The price elasticity of contraception

by on February 11, 2012 at 6:30 am in Economics, Religion | Permalink

Let’s try throwing out some data on this topic:

This paper uses a unique natural experiment to investigate the sensitivity of American college women’s contraceptive choice to the price of oral birth control and the importance of its use on educational and health outcomes. With the passage of the Deficit Reduction Act of 2005, Congress inadvertently and unexpectedly increased the effective price of birth control pills (“the Pill”) at college health centers more than three-fold, from $5 to $10 a month to between $30 and $50 a month. Using quasi-difference-in-difference and fixed effects methodologies and an intention-to-treat (ITT) design with two different data sets, we find that this policy change reduced use of the Pill by at least 1 to 1.8 percentage points, or 2 to 4 percent, among college women, on average. For college women who lacked health insurance or carried large credit card balances, the decline was two to three times as large. Women who lack insurance and have sex infrequently appear to substitute toward emergency contraception; uninsured women who are frequent sex participants appear to substitute toward non-prescription forms of birth control. Additionally, we find small but significant decreases in frequency of intercourse and the number of sex partners, suggesting that some women may be substituting away from sexual behavior in general.

That is from Brad Hershbein (pdf).  This paper (pdf) covers Bangladesh.  I am not interested in providing any accompanying moral lesson, one way or the other.

Leigh Caldwell February 11, 2012 at 6:40 am

“I am not interested in providing any accompanying moral lesson, one way or the other.”

And you call yourself a blogger?

Miley Cyrax February 11, 2012 at 4:29 pm

The moral question is: why should men (especially sexually unsuccessful men) and non-promiscuous women have to subsidize the lifestyles of promiscuous women?

msgkings February 11, 2012 at 4:33 pm

Because of the negative externalities for all of us of unwanted children.

Miley Cyrax February 11, 2012 at 6:37 pm

This will hardly put a dent into the number of unwanted children, even with the “given” that we should have a welfare state to support bastard spawn.

The same women who don’t have the self-control and discipline to make their men pull-out or wear a condom aren’t going to suddenly have the self-control and discipline to consistently take a pill everyday.

This is just pushing the cost of prescription birth control from women who use it to everyone else.

Phill February 12, 2012 at 5:19 pm

1) I don’t know anyone who doesn’t use birth control of some sort.

2) “The same women who don’t have the self-control and discipline to make their men pull-out or wear a condom aren’t going to suddenly have the self-control and discipline to consistently take a pill everyday.”

I think this is disingenuous at best. It’s not about self control or discipline – it’s about increasing access by eliminating the cost disincentive. Condoms aren’t as effective as the pill, but they’re easier to access.

I suppose you’re right in that this might not significantly dent unwanted pregnancies – with healthcare access being tied to employment, this is probably not going to do anything for teenagers with abstinence only education living in conservative areas.

Thomas February 12, 2012 at 11:22 pm

I was surprised to hear that Phil doesn’t know any gays or lesbians. Or any old people. Or any old gays or old lesbians.

radicaltruth March 11, 2012 at 10:30 am

that’s assuming (falsely) that simply paying for it will automatically result in people taking advantage of it because it’s “free”, or more accurately put, “paid for by others.”

Miguel Madeira February 13, 2012 at 5:24 am

Are you sure that “promiscuous women” use more the pill than “non-promiscuous women”? I don’t see any logical reason to that.

Anthony February 13, 2012 at 4:09 pm

I don’t know what the statistics show, but I can think of reasons why that might be true:

The pill depends entirely on the woman; a woman with many partners (or frequent changes of partner) will be less likely to trust her partner to take precautions which depend on her partner, or to stick around in case some other method fails. The Pill has side effects for many women; a woman with one steady partner may prefer to switch away from the pill so that some of the burden of birth control is borne by her partner; a steady partner is more likely to agree to this.

