Contraception Conundrum

What makes the contraception coverage debate currently raging in Washington unusually problematic is that both sides are exactly right. Female employees who receive part of their cash compensation in the form of health benefits have the right to benefits that include FDA-approved birth control methods. Employers defined by their religious values—not just churches, synagogues, and mosques, but also thousands of hospitals, universities, and charities—should not have to compromise those values with their own money, and the government has no right to trample the First Amendment by compelling them to do so. The Obama administration’s “accommodation” —shifting the new federal requirement to the insurers who administer those organizations’ health plans—is a cynical shell game that ignores the most basic tenets of business accounting.

As the problem is no more complicated than two sets of equally valid rights in direct opposition, neither is the solution all that complicated, at least in principle: employment and health insurance should have nothing to do with each other.

Unfortunately, this arrangement—a relic of the World War II civilian wage freeze and enshrined in the tax code as soon as workers got a taste of this new-fangled “fringe benefit” of employment—is now an enduring part of the U.S. healthcare system. The entanglement of our health insurance with our employment goes a long way toward explaining not just today’s conundrum over the birth control coverage mandate, but myriad other economic distortions, market dysfunctions, and cultural conflicts that define much of what is wrong with the U.S. healthcare system.

The Obama administration’s ‘accommodation’ last week is a cynical shell game that ignores the most basic tenets of business accounting.

A dozen years ago, the exact same debate played out in public over requirements that employer-sponsored health plans cover female birth control if they also covered vasectomies for their male employees. At about the same time, in private, executives from many large corporations that self-insured their health plans—and thus could tailor those benefits all the way down to monthly pill counts—took time out of their busy days to argue over, among other pressing health benefit design matters, the monthly number of Viagra tablets they would cover for their workers. Seriously.

Thanks to the tax-advantaged status of employer-sponsored health coverage, U.S. employers are forced to make decisions about the most intimate details of their employees’ private lives. Coverage of in vitro fertilization for employees unable to become pregnant on their own—a drawn-out, morally ambiguous process with a total price tag now pushing $30,000 and a high rate of costly medical complications downstream—is another glaring example. While more folklore than actual practice, employers have on occasion terminated employees with expensive medical problems—most famously, those with HIV/AIDS. And a large number of employees believe their employers snoop through their medical records for precisely this reason.

As a result, many employees withhold information from their own physicians; they lie about their medical conditions to other caregivers; they fragment the more sensitive components of their own care (e.g., psychiatric treatment and medication); and in the process, they expose themselves to the medical dangers of conflicting medications and incomplete information. A different class of employees will find as many ways as possible to consume every kind of medical service they can think to need, in effect giving themselves tax-free, non-cash raises with each unnecessary or overpriced medical product and service. And there is abundant literature documenting the shift in compensation from cash to all manner of “health” benefits (e.g., luxury medical spas) for highly compensated employees, as a way of avoiding taxes.

The rising cost of all employee benefits—in particular health benefits—has diverted compensation resources away from wages.

These are the costly and counterproductive games that tens of millions of employees play and, ultimately, that we all lose out on because they coalesce into a healthcare system marked by misallocation, mistrust, and misuse. Contrary to what the average worker says about something from the company health plan being “free,” it isn’t. As Sylvester Scheiber and Steven Nyce found in their “Treating Our Ills and Killing Our Prospects,” which they presented at the American Enterprise Institute in October, workers’ productivity increases over the past 30 years have not translated into cash raises. The rising cost of all employee benefits—in particular health benefits—has diverted compensation resources away from wages and straight into the healthcare system.

Unfortunately, the fundamental economic dysfunctions of an employer-financed healthcare system—and all the inevitable collisions between an employer’s moral position and an employee’s personal privacy—are not going away any time soon. A cornerstone of the Obama health reform plan involves cramming still more people into employer-based health plans, thus guaranteeing a future filled with more showdowns like today’s contraception conundrum. So much for the best, most profound, and most obvious solution.

The next best solution to this problem is the stealth one the market has slowly been introducing since the early 2000s, when command-and-control managed care started giving way to more consumer-oriented forms of health insurance. Higher deductible insurance, Health Savings Accounts, and more employee cost-sharing for drugs mean that low-cost, routine medical items like birth control can once again become the business not of American business, but of American women. Which is precisely how it was at the end of World War II, when health insurance truly was a “fringe” benefit; the standard deductible was $200 ($1,881 in today’s dollars, let alone healthcare dollars, which are easily double that); and you hoped you never actually needed it—like fire, auto, or homeowners’ insurance today.

Thanks to the tax-advantaged status of employer-sponsored health coverage, U.S. employers are forced to make decisions about the most intimate details of their employees’ private lives. The fact that routine birth control is even included in a debate about “insurance” is ridiculous anyway—as if a woman becomes accidentally sexually active one day, the same way she can have a heart attack, or fall and break a hip, or confront breast cancer. Wrapping all of the routine matters of our self-care into an “insurance” plan belies how completely warped the insurance system has become over time, thanks to the tax-advantaged imposition of our employers into our private lives.

