The Magical World of Mandates

Michael Sykuta —  10 February 2012

It seems President Obama has discovered a magical cure for his contraception controversy: simply force insurance companies to provide free coverage for contraceptive services, but only for women who work for organizations that qualify for exemption from the original mandate that requires contraceptive coverage be part of any respectable (i.e., Obama-approved) health plan. Never mind the whole religious liberty issue. I think that pales in comparison to the economic liberty argument against the mandates to begin with. But the President’s proposed solution should strike fear into the hearts of any person who likes to be paid for what they do.

The underlying premise of the Administration’s decision is that the federal government has the right to force people to give away the products and services they produce. If the government can force insurance companies to “give away” health care coverage to avoid a political embarrassment, what is to prevent the government from requiring other companies or industries to give away their products if such a mandate would be politically expedient? And more importantly, does Mr Obama really believe any company is going to simply write-off the cost of the “free” service and not cover it by raising the cost of other services? In essence, insurance companies will have incentive simply to raise the price of the health plans they offer to exemption-qualifying employers. Either way, the employer will pay for it. It just might not be listed on the receipt.

Or perhaps Mr. Obama plans to make the cost of the “free” contraceptive care a qualifying charitable contribution for health insurers, since it will only apply to non-profits.

What makes the proposed solution even more ludicrous is that health insurance companies neither manufacture nor deliver, in most cases, contraceptive pills. So why should insurance companies even be involved in this great giveaway? A more direct solution would be to require pharmaceutical manufacturers to give the pills away to begin with. Or to require pharmacies to distribute them for free to qualifying individuals.

Regardless of where one stands on women’s reproductive rights, women’s health or religious liberty, we all make our living by getting paid for what we do. The President’s mandate attempts to create something from nothing by forcing insurers to provide services without getting paid for them. That should violate the sensibilities of anyone who works for their pay.

14 responses to The Magical World of Mandates

  1. 

    On Sunday evening, Chris Wallace asked the Obama administration representative where Obama gets the authority from to order a private entity to provide free services. Mr. Lew said that the authority was to be found in the Affordable Care Act. He did not say that this authority was limited to health care issues and Wallace did not follow up, unfortunately.

    This was an astounding claim and has gotten far too little attention.

    The other thing that struck me was why this mandate on insurers does not apply to all insured companies. Surely those companies who are not religious organizations or nonprofits are going to want their employees to get contraceptives for “free” also.

    Also not pointed out is the faulty math. Sibelius has said that the $600 it costs to buy birth control pills for one year is a burden on women. Yet somehow it is not a burden on insurance companies. She claimed they will save money by providing contraceptives “for free” because that will be cheaper than covering a pregnancy. Yet for this to be the case, none of the women getting these pills can ever become pregnant or the insurer will have to pay for contraceptives AND pregnancy care.

    Clearly this can’t fly.

  2. 
    northfork investor 13 February 2012 at 12:09 pm

    This is a much better blog post than Religious Liberty for Dummies and a much better illustration of why I read this blog daily. Great job!.

    I fail to understand why the Administration didn’t propose that insurance companies offer the excluded coverage directly as a separate policy to interested employees of exempt organizations and have them pay for it directly.

    • 

      Just a couple guesses:
      1) It would make immensely too much sense, but….
      2) It would be dangerously close to the idea that employees should be buying their own health care coverage without the employer being involved and it just might demonstrate how few people choose to buy the policy when it’s out of their own pocket. Moreover, it might reveal a fundamental flaw in the health care industry: you can’t provide “insurance” for things people are going to consume with 100% certainty unless you force people who won’t consume it to buy the policy as well. Insurance is all about cross-subsidization, both individually and inter-temporally. The very concept of “insurance” is void for routine, regularly consumed health services. It only results in shifting the payments and adding costs for administration.

      • 
        northfork investor 14 February 2012 at 11:40 am

        There are tax issues that you might also want to consider since health insurance (as opposed to health care) is so foolishly subsidized by the tax code (except for when you buy it on your own as opposed to joinging an employer’s plan if you are employed.)

    • 

      Northfork: Maybe because the policy has negative cost – from the insurer’s perspective it saves money – so it seemed silly to charge for it. And anyway, why should contraceptive users have to pay for their contraceptives AND subsidize the baby-making proclivities of their non-family-planning coworkers?

      Which is Michael’s point, I think. I’m sympathetic to the notion that regularly-consumed health services violate the concept of insurance. Indeed the typical group insurance plan isn’t a pure insurance plan anyway, it’s a pre-paid plan with a catastrophic insurance overlay, with an administrative layer than costs an awful lot. And this bundling encourages overuse and drives costs up.

      But drawing the line between the clearly voluntary (the best I can identify is Viagra coverage, or vision coverage) and the catastrophic is tough. There’s a broad middle range of stuff that interacts in complex ways: for instance, pregnancy/childbirth may seem voluntary until you have an emergency c-section with 2 days in NICU, and it’s a $30K bill that could have been avoided with better prenatal care. How do you understand that in a way that yields better outcomes for patient(s), provider and payer?

      Unbundling “voluntary” from “catastrophic” yields ugly realities: adverse selection and – in a truly free system – price discrimination that would price people out of the market altogether and compounds the adverse selection problem.

      And I’m sympathetic to the idea that employers maybe shouldn’t be involved in the healthcare system. One rational conclusion from all this is a single-payer system.

      • 

        Gary,

        I fail to see how a single payer system is in any way a rational conclusion from all this, other than it makes choice irrelevant for consumers and allows political expediency such as got us the current issue to be the norm for all health coverage and health care decision making. The solution to difficult rationing and resource allocation decisions is rarely (if ever?) best found in the hands of centralized political authority.