abracadabra February 20, 2012 at 2:12 pm

Anthony, there are three main flaws in your argument:
(1) What birth control method shifts the burden to men? The only one I can think of is condoms because I would not count withdrawal. And condoms only shift the burden to men if they are willing to take it on — it isn’t just boys who get instructions with the banana.
(2) What is one of the primary arguments in favor of condoms over (or in addition to) other forms of birth control? They are the best protection against STIs — something one is generally more concerned about when one is changing partners.
(3) Given that the pill has unpleasant/problematic side effects for some women, when might they be most willing to tolerate them? Probably when they are most at risk of pregnancy because they are having sex regularly, which is much more likely when one has a steady partner (Sex in the City is fiction). Also, monogamous sex with a steady partner means the couple is not (as) worried about STIs, making condoms less attractive.

Limey Cervix February 14, 2012 at 2:33 pm

Wherefore the equivalence between promiscuity and use of contraception?
Engaging in sex doesn’t imply promiscuity (and even if it did, so what?).
Your assumptions are showing, and it ain’t pretty.

aram February 21, 2012 at 2:15 am

I guess you don’t ban trolls?

MikeP February 11, 2012 at 6:56 am

I am not interested in providing any accompanying moral lesson, one way or the other.

I’m going to assume you mean moral lesson on sex and contraception, and not moral lesson on insurance mandates.

For it goes without saying that…

a. Covering the cost of contraception is not really insurance: it is both predictable and cheap.

b, The cost of contraception is so much lower than the cost of having and raising children that any insurance company that was trying to save itself money would insure contraception.

Thus there is no reason for government to mandate insuring contraception, and using the threat of force for such a stupid reason is immoral.

Just more evidence that politics is not about policy.

Bill February 11, 2012 at 9:04 am

MikeP,

I understand your argument, but the insurance company is not the only decider, is it. Of course the insurance company would have an interest in offering contraception as part of the package. But, are there other people involved in the decision?

Like the employer.

Now, the question is: if the employer, for a non-pecuniary reason, determines what the minimum benefit is or is not, then the only other question is whether someone, like the government, should become the ally of the patient AND the insurance company, in order to make the market of free choice work.

Never thought you would hear this constructed as a libertarian argument to have government support choice by the insured and the insurer to make the market work.

That just goes to show you how you can construct any argument by leading people by the nose with labels.

Bill February 11, 2012 at 9:16 am

Also, if you thought about the economics of this a little further, what if the carrier offered two policies: one with contraception and one without: which would be higher priced.

The irony would be that the religious affiliated institutions would be offering a higher priced product to those who conformed to church policy, and a lower priced policy to those who did not.

Truly would be a measure of faith price elasticity.

Willitts February 11, 2012 at 12:40 pm

You’ve been “led by the nose” to believing that “insurance” means “paying expenses”. Bill paying is an administrative function of insurance, not its purpose.

If they were permitted to, insurance companies would charge women higher premiums. The only reason they might gladly pay for contraception is because they are forced to pay the costs of pre-natal and birth care.

Don’t try playing the free market card in a market that is already distorted by government. That’s just another element of control.

maguro February 11, 2012 at 2:46 pm

Goes back to the fact that most health insurance isn’t really insurance, it’s more of a prepayment plan for healthcare services.

FXKLM February 11, 2012 at 12:29 pm

The cost of raising children wouldn’t fall on the insurance company in any event. The cost to the insurance company of a pregnancy is fairly high, but it’s unclear how much subsidized contraception would actually affect the rate of unplanned pregnancies. There are plenty of cheaper alternatives. It’s also possible that unplanned pregnancies of younger women could be cheaper in the long run for insurance companies. If they have unplanned pregnancies when they are younger, they may be less likely to try to have children when they are older, which could lead to expensive fertility treatments or pregnancies with complications that could fall on the insurance company. It’s not at all clear that providing contraception is cost-efficient for insurance companies.

