Voice and Exit in Health Care Policy: What Can We Learn from the Recent Controversy over Mandated Birth Control Coverage?
Henderson, M. Todd, Regulation
Birth control was briefly the center of the U.S. health care debate last year when President Obama proposed requiring insurance companies to provide generous benefits for birth control costs. Some religious institutions that oppose the use of certain types of birth control criticized the proposal on grounds of religious freedom. Others characterized the issue as one of respect and fair treatment for women, citing examples of bad outcomes that allegedly flowed to individuals denied insurance coverage for birth control. Name-calling and exaggerated claims of doom and gloom then gripped both sides. But there were larger lessons about health care policy and regulation that were lost in the firestorm about religion and feminism. If we learn the central lesson from this debate, we may be able to improve our regulatory outcomes.
Who Pays for Birth Control?
Putting aside the (large and important) issues of religious conscience and the First Amendment, the issue is a simple one: who should pay for birth control? At first blush, one might reasonably conclude that the individual consuming the birth control should pay for it. In a capitalist economy, individuals generally pay for the things they consume. If the average person wants cable television, the money for it must come from his pocket, not someone else's. To be sure, there are subsidies for the very poor, like food stamp programs, but even the worst off in our society generally bear most of the costs of recurring monthly expenses. This is especially true for rather trivial expenses like birth control (about $10 per month for a generic prescription). This is not to say that there is no one who cannot "afford" birth control; clearly there are such people. But many of the insureds who would be covered by the mandate would not be considered poor.
The big question is whether birth control should be paid for via health insurance or some other means. Insurance seems like an odd fit for a small, predictable recurring expense like birth control. Insurance is usually thought of as a risk-sharing mechanism for unforeseeable expenses. I insure my car against loss, but not the costs I incur to refill it with fuel each week.
Although we might expect most individuals to pay for their own birth control, most insurance companies cover birth control, and President Obama proposed that all be required to do so. Why? There are several possibilities. Importantly, each of them is simply a reflection of the aggregated desires of individuals in the common pool-that is, the insured. Insurance companies provide services their customers value in a way that tries to maximize the value of the business; governments try to do the same for the welfare of society as a whole.
Obviously, those who plan to use birth control would want an insurance company to subsidize the purchase price by making others who were not planning to use it pay some or all of the price. Everyone likes getting something for nothing. But whether they can get it depends on the number of people wanting to use birth control, the number of people not wanting to, and the ability of insurance companies to create viable businesses for just the latter group. For instance, if non-users are not a separable insurance pool and users are important customers, then a cross subsidy might arise. In addition, the non-users may not object to paying for users' birth control because the additional costs to them will be trivial, so long as the ratio of users to non-users is not too high. Most non-users (e.g., men) probably don't even know whether their insurance plan covers birth control; those who do may be married and therefore effectively a user from an economic standpoint.
But there is a reason even non-users of birth control might be willing to pay for others' birth control: doing so may be cheaper than not doing so, given that the insurance will likely cover the medical costs of not using birth control. …