Economics 101: #Obamacare : making the inexpensive cost more Updated!

The original article was published last November, but in light of the Supreme Court’s decision in Burwell v Hobby Lobby Stores, Inc., I wished to revisit it, and bring it up to date. First, the original article:
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After seeing the ad to the right on several sites — The Lonely Conservative, Sister Toldjah and The Pirate’s Cove — I started thinking, once again, about the costs of the Patient Protection and Affordable Care Act. During the Sandra Fluke kerfuffle, it was noted that a Target just a few miles from Georgetown University, where she went to school, sold generic birth control pills to women without health insurance for a whopping $9.00 a month.

That was a couple of years ago, so I decided to check the Planned Parenthood website for their estimates concerning the costs of oral contraceptives:

How Do I Get Birth Control Pills? How Much Do Birth Control Pills Cost?

First, you’ll need to get a prescription. Visit a Planned Parenthood health center, a clinic, or a private health care provider for a prescription. Your health care provider will discuss your medical history with you, check your blood pressure, and give you any other medical exam that you may need. If you need an exam, it may cost about $35–$250.

Birth control pills may be purchased with a prescription at a drugstore or clinic. They cost about $15–$50 a month.

Planned Parenthood works to make health care accessible and affordable. Some health centers are able to charge according to income. Most accept health insurance. If you qualify, Medicaid or other state programs may lower your health care costs.

Call your local Planned Parenthood health center to get specific information on costs.

Now, for a woman who is paying cash for oral contraceptives, that means writing a check or using a debit card for $15.00 to $50.00, the cost of the prescription. The WalMart or Target or RiteAid pharmacies get their money, right away.

But the Obama Administration wants to change that. The President and his minions want everybody to have health insurance, and they want all health insurance policies to cover contraception, without any patient copayments. If that is the case, no woman will pay cash for her pills; she’ll show her insurance card instead.

And that means that the pharmacy will have to bill the woman’s insurance company. Rather than the quick cost of the cashier accepting the patient’s payment, the cashier will have to enter the insurance information, and someone — probably someone else — will then have to put together a bill to the insurance company.1 The insurance company will then have to process the bill, make certain that the expense is covered, and then make the payment to the pharmacy. All of those extra steps cost money!

Back at the pharmacy, it has to wait for payment. Instead of having the cash on hand, in payment for the medication received at the time it was sold, there will be a period of time — which could be weeks — that the pharmacy will, in effect, have to finance between the sale of the medication and being paid for it.

Well, someone has to pay those costs. The pharmacy will have to add their costs to the price of the medication, thus billing the insurance company for a higher amount. The insurance company, bearing an overhead cost of their own in processing the claims, will have to add that into the premium prices they charge.

The simple economic truth: oral contraceptives will cost more, because the PP&ACA is adding expenses to the purchase.

Of course, there’s still more. Oral contraceptives are fairly inexpensive, and there is some actual competition between brands for sales. When women pay cash for their birth patrol pills,2 there is an incentive for them to buy a less expensive brand if they have the option. But once price is removed as a consideration for the patient, there is no need for the patients to choose lower-priced generics or request their physicians to prescribe a lower cost pill. The PP&ACA requirement that contraceptives be completely covered, with no patient co-pays, removes the incentive for price competition concerning the patient.

Pharmaceutical companies exist for only one purpose: to make money for their shareholders. Without an incentive to reduce prices to gain market share, since patients won’t be price shopping, the pharmaceutical companies will be able to charge higher prices. This factor could be held in check, if PP&ACA regulations required co-payments from patients for prices beyond the generic brands, but the current requirement is for no copayments.

The government could start its own buying program, to buy the medication in bulk, but that would make the government the seller of medication, not the pharmaceutical companies. In theory, the government could get lower prices for the bulk purchases, but, in practice, government procurement of items has never been something which led to lower prices. Even if such a program were put in place, it adds additional overhead costs.

This is not exactly PhD level economics; this is just a simple recitation of the reality of business. Anyone who knows anything about business would have been able to see this . . . which is probably why the government cannot.
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Update, June 30th:

As you might imagine, the left are going ape over this decision. But Burwell v Hobby Lobby is fairly narrowly tailored, exempting only those “closely held” companies, not major corporations with widely-held stock. From The Wall Street Journal:

Hobby Lobby Ruling Raises Question: What Does ‘Closely Held’ Mean?
Companies Who Won Supreme Court Contraceptive Case Are Owned, Controlled by Single Family
By Stephanie Armour and Rachel Feintzeig | June 30, 2014 2:56 p.m. ET

The Supreme Court’s decision to exempt some closely held, for-profit firms from covering contraception in workers’ health plans sparked immediate questions about whether other companies may try to claim such an accommodation.

Their success may rest on the type of company they are and state corporate laws that can vary.

The three firms in the lawsuit—Hobby Lobby Stores Inc., Conestoga Wood Specialties Corp. and Mardel—all have the same business structure: they are owned and controlled by members of a single family.

But closely held firms can take other ownership forms. The Internal Revenue Service defines a closely held company as a corporation that has more than 50% of the value of its outstanding stock directly or indirectly owned by five or fewer individuals at any time during the last half of the tax year. Personal-service corporations, for instance health-care and law firms, don’t qualify as closely held.

Closely held companies are owned by a relatively small number of investors, typically including their founding families and management. Roughly 90% of all companies in the U.S. are closely held, according to a 2000 study by the Copenhagen Business School.

More at the link. It seems to me that this decision will actually wind up creating more court cases than it settles.

But it’s so useless: the actual costs of contraception in this country are so low that there is no need to make such an insurance-covered item.

  1. I am assuming a form of electronic billing rather than a printed and mailed bill, which would add even more costs.
  2. Not a typo; Archie Bunker called them that on the old All in the Family television series.

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