Sunday, March 4, 2012

Two Warnings About This Post

First warning: I'm talking about the pill.

Second warning: I'm going to look at it in economic terms.

- - -

Yes, I want to strip away all the moralizing about the pill. This post is not meant to pass judgment on those who use the pill or those who refuse. President Obama initiated a tempest in a teapot last month with his administration's decision to require health coverage plans to include payment for birth control pills. It was an issue that created significant shock waves amongst his defenders and his opponents. And just when one thinks the issue is dying down, well, you get an on-air radio personality re-fueling the fire by calling someone defending the policy a naughty name.

I even want to avoid the political implications of the bill as much as I can. But as one gets into the economics of the issue that might be tough. So, here goes.

I guess my frustration with the issue stems from the fact that this decision by the Department of Health and Human Services makes it seem like now birth control is a "free" item for those with health coverage. The economics teacher inside me is screaming TINSTAAFL (there is no such thing as a free lunch). Someone, somewhere picks up the cost of this. In this case, the cost of birth control subscriptions will be diffused through all those with premiums. There are also residual costs that are hard to calculate the users and society will incur as well (oh, and to be fair there will residual benefits, too). However, I am troubled at the implication that this is now free.

In fact, what the administration has done is declare the pill to be a de facto merit good. A merit good is a good or service that society has deemed all people are deserving to have by virtue of being a person. K-12 education, ER treatment, school lunches are all merit goods in our society. Dental care and vision exams are not. One society's idea of merit goods will be different from another. Usually the cost of merit goods for a society are borne by taxpayers. In this case, taxpayers don't necessarily bear the costs. However, the individual mandate obligates all citizens to have health coverage, health coverage that will now spread the cost of birth control across all members' premiums, so I guess the taxpayers are indirectly paying for this new merit good. I guess the political process will determine whether or not the policy makers who came to this conclusion will keep their jobs.

Birth control pills are expensive. It's a cost users have shelled out amounting to about $600 a year. Part of me was baffled at their expense: it's a half-century-old pharmaceutical technology in an age of mass production. Surely economies of scale must have driven down the cost to be more reasonable. However, birth control pills are goods with an inelastic demand. The lack of adequate substitutes, relative necessity of the item, relatively small portion of income (more on that in a moment), and inability of users to quickly stop use in the face of price hikes means those buying it are captives of it. Bargains on it are about as unlikely as bargains at the gas pump, bargains on cigarettes for smokers, or bargains on magazines for sale in airport terminals. No wonder the cost was high.

If the high cost was the problem, I'd rather see government do something other than force society to bear the cost, diffused as it may be. Does the pill need a strict prescription? Can it become an over-the-counter medication? That might make it easier for competitors to enter the field and break up what may be an oligopoly on this item. Wouldn't it be nicer if market forces could knock down the cost to $30 or $25 per month than for the cost to be absorbed by society more broadly and where companies are still making a handsome profit off the item. I imagine the pharmaceuticals are more than happy with HHS's ruling.

Which gets me back to the politics of this, which is somewhat inevitable. I don't think this decision was really about reproductive freedom, or spiting any religious authority, or even helping poorer women get access to something they need. This might just have been typical throw-bread-to-the-masses politics of an election year (in all fairness, President Bush did the same thing with Medicare Plan B back in 2004). This decision is maybe best understood as another instance of middle-class welfare, a scheme by government to subsidize the lifestyle of the middle class, something government does a lot be it through Social Security or the home- mortgage-interest write-off. The beneficiaries of this policy are women and the partners of those women who have health coverage, a group more likely to be middle class than not. Those women and families are now seemingly saving $600 a year. That's no small amount for someone putting themselves through college or graduate school, or navigating a journey through one's twenties and thirties.

And I wish someone in the media would call this issue for what it is. It's as much economic as it is moral. And in an election year, anything economic becomes political.

One caveat I want to offer, for it's pretty obvious I think the administration's idea is a lousy one. The determination to make the pill a merit good probably seems like late justice for women who for years saw the other pill picked up by most insurance programs. I'm talking about the medications for erectile dysfunction that have been so heavily advertised in the past decade. Bluntly, those medications aren't being offered to men and their partners to help them have more children. And all this time, those medications have normally been covered by medical insurance plans. Perhaps not as obvious, most vasectomies have been covered by health insurance as well. Feminists can easily see implicit sexism in those long-established practices. And I can't say I disagree.

This brings us back to the weighty judgments we make in a society with medical coverage the way we arrange it in the U.S. But that is grist for another post. Geesh, this one is long enough.