The Biggest Beneficiary of the Contraception Mandate? Drug Companies

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Avik S. A. Roy

There have been, of course, a lot of pixels spilt in the Great Contraception Debate of 2012. But I want to talk about an underappreciated aspect of the story: how the new federal rule forcing all insurers to cover birth control will dramatically inflate the price of contraceptives.

To review, in January, Health and Human Services Secretary Kathleen Sebelius announced that, under Obamacare, HHS was issuing a "final rule on preventive health services" that would "require most health insurance plans to cover preventive services for women including recommended contraceptive services without charging a co-pay, co-insurance or a deductible." (Emphasis added.)

Thus far, the big controversy has been about the fact that the HHS rule applies to some entities owned by religious institutions. And justly so. But another big problem with the rule is that it will enrich drug companies at the expense of people who want access to basic contraception.

Today, oral contraceptives are really cheap. At Wal-Mart, a one-month supply of Sprintec or Tri-Sprintec, manufactured by Barr Laboratories (a unit of Israeli drug giant Teva Pharmaceuticals) costs a grand total of $9. It profits the Obama Administration nothing to infringe on religious liberty for ideological reasons...but for $9?

The reason why birth control is so cheap is because there are no longer any patents covering the use of a combination of estrogen and progesterone for the purpose of oral contraception. The first Pill, Enovid, was made available in the U.S. in 1957. These hormones are very inexpensive to synthesize and manufacture.

Under the current system, drug companies have an incentive to compete on price. If you have health insurance that covers birth control today, your insurer is likely to charge you a higher co-pay for expensive, "branded" versions of birth control over cheaper, generic ones. If you don't have health insurance, and you're buying the Pill directly from the pharmacy at Wal-Mart, you have even more incentive to shop on price.

Under the new mandate, this price incentive disappears. Insurers will be required to pay for any and all oral contraceptives, without charging a co-pay, co-insurance, or a deductible. This "first dollar coverage" of oral contraception kills the incentive to shop based on price.

If history is any guide, this significant change will drive up the price of oral contraception. Today, Tri-Sprintec costs $9 a month. In 2020, don't be surprised if it costs $30. Drug companies will be able to market "branded" contraceptives at premium prices, knowing that women are free to choose the most expensive, designer product because it will cost them the same as the cheapest generic. Prepare yourself for multi-million-dollar Super Bowl ad campaigns from competing manufacturers.

If you were surprised that PhRMA, the pharmaceutical trade group, backed Obamacare, now you can see why: the HHS contraception mandate alone will be a multi-billion-dollar boondoggle for the pharma industry. If your health insurance plan allowed you to buy a television, of any price, without any cost-sharing on your part, would you buy a 13-inch CRT or a 60-inch flat screen?

This gets us to a broader question: how the definition of insurance has lost any meaning in the context of American health care. Insurance, traditionally defined, is meant to protect us from the risk of unexpectedly incurring catastrophic costs. Car insurance, for example, protects us against collisions, but doesn't cover our purchase of wiper fluid or gasoline. Homeowner's insurance doesn't cover the cost of air conditioning. And yet, now, we have a federal law that forces health insurance to cover something that is even cheaper than gasoline or air conditioning.

It's this perversion of the term "insurance" that helps highlight the weirdness of Democrats accusing Republicans of wanting to "ban" contraception. If a politician were to oppose a mandate forcing insurers to pay for gasoline or air conditioning, would he then be supporting a "ban" of these products?

The contraception contretemps is a case study in how thoughtless laws and policies drive up the cost of health care, making it less accessible to those who are most in need. The path to truly affordable health care involves moving in exactly the opposite direction: restoring the notion that health insurance is meant as protection for catastrophic costs, and letting people buy birth-control pills for themselves.

UPDATE: Peter Schweizer of the Hoover Institution has written an excellent piece on this topic over at The Daily Beast.

Follow Avik on Twitter at @aviksaroy.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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