CdnExpat February 11, 2012 at 12:41 pm

Ruth Marcus, writing in the Washington Post today, makes the same point that offering contraceptive care actually reduces expected costs to the insurance company. And you would think that the employer would also benefit since unanticipated pregnancies means unanticipated absences from work and the associated loss on specific human capital investments in the employees. So insurance would be expected to cover this, without deductible, as they do a host of preventative care treatments. So if all that is clear, why would anyone have to legislate coverage in the first place? Could it be that employees would switch insurers when they know they’re going to give birth? To the extent this is so, it could be an argument for the legislation since this cost shifting is purely pecuniary in nature.

Brandon Berg February 11, 2012 at 3:29 pm

B isn’t obviously correct. For every pregnancy avoided by covering contraception, they’re paying for contraception for many women who would have purchased it themselves or avoided pregnancy in some other way. Especially considering that the least well-off women don’t have insurance anyway.

CdnExpat February 11, 2012 at 7:05 am

MikeP’s comments might be correct, but to be the research shows a stunningly low elasticity. I’m really surprised.. Of course college women are not necessarily representative of all women or of women who do business with religious entities.

Hasdrubal February 13, 2012 at 1:15 pm

Since oral contraceptives require a prescription, I’m not surprised. I would suspect that the majority of the cost of contraceptives is opportunity costs related to setting up an appointment, remembering to take them regularly, and dealing with side effects, not the monetary cost of the prescription.

April Harding February 11, 2012 at 8:58 am

How generalizable is this finding of low elasticity wrt contraceptive demand?

It is interesting to ponder why the US college student – contraceptive elasticity of demand is found to be quite low relative to the elasticity findings for contraception in other countries (reviewed in the Harvey piece you linked to re Bangla).
Factors that come to my mind:
– the main elasticity examined related to pills, and elasticity wrt pills is typically lower because women who use them have a higher consistency of motivation wrt contraceptive use; and, they wish to avoid interrupting the hormonal regime.
– college students have relatively higher income and access to credit; compared to lower income women, they are more able to sustain their use in the face of a large price increase;
– Americans (relative to women in developing countries) have access to a wide range of methods – so these women were able to switch to lower cost alternatives. In countries where contraception is less socially accepted, women can find it harder to switch, say from pills (which they can take covertly) to condoms. So, when “priced out of pills” then can end up not using contraceptives.
– college students (relative to the general population) may be more forward looking – which could give them higher than average commitment to contracept.

Thanks for a great post to get my brain going on such a gray Saturday morning.
I remain hopeful, if not optimistic, that your commentors will emulate your commendable decision to avoid moralizing.

Rahul February 11, 2012 at 8:59 am

As an aside, does this data mean that 50% of college going women are on the pill? Not sure if my calculation’s right but I wasn’t aware the number’s that high.

Tom February 11, 2012 at 10:21 am

Alot of them take it so they only have a period every three months, and to help control acne.

vanderleun February 11, 2012 at 12:29 pm

Which would mean they are actually too stupid to be in college in the first place.

? February 15, 2012 at 12:11 pm

? What does this even mean?

msgkings February 11, 2012 at 12:23 pm

I was surprised it was so low, actually. I figured 75%+ for college women being on the pill. But I went to college in California.

1n4001 February 11, 2012 at 9:08 am

“Although we find no evidence of increases in STI infections or
accidental pregnancy for most affected women, we cannot rule out that the most creditconstrained women did suffer an increase in the risk of unintended pregnancy.”

Increase in contraceptives resulted in no evidence in increased STI or accidental pregnancies. I didn’t see it looking over the document, but was there a significant change in the number of women still having sex despite the change in price? i.e. did the sexual market change.

Is there a comparison comparing the rising cost of childbirth to contraceptive prices?

Bill February 11, 2012 at 9:10 am

Given that the elasticity study shows that women who don’t purchase the pill have less or no sex, the guys should be subsidizing the purchase of the pill.

If there a substitution effect between trojans (cost to the male) and pills (cost to the female), the male could still be better off giving a subsidy.

There are many interesting economic questions errected by this post.

Frank February 11, 2012 at 9:15 am

Thank you, Bill.

