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Hobby Lobby and contraceptive costs

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We have been looking at the decisions in Burwell v. Hobby Lobby Stores, Inc. et al., 573 U.S. _____ (2014) and Wheaton College v. Burwell, 573 U.S. _____ (2014), and there is an aspect of the entire situation which defies logic but seems to be overlooked by all parties. Hopefully this will make it clear, and perhaps defuse some of the objections.

The administrative regulations promulgated under the Affordable Care Act list twenty forms of what are termed "contraception", four of which do not prevent conception but implantation and are therefore termed "abortifacient" by objectors. Because religious groups may find all or some of these methods morally repugnant, the Supreme Court in Hobby Lobby asserted that such employers cannot be forced to provide these in the insurance coverage for which they pay. In reaching this decision, they noted that Health and Human Services already had a system in place whereby religious non-profit corporations could be exempted from paying for such coverage and the coverage would be provided at no cost by the insurer through a separate program.

Of course, the immediate reaction is, who pays the costs of such coverage, if not the employer? Yet the Court noted that the analysis by Health and Human Services had already determined that, and that in fact there was no net cost.

The logic goes like this: a woman who has contraception available is less likely to become pregnant; pregnancy is one of the most expensive conditions covered by women's health care. Thus if the entity insuring a woman under a policy that does not cover contraception can provide contraception for that woman by some other means, at its own expense, it reduces the probability that it will have to pay the significantly greater costs involved were that woman to become pregnant. That is, ultimately it costs an insurer less to pay for contraception than to pay for obstetric care.

Underlying the objections to the Hobby Lobby exemption is the notion that ultimately Hobby Lobby gets to save money by not paying for certain forms of contraceptive coverage--the statement "we do not want to be forced to pay for these procedures" seems to translate into "we can save money on our employee insurance coverage by not paying for these procedures". Yet it is clear that the Affordable Care Act requires coverage for obstetric services. Insurers employ actuaries. The job of an actuary is to determine the probable amount the company will have to pay on claims so that the rate for the policy can be set to cover the costs. (In most cases it is also set to earn a profit. Some insurance providers are not for-profit companies, but even in those cases the costs are set to enable the company to build a backup fund.)

If Health and Human Services is correct that providing contraceptive coverage at no cost to clients who are covered otherwise by policies that do not include those items will reduce the payouts for obstetric care sufficiently to cover the expense, then companies like Hobby Lobby who decline to pay for some or any of the contraceptive options thereby increase the probability that their employees will become pregnant. Any actuary should be able to calculate the difference, but if Health and Human Services is correct, Hobby Lobby should see no reduction in its payments, and possibly an increase in payments, based on the anticipation that health care for women will be more expensive to the degree that depriving them of these contraceptive options increases the probable amount to be paid in obstetric bills.

The Hobby Lobby dissent argues that even if such coverage is provided free to women not covered under the company plan it is still an inconvenience for them to have to work with a separate coverage plan for those items. That certainly also is something an actuary would know, and part of the process of calculating Hobby Lobby's bill--since after all those women who do not obtain the free coverage are the ones who create the risk of the obstetric expenses.

In short, from the perspective of the insurance company, if Hobby Lobby or Wheaton or Eden Foods (our next subject) choose not to pay for certain contraceptive measures, this increases the risk of pregnancies among the covered group and so increases predicted costs to the insurer, with a comparable increase in premiums to the company. The logic of the situation leads inexorably to the conclusion that you cannot reduce the cost of insurance by excluding contraceptive coverage.

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