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You are here: Home / Anderson On Health Insurance / Birth control and thinking like an actuary

Birth control and thinking like an actuary

by David Anderson|  May 31, 201711:36 am| 21 Comments

This post is in: Anderson On Health Insurance

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Nicole in comments yesterday

Wouldn’t it be nice if insurance companies decided to charge companies that didn’t want contraceptives covered more to provide insurance, under the logic that their employees were more likely to have an unplanned pregnancy, with the accompanying increase in costs?

I can see where she is coming from, but I think she is wrong. We need to think like actuaries in evaluating the costs of the counterfactual. Everything that I have ever been told has been that birth control over a broad population is a net wash for an insurer. They pay more in pharmacy claims and less in labor and delivery claims if there is a broad risk pool.

We will think like actuaries for a bit.

There is a group of people who receive no cost sharing contraception. The cost to the insurer is the cost of the birth control plus the cost of birth control failures in the form of pregnancies that are not naturally miscarried. The benefit to the insurer of birth control is the wedge of unplanned pregnancies that are avoided because of birth control in the time period that the woman is covered by the insurer. If an IUD is good for five or more years but the woman is only covered by the insurer for six months, the insurer only cares about the fractional pregnancy averted in that half a year. Other payers benefit for the rest of the time that the IUD is working. The woman benefits from increased autonomy and control over her life but the cost benefit accounting in a narrow sense means the costs are immediate and the gains are not internalized by the insurer.

This is the base case.

Now let’s move to a world where birth control is regular cost sharing. The cost to the insurer is the cost of birth control minus the cost sharing paid plus the cost of birth control failures plus the cost of incremental unplanned pregnancies that don’t naturally miscarry from women who no longer use very effective birth control. These women may use other, less expensive birth control (the pill, barrier methods etc) or make behavioral changes in their sexual repertoire.

There may be shifts in the composition of birth control. Oral hormonal contraceptives might become incrementally more popular as the cost sharing price on a monthly basis is significantly less than the upfront cost of an IUD or other very effective long term options. The insurer may benefit financially in this trade if the insurer sees high churn.

In a full cost sharing universe, the insurers are paying for only a small proportion of the birth control that they paid for in a no-cost sharing world as most women won’t be hitting their deductibles anyways. The major risk is the proportion and expense of the incremental unintended pregnancies that are not naturally miscarried.

In a no covered birth control world, some of the women will still be able to find birth control at Planned Parenthood or elsewhere. Most of the women will be using less effective birth control methods (barriers, timing, etc). The insurers will have no claims for birth control and increased claims for unintended pregnancies. There will be increased administrative bloat as women have to fight to get birth control prescriptions for non-birth control purposes but that is a stable negative equilibrium if all insurers are reluctant to pay.

From an insurer perspective, these are the things that they need to consider. They can’t consider social costs, they can’t consider increased or decreased female autonomy, they can’t consider the incremental cost of educating a kid from kindergarten to twelfth grade. They can’t consider any of that in their calculations. We can, but we should not be surprised that insurers don’t make this argument. It is not their argument to make. Medicaid and CHIP programs can make this argument as they are funded by state governments that are on the hook for these increased societal costs but a Blue Cross affiliate is not responsible for those costs.

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21Comments

  1. 1.

    Corner Stone

    May 31, 2017 at 11:39 am

    The good news is that if you actually are an actuary you don’t need to think about birth control.

  2. 2.

    schrodingers_cat

    May 31, 2017 at 11:53 am

    @Corner Stone: You could be a female actuary.

  3. 3.

    patrick II

    May 31, 2017 at 12:00 pm

    You think like an actuary for a minute — I’ll think like a wingnut for a minute. The Brown people aren’t using birth control and are having more babies. We need our women to have more babies or else the white race will be wiped out. Therefore, No birth control, especially for our sweet Evangelical sisters.

  4. 4.

    Barbara

    May 31, 2017 at 12:01 pm

    @schrodingers_cat: I think you missed the point of the joke.

    Insurers often think of contraception like this: Most women who really care about it will buy it regardless of the availability of insurance. Those who are less determined will also be deterred by other things and end up just as likely to become pregnant. The net result for insurers is to pay as much labor and delivery as they were always going to plus paying for contraception that they otherwise would not have. They could be wrong, but for them, the issue is the marginal additional population who will use contraception and whose non-use would have resulted in otherwise avoided L&D costs. I think that population is larger than anticipated because not every woman can use every form of contraception, and some forms are expensive enough that it is expense and not other things that deter its utilization. But it can be hard to prove. I think larger population studies are showing significant drop in birth rate among populations previously underserved by access to contraception, such as teenagers, so that’s the kind of study that is needed to persuade insurers.

  5. 5.

    Unknown known (formerly known as Ecks, former formerly completely unknown)

    May 31, 2017 at 12:10 pm

    @schrodingers_cat: the joke, you missed it.gif

    Anyway, surely if this is all true, insurers prefer a world in which everyone is forced to issue birth control. That takes churn largely out of the equation (except that part that involves movement in and out of not-covered status), and means they get to internalize the cost savings of less pregnancies on their watch – they might pay for an IUD for some women who leave, but the women who arrive new on their plan are just as likely to have had an IUD installed free by someone else.

    I would have thought that this would have created bigger industry pushback against these religious exemption rules.

  6. 6.

    Brachiator

    May 31, 2017 at 12:12 pm

    In a no covered birth control world, some of the women will still be able to find birth control at Planned Parenthood or elsewhere.

    The added irony, of course, is that conservatives want to de-fund Planned Parenthood and eliminate government clinics and other sources of contraception.

