Code Red: Two Economists Examine the U.S. Healthcare System

February 10, 2012

The Audacity of Dupe

Filed under: Uncategorized — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 6:58 pm

Let me get this straight. Catholic institutions won’t have to pay for contraception coverage in their health insurance? Instead, their health insurers will provide it for free? Did I hear that right?

The President seems to have found the long elusive free lunch. If he has, hand him his Nobel Prize in Economics now; no economist will ever top that. (That would make him just the fifth person to win two Nobel Prizes. Such greatness inspires.) I am afraid that the Nobel Prize committee will have more work to do, as the free lunch will remain as scarce as the unicorn. Just bear in mind that health insurers charge different prices for all of their clients. How is anyone to know whether they are providing contraception to some Catholic institution for free? Will we have a federal agency auditing whether an insurer’s 6.743 percent price increase should have been 6.682 percent? And is this new rule even Constitutional? Since when can the government force private businesses to give away their products? I guess a government that believes it can mandate that consumers purchase contraception coverage regardless of the price also believes that it can mandate insurers set the price for contraception coverage to zero.

And suppose insurers really do provide contraception for free to Catholic institutions, but not for any others. This gives the Catholic institutions a competitive advantage in labor markets. Mr. President, may I suggest that as long as you are giving away stuff to employees at Catholic institutions, why not force Apple to give away iPads to Northwestern University employees? (Most of them voted for you and surely deserve it!) Apparently all it takes is an executive order. What did Mel Brooks say about this? Oh yeah, “It’s good to be the king.”

I don’t believe there will be free contraceptive coverage, any more than I believe in free lunches. But Catholic institutions seem to believe it, with many expressing their support for the President’s initiative. This is more than just a leap of faith. This is insanity.

Of course the media are lauding the President for his “compromise.” Well Mr. President, you seem to be getting away with this one. You have duped everyone. Well, almost everyone.


Coda: I see some folks at other web sites claiming that insurers save money by covering contraception because it is cheaper than paying for maternity care. This would imply that a lot of people only use contraception if someone else pays for it. Or, to frame it in a rather disturbing way, the decision to have a baby boils down to a few dollars or a few hundred dollars and who is going to foot the bill. I am unaware of any studies to suggest this is true. Moreover, if this is true, then we might expect insurers to cover contraception at no charge, with no need for a government mandate. I admit that this line of thinking can get complicated. Insurers might refrain from paying for contraception, reasoning that the cost of delivering a baby that is conceived today could be covered by some other insurance company nine months from now. This argument was used to justify coverage mandates for preventive services under Obamacare, but it applies best to services where the benefits of prevention are not realized until years later. (And insurers mandated to pay for preventive services are free to set their premiums as they see fit, except now for contraceptive services.) I have never heard it raised in the context of “preventing” babies.


  1. […] The Audacity of Dupe Let me get this straight. Catholic institutions won’t have to pay for contraception coverage […]

    Pingback by No-Cost Contraception: What Will It Cost? « AHLAlerts: American Health Line’s Blog — February 10, 2012 @ 8:15 pm

  2. […] The Audacity of Dupe Let me get this straight. Catholic institutions won’t have to pay for contraception coverage […]

    Pingback by No-Cost Contraception: What Will It Cost? « AHLAlerts: American Health Line’s Blog — February 10, 2012 @ 8:19 pm

  3. Obama’s tactic for getting himself out of the hole he dug himself into when her first ordered Catholic institutions to cover contraceptives is brilliant.
    People unfamiliar with actuarial science or even insurance in general do not know insurance company rating methodology is based on total expected cost of claims the company will incur. Example, if deductible is set low the premium is set high. Same idea if something is “free” premium is high. So we have employees paying for their free contraceptives, just not knowing it. Here come the votes, here come the votes!

    Comment by Dhun Mehta — March 7, 2012 @ 9:52 am

  4. An excellent to-the-point summary David. I would think the analysis extends to the entire Healthcare Law premise where we try to solve a how do we pay problem with a mandated insurance law. This has no hope of bending the cost curve on healthcare. Also, what is your view on mandating employer coverage in the first place. As a senior executive that has been in and out of employment over the past 2 years, the patchwork of employer provided care, COBRA and state subsidized care is a tremendous administrative burden. I am now a firm believer that the best way forward is to take the employer out of the process but eliminating requirements and eliminating the tax subsidy. If you have written before on this, would you provide a reference. If not what is your view?

    Comment by Tim Kennedy (@tkkennedytim) — March 9, 2012 @ 12:15 pm

    • Thanks for the kind words. I can’t say I have fully sorted out whether mandated employer coverage is a good or bad thing. Good because it keeps a big risk pool. But that is the only virtue that I can see and there are ways around this (e.g., by risk adjusting payments to insurers through an exchange.)

      Comment by dranove — March 9, 2012 @ 12:31 pm

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