Sarah Kliff has a good article at Vox on the proliferation of Long Acting Reversible Contraceptives (LARCs). This is a big deal for female sexual autonomy which is a big deal for female autonomy, which is a big deal for all individuals’ autonomy. Beyond that, it got me thinking about how the ACA could be improved in rejiggering the incentives insurers have on pushing versus merely paying for the non-cost sharing essential health benefits.
Birth control pills are currently the most popular contraceptive among American women, followed by condoms. These methods are especially susceptible to human error and have high failure rates. Of 100 women who rely on birth control pills, about six get pregnant every year.
By contrast, long-acting reversible contraceptives (LARCs) like IUDs and implants are placed by health professionals and last for at least three years after insertion. They are 20 times more effective at preventing pregnancy than the pill, with failure rates between 0.2 and 0.8 percent….
1) Implants and IUDs can cost upward of $500, whereas a generic pack of birth control pills can cost as little as $5 to $15 per month for those with insurance (or $20 to $50 for those without). Obamacare attempts to tackle this problem by requiring all insurance companies to cover LARCs at no cost to the patient.
The ACA requires insurers to pay for an FDA approved method of birth control with no cost sharing to the individual. This has removed one barrier to IUDs and hormonal implants but there is a significant difference between an insurer willing to pay for an IUD and an insurer actively pushing IUDs.
Does pushing an IUD make sense from the insurer’s point of view?
An IUD has a fairly high initial up front cost, minimal ongoing costs, lasts for three to ten years and it is very good at preventing unintended pregnancies which are expensive. Hormonal birth control pills have a low initial cost, but a constant ongoing cost of refills, and decent odds of an unintended pregnancy.
The individual market is a high churn market. In any given year roughly 25% of the people who start the year with an insurer will not end the year with the same insurer. Another large fraction of the Year 1 membership will leave the insurer during the next open enrollment period. The average membership span might be a year plus or minus a little bit. So the equation is the high cost of buying and implanting an IUD plus the very small probability of an unintended pregnancy’s cost versus the low cost of paying for birth control pills and the higher probable cost of unintended pregnancies. It might not make sense for individual insurers to push IUDs even as they pay claims without complaint when IUD’s are chosen.
This equation changes dramatically in favor of an insurer paying for an IUD if the woman is with the insurer for several years. The lack of ongoing pharmacy costs from the IUD beats hormonal oral contraception be year six under anti-IUD assumptions and by year four under neutral assumptions on pricing. As soon as you throw in unexpected pregnancy costs, the IUD pays for itself in two years or less for typical populations.
Churn is the problem that prevents pushing cost effective and quality of life enhancing preventative care.
What is a solution?
Make it worth the while of an insurer to actively push good long term preventative care even accepting churn will and should happen. Follow-on transfer payments could be made by future insurers to the insurer that paid for the preventative care that has immediate costs but long run pay-offs.
The size and duration of the payments would differ depending on the pay-off period and either the cost of the preventative care or the net costs avoided.
For instance, if Insurer A paid for a flu shot in September and the individual went to Insurer B in October, Insurer B might pay $3 per month for the next six months back to Insurer A for helping to avoid the cost of the flu on Insurer B’s medical ratio. Flu shots have immediate pay-off but the benefits fade very rapidly.
An IUD is a bit different. Here the immediate treatment cost is fairly high and the duration of the benefit is three to ten years. Insurer B could conceivably make preventative care benefit payments back to Insurer A of $20 a month if the calculation is based solely on the cost of oral hormonal contraception. If there is calculation of averted pregnancies, transfer payments of $40 or $50 per month could be justified under some assumptions. These payments would stop after a reasonable calculated life span of an IUD or the actual removal of the device.
Finally, the HPV vaccine has a very different profile. It’s main cost saving function is avoiding cancers a decade or more after the administration of the vaccine. There is massive churn in a decade, especially among teenagers who become young adults. Two payment schemes could be created. The first would be the vaccine avoidance payment of a few dollars per month until an individual is 18. Then a decade later a second payment stream would be created. This stream would be a small monthly sum for cancer treatments avoided.
Why do I think something like this should be implemented?
Right now the ACA gives insurers an incentive to push preventative care that has a fairly short pay-off span. It requires payment for all preventative care even if the pay-off in lower claims cost will almost certainly occur when the individual is being covered by someone else. There is an idea that the collective action problem of short term thinking has been eliminated because overall the aggregate pool should be getting healthier as every insurer is required to pay for essential health benefits. This proposal rejiggers the incentives to create a strong push towards universal preventative care.
Once a member from Mayhew Insurance switches to Big Blue, we have no interest in their long term health. If anything we have an active interest in not making it easy for the member to incur more claims that costs us money but saves Big Blue money. We can’t deny but we can avoid pushing good long term investments in health. Phone calls won’t be made, letters won’t be sent and health coaches will have those members whose employer group is not renewing with us at the bottom of the priority list.
