Does Contraceptive Coverage Pay For Itself?

July 9th, 2014

In selling the contraception mandate, HHS has reported that providing contraceptive coverage will pay for itself by decreasing other costs related with pregnancy, childbirth, etc. Justice Alito even referenced this fact in Hobby Lobby. Can this possibly be accurate?

Austin Frakt, one of the architects of the ACA, says probably not.

In his opinion last Monday, Justice Alito referred to an assertion made bythe departments of the Treasury, Labor, and Health and Human Servicesthat “providing payments for contraceptive services is cost neutral for issuers. Several studies have estimated that the costs of providing contraceptive coverage are balanced by cost savings from lower pregnancy-related costs and from improvements in women’s health.”

Studies the departments cited are suggestive, but far from definitive. A fuller review of the literature on the cost and cost offsets of contraceptive coverage by Daniel Liebman, a colleague, finds that the evidence is thin that, from an insurer’s perspective, contraceptive coverage pays for itself in the long term. Moreover, it almost certainly does not in the short. The cost of contraceptive coverage is immediate, and the possible offsets (reduced pregnancies) are downstream, often years in the future. …

The majority of the Supreme Court is correct in saying that the government has other means to ensure that women receive contraceptive coverage. But it is far less clear that that that coverage would be without cost, and it almost certainly would not be in the short term.

Specifically, the arguments about the cost-saving effect of contraceptives is counterintuitive:

That contraceptive coverage may not be cost saving might seem counterintuitive. After all, relative to the cost of delivering a baby, let alone raising a child, contraception is inexpensive. Though prices vary, the pill can cost less than $50 month. An IUD costs about $1,000 and is effective for several years. As any parent knows, children cost many multiples of this. Indeed, a Brookings Institution study found that expanding family planning services to Medicaid beneficiaries saved $5.60 for every $1 invested.

However, the Medicaid population is not the same as a typical, employed population, which is at issue in the cases considered by the Supreme Court last week. Additionally, contraception is not the same as contraceptive coverage. In part because it is so cost-effective, most people are willing to pay for contraception with their own money, if they can afford to. (Many Medicaid-eligible individuals perhaps cannot, but most employed people probably can.) Insurers benefit from this, because every pregnancy avoided is one less they have to pay for.

Therefore, when employer-sponsored insurers pick up the tab for contraception, not very many more pregnancies are avoided — most people were already using and paying for contraception. According to the IMS Institute for Healthcare Informatics, though the proportion of Americans with no cost-sharing for contraceptives rose in 2013 to 50 percent from 20 percent, prescriptions written for contraceptive medications increased only 4.6 percent.

In other words, most people who wanted to use contraception were already paying for it out of pocket, so the additional coverage of it through insurance won’t make much difference.

On a related note, when the ACA was being sold, I remember laughing when people bragged that it would reduce the deficit and be cost-neutral. I can’t imagine why anyone believed this.