        The same bundling problems that encourage overuse, drive up costs, and add a costly administrative layer would certainly exist in a single-payer system. The difference would be a complete lack of ANY competitive constraint on those administrative costs or the overall costs of care. At least now there is at least some level of competitive pressure among insurance companies to minimize their operating costs.

        Yes, there are adverse selection issues.That’s why the PPACA includes the purchase mandates; it’s the easiest way of dealing with the adverse selection problem when you require coverage for pre-existing conditions.I think the bigger issue, however, is trying to use the existing insurance system as the model for a replacement. I believe insurers are a crafty lot and could come up with innovative products and policies that, while discriminating more, would also provide greater options for more people. But there is little incentive in innovate in the existing system…and even less in the existing political environment.

      • 

        Not sure how you are concluding that providing coverage for birth control decreases the cost of insurance. The problem as I see it with you logic is that you presume that without coverage for birth control, a large enough people will simply decide against using it. Basically, you need to look at the difference between the number of people who would use birth control without coverage versus the number that would use it with coverage. The availability of coverage for birth control is not the primary driver of the decision to use birth control. Rather, it is user’s desire to avoid pregnancy. That number should remain relatively constant.

        As such, the percentage of people using birth control should not vary much based upon the health care coverage. However, by extending coverage to those users who were going to use birth control whether the insurance company covered the costs or not, you increase the cost of providing care to those individuals without the benefit of decreased pregnancies. I sincerely doubt that the number of people who would take birth control, but don’t because their insurance doesn’t pay for it, is significant enough to make up for the addtional costs of covering those individuals who would purchase anyway.

  3. 

    It is highly likely that the insurance companies will be able to provide this benefit for free, since providing contraceptives drives DOWN claims. Pregnancies are much more expensive than contraceptives, and I think it’s safe to say that reducing the cost of contraceptives will raise their use and yield lower pregnancy rates. http://www.businessgrouphealth.org/preventive/topics/contraceptive.cfm provides an overview. Ironically the compromise will also lower the Catholic organization’s costs (except, of course, where they already have to comply with the rule since it was already in effect).

    • 

      Gary, if it were that case that lower costs contraceptives would reduce the cost of pregnancies later, then any incentive insurance companies had to reduce the cost of contraceptives has existed for a long time and would already be reflected in the relative cost of the coverage. Put another way, if giving away contraceptives passed the cost-benefit test you describe, then they would already be giving them away like flu vaccines and certain other “well-care” coverages (though I’m pretty insurance companies do take even the cost of providing those services into account in their overall pricing scheme). “Able to” and “able to at no cost” are entirely different propositions.

      • 

        That’s kind of my point. I don’t think it’s a question that contraceptives save. The question is why would they be excluded from policies, given that insurers would prefer to have contraceptives included, or would be indifferent in the case of the plan being self-funded.

        The answer would appear to lie in the fact that they need to put that coverage explicitly into the plan. Certain employers would prefer to strike it out. That would be for religious/ideological/political reasons, not for economic reasons.That’s not so surprising given the history of coverage in the US – it took a long time plan sponsors to be convinced to include things like vaccines and preventive care in their policies. I know in the 90s a typical indemnity plan did not cover immunizations or well care. The big cost increase waves of the 1990s and 2000s made the case for managed care and wellness benefits to employers (Washington now National Business Group on Health dates from the mid-90s as I recall).

        The Administration was willing (for a time being at least) to insist that the sentence of coverage go into the plans. It’s not about paying for the coverage. I sincerely doubt that the fact that the coverage likely pays for itself and probably returns something to the employer in reduced costs would satisfy the Catholic objection to contraceptive coverage. It feels like the objection is about including that sentence in the coverage document, and feeling “direct” responsibility (in our contract), which feels worse than “indirect” responsibility for the offensive act (those employees’ birth-control is also funded by their compensation, after all).

        And, oh yeah, this whole thing is an easy way to score political points with a familiar “war-on-Christianity” narrative. That might have something to do with it, too.

  4. 

    Obamanomics is “money for nothing, chicks for free.”

  5. 

    News of the Weird by Chuck Shepherd.

    WEEK OF FEBRUARY 5, 2012

    LEAD STORY
    Your Government Knows Best: A 2007 federal energy- independence law required companies that supply motor fuel in the U.S. to blend in a certain cellulose-based ingredient starting in 2011 — even though (as the Environmental Protection Agency well knows) the ingredient simply does not now exist. A New York Times reporter checked with the EPA in January and found that the companies will still have to pay the monetary penalties for noncompliance (and almost certainly the even-stiffer penalties for 2012, since the ingredient is still two or three years from development). “It belies logic,” said a petrochemicals trade association executive. [New York Times, 1-9-2012]

  6. 

    Spot on, Mike. If you haven’t seen it, check out John Cochrane’s piece in today’s WSJ. He makes the somewhat obvious but oft-ignored point that contraception coverage has little to do with insurance and will tend to drive up prices for contraception by reducing price competition.

  7. 

    Health Insurance Thirst Mandate. Excerpt:

    === ===
    His Benevolence: I have decided to banish thirst from the land. All health insurance will henceforth include unlimited purchases of refreshing drink, like Coke, Pepsi, and 7-Up. The peasants will slake their thirst and be reimbursed by the insurance companies. No co-pay.

    Advisor: Your name will be legend. Sire, will you be paying for this bounty?
    His Benevolence: The insurance companies will pay.
    Advisor: Sire, the peasants will have to pay the insurance companies.
    === ===