Thursday, August 30, 2012

A True Coasean

In India, Rajesh Shah opened a menswear shop called "Hitler." Naturally the local Jewish community is rather upset and demand that he changes the name. Mr. Shah's response?
If the Jewish community really wants the name changed, they can pay for it, Mr. Shah said. “I have spent too much on branding for my shop,” he said.
Ronald Coase would be proud.

Wednesday, August 01, 2012

Yeah I Like Free Stuff, Too

Today marks the beginning of additional provisions from the Affordable Health Care Act. Lauded as a victory for gender equal rights, insurers are now required to cover birth control.

Why gender equal rights? Because insurers have long covered Viagra. Men get coverage for their sex stuff; shouldn't women? If that's as sophisticated as you're going to get, yes it seems unfair. But you're being way too sloppy.

This isn't about religion. It's about cost.

As of 2012, 15 pills cost $332.58; that's sex every other practice it's probably much cheaper.

The price for a month of birth control varies widely: from $15 to $80. Let's take the average (note I'm not adjusting for frequency of purchase for each price since I don't have that information): $47.50 a month.

Now we know the costs, how often is each cost used?

For men over the age of 40, 6.3% of men use some form of ED medication. Since 21.86% of the US is over the age of 40 (as of 2010), 1.38% of Americans use ED drugs.

For women between 15 and 44 who have had sex at least once, 82% have used the pill. As of 2010, that age range is about 20.2% of the population. Let's assume 75% of these women have had sex once (a low estimate, to be sure): that's 15.15%. Multiply that by the 82% who use the pill and we have 12.42% Americans using the pill.

Each month, assuming insurance is footing the whole bill, insurance companies pay $4.67 per person to cover ED drugs. Note this assumes their customer make-up is similar to the US population make-up; unreasonable perhaps but soon it will be required by law.

Each month, assuming insurance is footing the whole bill, insurance companies will pay $5.90 per person to cover the pill.

There are many, many complications to my back-of-the envelope calculations. For one, I'm not sure all firms cover ED drugs but since they will all have to cover contraception, you can bet that $5.90 per person is a low estimate. I also don't know exactly what they will be forced to cover--perhaps other contraception besides the pill--so that 82% might be too low.

On the other hand, you could argue that it's too high, since the number comes from a survey asking if you've "ever" used it. And you could point to the health benefits of birth control, too.

But at the end of the day, health insurance companies are profit maximizers and they can run these numbers much more accurately than I can. If they felt they could cover pills without losing money, I'm sure they would have. But they don't; we have to assume it's for a good reason.