More on Insurance for Contraceptives

Joe Carter notes that the Obama Administration is considering whether to require health insurers to pay for contraceptives. Even leaving aside moral objections, this is great foolishness from an economic point of view.

To simplify matters, assume that the insurance pool contains 500 male-female couples and that they all buy their insurance jointly as couples. If they all use the same quantity of contraceptives every year, then each couple will incur the same annual contraceptive costs, say, $100. If the insurer does not cover contraceptives, each couple is out $100 a year for these costs. If the insurer does cover contraceptives, then it can expect to pay out an additional $50,000 per year in claims (500 couples times $100 per couple), and so it will have to raise its premiums. How much? By at least $100 per couple, but in fact a bit more, because it costs something to process the extra claims and related paperwork. So each couple will see its insurance premiums rise by, say, $105 per year. Hence, at the end of the year, although the couples got their contraceptives “for free” under their insurance policies, they in fact paid for them in the form of higher insurance premiums. Indeed, they paid more in increased insurance premiums than they would have paid had they bought their contraceptives directly.

Of course, not everyone uses contraceptives, and among the people who do, not everyone uses the same amount. The real effect of requiring insurers to cover contraceptives will thus be that everyone’s insurance premiums will go up, but some people will benefit from this, and some will be harmed. In essence, those who use an above average amount of contraceptives will be benefited, and those who use a below average amount will be harmed. Hence, generally speaking, the winners will be young, sexually-active heterosexuals, especially unmarried people, and the losers will be older people, chaste people, people who want to conceive a child, and gays and lesbians. Why should these latter people subsidize the sex lives of the former people? I can see no plausible justification for this.

The stated reason for the policy is that some people don’t have access to contraceptives because they can’t afford them. Given how cheap contraceptives are, it would seem to me that the number of such people must be relatively small, but we can let that pass. The bigger point is that, if the Obama Administration thinks that we need a new public assistance program for people too impecunious to purchase their own contraceptives, there are cheaper and fairer ways to accomplish this. For example, we could allow people below a certain income level to receive a credit against their income taxes for their annual contraceptive expenses. We could call this program a Pill Grant.

The truth of the matter is that “Pill Grants” would never pass because the American people have the good sense to think that, with limited exceptions, people should pay their own way in life, and there is little reason for some Americans to subsidize the sex lives of other Americans. If, however, the true nature of the program can be disguised by wrapping it up in an insurance policy, it has, unfortunately, a chance of becoming law because most people will not realize what’s happening.