Must employer-provided health insurance plans cover birth control?

Posted: February 10, 2012 by alephnaughty in Economics, Politics
Tags: , , ,

Some people believe they must. Other people disagree. Two questions occur to me in connection with this debate: First, what does birth control have to do with health insurance? Second, what do employers have to do with their employees’ health insurance?

Insurance is supposed to prepare the insured for unpredictable, expensive scenarios. Needing to purchase birth control pills is a perfectly routine event. The pill isn’t very pricey, either. Why, then, do people buy them with their health insurance instead of just reaching for their purse? It’s not like car insurance plans cover fuel expenses.

What’s more, your employer has no say over what your car insurance plan covers. Why, then, does it have a say over what your health insurance plan covers? What’s so special about health insurance?

Believe it or not, many economists say that we have the tax code to thank for these curiosities of the US health care system. The story begins with World War II. One of the ways in which the US government financed the war effort was by printing a lot of US currency, causing excessive inflation. The government responded with wage controls, among other measures, legally preventing wages from giving way to inflationary pressures. Of course, the laws of supply and demand cannot be legislated away. Employers responded to the inflationary pressures by offering workers benefits besides wages, most commonly health insurance, simply because doing so was legal.

As wage controls were relaxed, however, congress began to recognize employer-provided health insurance as a form of income, thus subjecting it to taxation. By that point, though, labor unions had become staunch defenders of the tax-free status of employer-provided health insurance, discouraging congress from closing the loophole. Ever since, employer-provided health insurance has been tax deductible. Sound like intelligent design to you?

Why does the tax-free status of employer-provided health insurance matter? Suppose you wish to buy birth control pills. If you decide to buy them with your employer-provided health insurance, then you will pay for them with pre-tax dollars, effectively rendering them less expensive. If, on the other hand, you decide to pay for them out of pocket, then you will pay for them with post-tax dollars, effectively rendering them more expensive. Note that this does not work if you purchase your own health insurance plan. Health insurance is only tax deductible if it is provided by your employer. This explains not only why most people receive their health insurance from their employer, but also why cheap, routine medical expenses tend to be covered under health insurance plans.

For these reasons, a perfectly straightforward policy issue (whether every woman should have financial access to birth control) is, in the context of our distorted health care financing system, transformed into a mystifying debate about the complex relationship between your health insurance provider, your employer, your government, and you.

So, what’s my proposal to resolve this controversy? Reform the tax code. Only then will we be able to meaningfully debate the proper role of government. Also, everyone needs to take a pill. A chill pill, that is…

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