Rahul February 11, 2012 at 9:15 am

Free riding?

kebko February 11, 2012 at 11:35 am

Ha!

1n4001 February 11, 2012 at 10:16 am

i see what you did there

Simone Simonini February 13, 2012 at 10:41 am

And to the extent people substitute birth control pills for condoms, there is a negative externality in the form of increased STI transmission.

Steve Miller February 11, 2012 at 9:24 am

Just to be clear, observed point elasticity of demand over the price range of $10 to $30 is how much (if you use midpoints)? -.018?

Rahul February 11, 2012 at 9:24 am

Point (a) about cobtraception being too “cheap” is debatable. Plenty of existing insurance covered interventions cost in the range of $500 a year.

If “Predictable” were an acceptable reason to exclude coverage most obese people would be pretty hard hit.

Sonic Charmer February 11, 2012 at 9:38 am

I agree with CdnExpat. This is a tiny elasticity. Also it should be noted that this ‘natural experiment’ was really conducted on a subset you’d expect would have the highest possible elasticity (college age women: a. away from home and more willing/able to be sexually active, b. too young as a group to be married/looking to have kids, c. less likely to have a job to earn and spend their own money/etc).

When we’re talking about women in their mid 20s-30s, with their own full time jobs – i.e., presumably the median person affected by the HHS mandate – how much tinier must the elasticity be?

Millian February 11, 2012 at 11:45 am

(a) and (b) do not suggest high price elasticity of demand. They suggest high D. I don’t see how they would suggest anything about elasticity either way. And (c) is about income elasticity of demand, not prices as such.

Sonic Charmer February 11, 2012 at 1:12 pm

All else equal, if demand is small, any ‘elasticity’ effect would also be small. Unless of course one means elasticity in a relative sense, but that would be a silly metric from a public-policy perspective. i.e. if what’s being said is that we could “cut in half” unwanted pregnancies by this policy, that’s more interesting if this means 20k to 10k than if it means, like, 2 to 1.

Re: c., I assert that people without (their own) income, i.e. girls who have to ask for Daddy to deposit money into their account, are more likely to be price-sensitive than people with actual jobs/income.

Do you really disagree with any of this, or you just wanted to ague?

Sonic Charmer February 11, 2012 at 9:52 am

P.S. On this,


uninsured women who are frequent sex participants appear to substitute toward non-prescription forms of birth control.

Note, ‘uninsured women who are frequent sex participants’ (and have full-time jobs, I should add) are presumably the marginal beneficiary of the HHS rule. If they can and do just substitute to non-prescription forms of birth control in the absence of “insurance” covering the pill, that means that any claimed cost savings (i.e., from avoiding unwanted pregnancy) due to covering the pill are in fact nonexistent.

1n4001 February 11, 2012 at 10:30 am

i agree with your B.Y.O.F.S. acronym. we need to end the business of subsidizing promiscuity/slutty behavior.

Harry February 11, 2012 at 11:29 am

This paper reminds me of the excellent “An Option Value Problem from Seinfeld” by
Avinash Dixit, http://www.princeton.edu/~dixitak/home/Elaine-Final-Web.pdf

Willitts February 11, 2012 at 12:30 pm

Funny how morality, economics, and health coincide. You might even begin to think morality was developed with economics and health in mind. Perhaps.

ezra abrams February 11, 2012 at 12:37 pm

I realize there are theoretical arguments (MikeP, point a) but, at the risk of being crude…if men could get pregnant, abortion would be a sacrament (put a little more eloquently by G Collins, talking about her mom, in her Times op ed earlier this week)
Tell you what – I see 1/10 the moral outrage about the economics of insurance for the nuclear power industry, I see about this, I’ll take arguments about how birth control isn’t right for insurance seriously; right now it is just trying to keep woman barefoot and pregnant in the kitchen

Millian February 11, 2012 at 1:13 pm

Few religions have beliefs about the nuclear power industry, so people don’t care so much. We have here a study that suggests almost all American women are very much willing to pay for their own contraception. This has policy relevance beyond the usual moral response to icky issues involving sex.