From this broader view, the entire contraception conundrum—with its forced stand-off between two groups who have equal and opposing claims on the outcome—could have been avoided entirely. Instead of mandating coverage for something a large group of American women want and need, and that a sizable group of American employers find abhorrent, the government could simply have made it easier for those same employers to pay their employees their full compensation in the form of pre-tax cash—and use it to make their own healthcare decisions.

J.D. Kleinke is a medical economist, author, and health information industry pioneer. His work has appeared in the Wall Street Journal, JAMA, Barron’s, the British Medical Journal, Modern Healthcare, and numerous other publications.

13 replies »

  1. As a business decision why wouldn’t you want to delay/prevent pregnancy when company benefits pay for birth complications/outcomes/costs, and as a society we all pay for unwanted/unwise pregnancies.

    This “showdown” has been engineered by Republicans wanting the defeat of Obama to be a religious crusade, and Catholic Bishops who still yearn for the good ole days of keeping women in subordinate roles of pregnant and in the kitchen. But there may be more religious support than what Republicans are willing to admit.


    “Obama health reform plan involves cramming still more people into employer-based health plans”

    Mr. Kleinke may want to revisit the attempts for a single-pay system and who fought against it. I support eliminating tax subsidies for employer health coverage unless there is an equal tax write off for individuals buying their own. The fastest way to single-pay is having people buy their own health insurance sans tax write offs. Bring it on!

  2. Yep.

    PPACA is a Rube Goldberg contraption built by Congress with little or no original input from the Executive branch other than a nudge here or a shove there. Many of us watched in dismay as the Public Option went down in flames along with a raft of other constructive possibilities that died along the way.

    Hell, thanks to the entrenched Medical-Industrial Complex the single-payer option never had a seat at the table from the start. The fanciful name “Affordable Care Act” got saddled with the sobriquet “Obamacare” but the president was only the cowboy that finally caught a wild horse that had eluded capture by four or five of his predecessors.

  3. I think I heard about contraception being much more available in the Netherlands. The physician was challenged on the idea that yearly cancer screenings were necessary, and she said that they didn’t recommend cervical cancer screening until age 30 and then every 3 years thereafter. I would think that most adults could figure the risks out themselves if adequately informed, and it seems we have to start thinking about where cost reductions are going to be made. Aren’t there more cost-effective ways to deliver preventive health services to women? Just a thought. Obviously, an IUD would require a clinic visit. Even in Europe, although I wouldn’t be surprised if community health workers weren’t able to place them in China. (Just speculating – I have not heard anything about the subject.)

  4. Hormonal contraceptives should not be over the counter. They can cause some serious adverse events and side effects, which often medical and family history needs to be taken into account. Patients need to be made aware of precautions while using some contraceptives (drinking alcohol, timing of pills, using while on antibiotics, etc.), and need to have ample opportunity to ask questions and make informed decisions on which contraceptive method is right for her. This medical appointment also offers a chance to be screened for cervical cancer, breast cancer, STDs and other health issues. Often women are lucky to have pelvic exams and check-ins with their provider annually for crucial prevention and health promotion and important sexual health discussions. It’s often one of the few healthy things women do for themselves. Ask women of childbearing age – if it weren’t for birth control, how many women would see a provider once/year?

    In other contraceptive cases (IUD, injections, etc.) this simply just can’t happen without a medical appointment.

    It also doesn’t make sense to make them over-the-counter requiring an age limit or ID for purchase. We shouldn’t age-limit contraception. There are many reasons for allowing someone younger than 18 to need hormonal contraception and often contraception and sexual health advice.

  5. I wonder why we don’t make contraceptives over-the-counter instead of prescription. I would think by this time they’d be very inexpensive and not require a physician visit (i.e., less than the co-pay for a visit). If you wanted to keep them out of the hands of children, have them behind the counter like cigarettes and require an ID for purchase. Doesn’t that make sense?

  6. Dude, you are the BEST. We need you to be routinely more visible in the policy arena.

    “employment and health insurance should have nothing to do with each other.”

    Elhauge, 1994, “Allocating Health Care Morally”

    We remain in set-in-concrete denial.

    “tax-advantaged status of employer-sponsored health coverage”

    I find this chimerical to a significant degree. Is not my mortgage “tax advantage” precisely reflected in the market value of my home?

    Everywhere I turn (e.g., Michael Lewis’ ‘Boomerang” in a different context), all I see are whack-a-mole haircut avoidance scrambles.

  7. Readers are urged to read Dr. Kleinke’s previous post “The Other Scarlet Letter” linked above.

    And once again, how many times do we need to be reminded that health care and employment should no longer be connected. Back in the day, with the creation of Blue Cross (and later Blue Shield) the notion of group insurance was a great way for employers to furnish a valuable benefit for employees, even using it to lure good people from competitors. But over the years it has morphed into a monster, costing companies in some cases more than the raw materials of the main business plan.

    Part of the Bush agenda which never saw the light of day was a sensible tax proposal along those lines.


    “Under a system dominated by employer-based insurance, employees and their unions had strong incentives to bargain for the expansion of untaxed health benefits relative to taxable wages. Employers had little incentive to resist these demands since they could deduct both wages and benefits as a business expense. A more generous health benefit as part of the overall compensation package became a popular way for employers to attract and hold workers.”

    Unfortunately that idea, like the notion of real immigration reform, didn’t have the political chance of a snowball in Hell.