If instead, preventative care was at least a break even proposition even if the member received that service on their last day of enrollment with Mayhew Insurance, there is a much stronger incentive for Mayhew Insurance to push preventative care services. From a revenue point of view, Mayhew Insurance would need to push preventative services to minimize the net outflow of long run transfer payments even if they can not be maximized as positive cash inflow. Every insurer, including Medicaid and CHIP would be under the same pressure to help get appropriate preventative care to as many people as clinically appropriate.
And since there is no net new Federal spending besides perhaps the creation of a national database to track residuals, this should be at worst budget neutral if not a significant budget deficit reducer as total medical spend for Exchange, Medicaid, CHIP and Medicare will decrease, and the value of the tax subsidy for employer sponsor coverage will slow in growth as total spend should decline.
*** PS: I know I am ripping a significant chunk of this idea off of a conservative economist but I can’t find the name or the cite.
WereBear
When LARCs becomes more widespread, won’t it benefit all insurers? Sure, they might lose Betsy, but gain Sue, while Mary has stayed with them AND not had an unintended pregnancy.
Darkrose
All I know is that my Mirena may have saved my life.
cgordon
“Churn is the problem that prevents pushing…preventative care.
What is a solution?”
Single payer.
Scamp Dog
@WereBear: I think the idea is the free rider problem–you make out like a bandit if you don’t pay for preventive interventions but your competitors do. So everyone makes the individually rational calculation to not push the services, and society as a whole wastes resources.
PNW_WarriorWoman
I believe Planned Parenthood is working on one solution. Just as they acted to put a dagger thru the high cost of pill-based birth control by starting their own private pharmaceutical company financed by the more affluent affiliates and then import their own BC pill with private labeling (as US pharmaceuticals do) they will also do the same for the IUD. A nonhormonal copper IUD costs as little as 40 cents to produce. Plastic hormonal ones don’t cost much more to make. Planned Parenthood will set a new low cost floor for it and make it available throughout their clinics. They will also promote their new low cost IUD to college/university health centers as they now do with their BC pill. The disruptive player to watch in the preventative reproductive technologies space is PP.
pseudonymous in nc
If the answer isn’t single-payer — and frankly, it’s a valid response for this particular question — then it’s probably not some hi-falutin’ formula of transfer payments from the insurers who benefit from long-term treatments to the insurers that covered them, but instead some kind of subsidy carrot from government. Except that’s probably as likely as single payer, because slutty sluts etc.
The way that non-single-payer nations deal with this is by having very low churn. The way they have low churn is by offering insurance that is 90% the same, with fixed reimbursement tariffs, and competition restricted to the margins.
Seanly
Universal healthcare & an end to these 12th century ideas on sexual & female autonomy would be other solutions.
Lolis
I have Mirena too and it I love it. It does hurt like an mf-er to get put in though, especially for those of us without kids. I think this scares off a lot of young women who would benefit from it. It also may be part of why doctors don’t make the case for them. If we could put them in 16 or even 18-year olds, all of society would benefit, especially the young women.
WereBear
@Seanly: Well, yes, of course, but as long as we are infested with Objectivists and Fundamentalists, (like resistant bedbugs,) we must settle for incremental progress.
Richard Mayhew
@WereBear: yep, single payer or few payer or all payer rate setting with subsidies would work better but the question is always how to get from here to there… So I kludge something that u think is plausible to pass as it would have very low net Federal spending involved once a clearinghouse is built
Richard Mayhew
@Seanly: big difference between universal healthcare and single payer. It is very easy to have one without the other.
Richard Mayhew
@PNW_WarriorWoman: very good to know as I did not know this. A $50 total cost iud is a game changer!
Richard Mayhew
@Scamp Dog: yep, ACA requires paying for prevention but does not require pushing prevention
WereBear
@Richard Mayhew: And I agree that health coaching, reminders, and the like have been shown to be a tremendous help in guiding people towards more healthful behaviors.
Left alone, people have a tendency to drift out of good health habits. Reinforcement is a relatively cheap health care.
Monala
@cgordon: Not at this point in time. Conservatives don’t want to pay for birth control already, claiming that somehow it makes them party to what they think is sin. How much hell do you think they’d raise about birth control under a single payer plan?
Portending
Single payer would solve this.
Since that’s off the table of discussion here, let’s examine the churn problem. Yes, it’s not beneficial to the insurer to pay for something that will benefit the next insurance company. But that same company will benefit from the investments the others made when patients switch to them. If there is a relative balance in the number of patients coming in and going out, then it makes no difference who pays. It’s not obvious to me that there would be any systematic drivers of churn toward one company and away from another in this case, but I’d be interested to hear if there are reasons why that might happen.
The other issue is the overall cost of the LARCs. From what I’ve heard, the production costs are pretty small — some of them are little more than copper wires — but the price has been artificially inflated to correspond to the cost of birth control pills.
