandate contraception coverage for anyone?  I can think of three possibilities.

1) Perhaps many health insurance companies are simply badly run.  Some health insurers cover part of the cost of a gym membership for their insureds on the theory that people who exercise regularly have better overall health than people who do not, and therefore covering gym memberships at the front end will lead to lower back-end costs for things like bypass surgery and diabetes care.  And yet some but not all health insurance plans cover gym memberships.  One could imagine that the economics here are complicated, so that perhaps it's not entirely clear whether it saves the insurer money to cover gym memberships, but if the economic benefits are clear--as the Administration contends they are with respect to contraception versus prenatal + baby care--then a deliberate failure to cover gym memberships--or contraception--would appear to reflect poor administration of the insurance company.  We shouldn't rule that out.  Insurance companies' coverage decisions are influenced by a great many irrelevant or even perverse factors (including erroneous but persistent conventional wisdom among medical professionals as well as simple inertia), so it's possible that health insurers need to be mandated to do something that will save them money.

2) Another possibility, however, is that insurance companies that do not cover contraception are making decisions based on pressure from employers that don't want to see such coverage.  If that's the case here, then the Obama compromise would be better understood as telling the religiously affiliated employers not to block contraception coverage that the insurers really want to provide for free, rather than as telling the religiously affiliated employers to offer plans that cover contraception coverage.

3) Finally, it's possible that the Administration has its numbers wrong.  Perhaps the cost of providing contraception coverage is greater than the cost of providing prenatal (and postnatal) care for the women who become unintentionally pregnant (and their fetuses, then babies).

Other possibilities?