  7. 7.

    schrodingers_cat

    May 31, 2017 at 12:12 pm

    @Barbara: @Unknown known (formerly known as Ecks, former formerly completely unknown): Probably because I only read CS’s comment not the original post.

  8. 8.

    pluky

    May 31, 2017 at 12:37 pm

    @schrodingers_cat: or male and married.

  9. 9.

    RML

    May 31, 2017 at 12:40 pm

    They can’t consider social costs, they can’t consider increased or decreased female autonomy, they can’t consider the incremental cost of educating a kid from kindergarten to twelfth grade. They can’t consider any of that in their calculations. We can, but we should not be surprised that insurers don’t make this argument. It is not their argument to make.

    This is a fundamentally broken system.

  10. 10.

    Mnemosyne

    May 31, 2017 at 12:55 pm

    @Barbara:

    I think larger population studies are showing significant drop in birth rate among populations previously underserved by access to contraception, such as teenagers, so that’s the kind of study that is needed to persuade insurers.

    I think I’ve seen those same studies. So now I think the question for Dave is, what happens when new facts about contraception use emerge? Do the actuaries incorporate those new facts, or do they continue to rely on the old “tried and true” formulas even if they don’t match the actual facts!

  11. 11.

    LongHairedWeirdo

    May 31, 2017 at 1:09 pm

    @schrodingers_cat: The point of the joke is, “there are people who are boring, and become accountants. Then there are people who find the life of an accountant to be too wild and wooly for them. They become actuaries.”

    (I studied actuarial science, and, if IT hadn’t become more fun and lucrative, I might be one today – so it’s legal for me to make the joke.)

    Thing is, even boring people get laid, and yes, birth control is vital, especially to an actuary who can probably explain the precise costs, both real and opportunity costs, of an unplanned pregnancy.
    ETA: Technically, they can explain the 95% confidence interval around the precise costs, and what assumptions underlie that prediction.

  12. 12.

    David Anderson

    May 31, 2017 at 1:25 pm

    @Mnemosyne: Good actuaries incorporate the best available validated evidence into their models.

    Now what constitutes the best available, validated evidence — that can be fighting words. In this circumstance, the zone of uncertainty around the evidence is not that big so not too many actuaries will die in bringing us this information.

    When the question is much fuzzier (Who will sign up for the 2014 exchanges?) that is when it could get ugly.

  13. 13.

    Gindy51

    May 31, 2017 at 1:32 pm

    And as every parent knows, it isn’t the cost of the delivery that is the largest, it is the cost over the 18 year life span of your child. Maybe actuaries need to factor THAT huge set of costs into the equation… kids cost a fuck ton of cash to keep healthy.

  14. 14.

    David Anderson

    May 31, 2017 at 1:44 pm

    @Gindy51: public health and public finance actuaries care about the eighteen years later. A health insurance benefit design actuary does not and can not.

  15. 15.

    schrodingers_cat

    May 31, 2017 at 2:41 pm

    @LongHairedWeirdo:

    The point of the joke is, “there are people who are boring, and become accountants. Then there are people who find the life of an accountant to be too wild and wooly for them. They become actuaries.”

    That I got, I am not that dense.

  16. 16.

    Humboldtblue

    May 31, 2017 at 2:51 pm

    Sweet mother of abortionplexes, nearly every day it seems I read a headline on BJ or another news blog announcing some awful thing the GOP has done or will do and then I look at my California news aggregator and realize we in the Golden State exist in a parallel universe.

    If it’s not sanctuary cities and immigration reform, it’s emission standards and health care and today it’s access to birth control. State Senator Hannah Beth Jackson has introduced a bill that now heads to the assembly, a bill that would sell specialized license plates to support reproductive health in California.

    The full Senate on Monday approved Senator Jackson’s bill that would create a specialized pro-choice license plate with proceeds benefiting reproductive health care services in California. SB 309 would require that the Department of Motor Vehicles issue a specialized license plate with a “California Trusts Women” theme once 7,500 Californians order them.

  17. 17.

    TooTall

    May 31, 2017 at 3:07 pm

    Actuaries may say that the costs of birth control equal the cost of unplanned pregnancies. However, actuaries should also say that unplanned pregnancies cost the families over $200,000 to raise a child to age 18 (without college expenses.) Government should be helping families with programs so that they no longer need welfare, SNAP, and other assistance programs. Raising an unplanned child for many families means a step deeper into poverty, with more reliance on assistance programs. Denying birth control coverage is the exact opposite of Good Government.

  18. 18.

    sheila in nc

    May 31, 2017 at 3:37 pm

    Actually, the same logic applies to almost any preventive coverage. Assuming you don’t know a priori who is going to get a particular disease, you are looking at the cost to provide the preventive intervention to everyone. OTOH, covering the disease itself might be more expensive, but you’ll only have to do it for a small subset of your covered population.

  19. 19.

    LongHairedWeirdo

    May 31, 2017 at 6:21 pm

    @schrodingers_cat: Fair enough. Out of the possibility that maybe someone *doesn’t* get it, and is frustrated by not getting it, I sometimes explain stupid stuff.

  20. 20.

    David Anderson

    May 31, 2017 at 7:25 pm

    @sheila in nc: yep, which is why we need coercive regulation to solve that collective action problem

  21. 21.

    Paula Swafford

    June 1, 2017 at 9:01 pm

    An actuarial factor you didn’t cover is the cost of the increased family size from having additional children. I would also question whether unwanted pregnancies are more likely to produce less-healthy children, who would be more expensive to cover.

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