Feathers
How about treating them as death prevention?
Seriously. “Maternal Conditions” is the sixth leading cause of death for women 25-34 and is number eight for women 15-24. We have drugs which prevent women from dying because of this. Why is this completely left out of the arguments for spending on birth control?
The equivalent conditions for men are coronary heart disease and leukemia. Would anybody take seriously the argument that cheap, effective, low side-effect drugs for heart disease and leukemia shouldn’t be covered by insurance?
Makes you think there is something else going on here. The problem for the insurance companies is that they are out the money for pregnancy expenses, whether the woman survives or not.
Richard Mayhew
@Portending: agreed re single payer but that is not happening in the next 4 years while a Medicare demonstration project could launch in 2018 with good data by end of 2020
John Revolta
@Portending:
This. We really need to get people talking about this.
Portending
@John Revolta: Exactly.
The cost effectiveness of a LARC has a numerator — in this case, the difference in price between the device and birth control pills — and a denominator — the reduction in unintended pregnancies. LARCs are substantially more effective and simultaneously far cheaper to produce. It’s already a game-changing technology at the artificially high selling price. At a more reasonable cost in line with production, it should become a no-brainer when it’s a reasonable choice (medically and by the patient’s preference).
Portending
@Richard Mayhew: I was curious if you had any insight on the churn problem. After receiving a long-term LARC, Is there any reason to think that some insurers would lose more customers than they would receive in churn from other companies?
Thanks for all of your great articles.
jl
I believe Mr. Mayhew is ‘ripping off’ from John Cochrane, Time Consistent Health Insurance. Journal of Political Economy Vol. 103, No. 3 (Jun., 1995), pp. 445-473.
I would gladly send him a copy today for a hamburger next Tuesday. Cochrane can do very good micro-economic and financial economic research and modelling, and his recent forays into macroeconomic were unfortunate for the amount of confusion it introduced to public discussion, and I think he finally had to retract some of his slams on Krguman/DeLong/Blanchard/Stiglitz style macro.
Cochrane’s paper is not a full analysis, since it doesn’t address the issue of adverse selection of people into a time consistent contract (which would be a problem if people had a choice between what would be cheaper sequence of short term contracts or a multi-year time consistent contract). This would not be a problem if the US decided to go Swiss or Dutch (or of course if it went single payer or national health service), and every organization was required to offer the same uniform minimum basic comprehensive plan. But Cochrane just noted that he didn’t address the adverse selection problem and then skipped ahead to asserting that it would be a good idea to repeal some state regulation of health insurance markets and that the market might then do something wonderful and these kinds of contracts would appear, solving many problems. (So his conservatism doesn’t wreck up the formal analysis, just the discussion section of the paper).
I need to do a literature search to see if anyone has developed the idea further. As of last time I did one, no one had solved the adverse selection problem, since multi-period insurance problems with adverse selection are very hard to solve. But is the basic idea is sound.
Richard Mayhew
@jl: can you send me a PDF of the article
jl
@Richard Mayhew: its in the mail!
Richard Mayhew
@Portending: can not really say who is a net winner/net winner on churn and LARCs.
I was thinking about how to create a socially positive Red Queen Race that is a mirror of the risk adjustment RQR https://balloon-juice.com/2014/09/15/risk-adjustment-and-the-red-queen-race/
Give every insurer a damn good reason to do better than last year is the goal
mel
@Feathers:
Absolutely. This should be a key element in any discussion of women’s health care policy. Yet, it is often completely ignored.
For more women than one might expect, reliable and affordable birth control is not just about autonomy and family planning, although these issues are of enormous importance socially, psychologically, and financially to women.
Many women need hormonal birth control as part of a regimen to control, manage, and /or reduce morbidity from an array of illnesses which, without treatment, can lead to significant health impairment. For example, treatment regimens for PCOS, adenomyosis, and PMDD often incude estrogen-progestin birth control.
Birth control is also essential for women on medications which can cause severe birth defects.
For yet another subset of women, however, birth control pills or long-term hormonal birth control methods are not a viable option, and non-hormonal devices such as the Copper T iud are necessary due to pre-existing conditions such as hypercoagulability and certain autoimmune conditions. Hypercoagulable women are at greatly increased risk of miscarriage, thrombosis, stroke and coronary events during pregnancy.
No woman should have to endure an untreated treatable illness, or risk significant disability or even death because her insurer is playing the odds and hoping that she’ll switch insurance and be someone else’s tab before the shit hits the fan.
Richard Mayhew
@mel: @Feathers@PNW_WarriorWoman: do any or all of you want to write some guests posts on birth control as I obviously don’t have your knowledge nor perspective and I want to learn more!
mel
@Richard Mayhew:
Richard, I would be interested in perhaps writing a post. What would be the best way to contact you to chat about content, length, how to submit the post, etc?
Richard Mayhew
check your e-mail.