Demand elasticity of contraceptives and their cost-effectiveness, a follow-up

The following is a guest post by Daniel Liebman, a research assistant for Dr. Ashish Jha at the Harvard School of Public Health, and a part-time research assistant for The Incidental Economist. He graduated from Brandeis University in 2012 with degrees in Health Policy and American Studies, and will begin at Harvard Medical School in Fall 2014. He tweets about good policy and bad puns at @D_Liebman.

Sex-Ed week continues here at TIE! Responding to my post and Austin’s Upshot article from yesterday, UCSF’s Dr. Diana Foster emailed:

There is another factor to consider. The most effective [contraceptive] methods are the most expensive up front. So even middle income women don’t pay for IUDs and implants out of pocket but would adopt these methods if they were free.

This is a fair point. Our posts dealt mainly with contraceptive costs and savings in the aggregate. There are, however, many different contraceptive methods, and all are certainly not created equal with regard to pricing and cost-effectiveness. For example, Foster et. al (2009) found that while all contraceptive methods in California’s publicly funded family planning program were cost-saving, some saved more than others. A dollar invested in barrier methods led to public savings of $1.34; in oral contraceptives, $4.07; in implants and IUDs, more than $7.00. (Bear in mind that this is a cost-benefit analysis from an overall, societal perspective, not from that of an employer-sponsored, commercial insurer.)

These savings differences exist because some contraceptive methods are more effective than others. Barrier methods like condoms and diaphragms, and oral contraceptives like the Pill, require frequent effort on the part of the user. Implants and IUDs, by contrast, belong to a group of contraceptive technologies known as LARCs, or “Long-acting reversible contraceptives”, which provide long-term contraception while practically negating the incidence of user error. Unsurprisingly, they are therefore extremely effective, with a failure rate 1/20th that of the Pill.

Austin and I pointed out that there is a degree of inelasticity of demand for contraception. Notwithstanding issues of equity and fairness (e.g. the “Viagra-but-not-birth control” observation) many women do choose to pay for contraception out of pocket when given no other choice, both to avert the social and economic costs of unintended pregnancy, and because of some contraceptives’ non-sexual health benefits. Janet Weiner kindly  pointed out via Twitter that there is some evidence of cost-sharing affecting contraceptive use. The impact, however, is modest.

Here’s the thing, though: LARCs require a significant initial investment—for an IUD, up to $1,000 for the device and related medical visits. Their efficacy and long-term capabilities more than make up for these up-front costs over time from a social perspective (Lipetz et al., 2009; Blumenthal et al., 2010); some estimate even within one year (Crespi et al,2013). Still, a $1,000 down-payment may be simply too high for many women, and indeed, some literature suggests that LARC utilization may go up significantly when out-of-pocket expenses are reduced or eliminated (Gariepy et al., 2011; Pace et al., 2013; Postlethwaite et al., 2007; Secura et al., 2010). LARCs had already begun to increase in popularity among US women before the ACA passed (Finer et al., 2012). Health reform’s subsequent removal of co-insurance for these highly-effective contraceptives may very well further increase the societal savings.

Again, though, societal savings as a whole do not necessarily translate to cost-neutrality for the insurer, though it may. If we briefly delve into hypotheticals, it is possible—possible­—that the vastly superior failure rates of these devices, combined with a swift uptick in use, could incur rapid enough cost-savings across a population of insured patients to fully offset the up-front costs for insurers. Limited-scope studies like this one suggest that LARC uptake in a population can be swift if cost and knowledge barriers are removed. Still, there is not yet a firm evidence base on which to make a definitive claim.

One final note: Yesterday a coworker asked me why, in light of our disclaimer that contraception is primarily about women’s health and not costs, we would still go ahead and write an entire post (let alone two or three) about contraceptives and cost-neutrality. Indeed, the discussion of costs in regard to reproductive health services—and most preventive care—can be troublesome. But the truth is, costs are always a part of the health care equation, and should, therefore, also be part of the conversation. And if cost-related assertions are  to be put forth at the highest levels of our government, as they recently have been by both the administration and by the Supreme Court, it is best to at least let those discussions be guided by the most accurate and unbiased data we have available to us. And that is what we seek to provide.

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