Miley Cyrax February 11, 2012 at 4:17 pm

“Tell you what – I see 1/10 the moral outrage about the economics of insurance for the nuclear power industry, I see about this, I’ll take arguments about how birth control isn’t right for insurance seriously; right now it is just trying to keep woman barefoot and pregnant in the kitchen”

Poe’s Law in effect.

Cynic February 11, 2012 at 1:09 pm

It took me all of 5 minutes search to find a couple of sources of generic oral contraceptives for around $10/month. Including by companies like Kroger and Walmart. The low price elasticity is consistent with college ladies not searching out market priced cheaper alternatives, namely because $50 per month is no big deal when daddy pays.

To ‘ezra abrams': the argument that the world is made for men does not explain the prostate cancer research funding deficit relative to breast cancer research!

Millian February 11, 2012 at 1:15 pm

Maybe $50 per month is no big deal, full stop, for a useful product. At least, not for most people. People pay that for phones these days, right? I’m sure there are comparable price differentials in phone contracts to which people don’t universally respond.

Sonic Charmer February 11, 2012 at 1:40 pm

That’s precisely the point. Since $50 per month (and especially $10 per month) is no big deal for a useful product, the category of women (with jobs, that provide insurance) who would like contraception but will decide not to use contraception because it costs $50/month is essentially {empty}.

Hence there is nothing to be gained, as such, by insurance covering said contraception.

Cynic February 11, 2012 at 1:49 pm

The exception would be working women with near minimum wage jobs that provide insurance. $30 to 50 per month might be a barrier, and the mental and time resources to find something cheaper might not be there. Of course what is not mentioned in this debate, is that if it is a requirement for sex, the male partner WILL provide alternate birth control!

Sonic Charmer February 11, 2012 at 1:53 pm

It actually *is* mentioned above (substitutes).

Rahul February 11, 2012 at 2:09 pm

So could one extend that argument to “insurance should never cover a intervention that costs under $50 a month”?

Cynic February 11, 2012 at 1:43 pm

Me being on the price sensitive side, prefer pageplus who resells verizon bandwidth at competitive prices without contract! By rejecting a subsidized phone, I retain more control of my monthly payments. If i wanted to use the cellphone only for emergencies, I could decrease the payment to $80/year, which would get me 2000 minutes!

Rahul February 11, 2012 at 2:15 pm

Would reduced access to the pill reduce STD incidence? That might be an interesting study.

Bill February 11, 2012 at 3:23 pm

You can answer the study yourself by answering this question:

If the pill is unavailable, and the pill does not prevent transmission of stds, What is the Catholic Church’s position on the use of condoms?

The pill doesn’t prevent STDs, but a condom, for the most part does.

So, the study would be: How much does the Catholic Church’s position on condoms increase STD transmission in the US and abroad.

John B. Chilton February 11, 2012 at 3:58 pm

I’ve read in a couple places today that birth control is not a part of the Canadian single payer health plan. I’ve tried to track this down. What seems to be true is that prescriptions are not part of the plan unless you are past 65 years old or are on welfare. Otherwise, you purchase prescription coverage through your employer. If that’s a correct reading, then my question boils down to this: are those prescription plans mandated to include birth control? I’m thinking even if they are there’s still a copay.

Anybody know more?

Bill February 11, 2012 at 7:19 pm

If it isn’t, it should be.

Too many Canadians.

CdnExpat February 12, 2012 at 12:01 pm

Hey!

CdnExpat February 12, 2012 at 12:19 pm

Health is provincial jurisdiction in Canada so coverage varies by Province. Oral contraceptives are covered in British Columbia with the replacement rate varying with income. I suspect that roughly the same is true in other provinces; even Alberta, while politically conservative, is not in the throes of the Catholic church. In Quebec they probably give out birth control pills in Pez dispensers. :-)

john malpas February 11, 2012 at 6:45 pm

How many babies were actually produced during this evaluation. This might be a test of reality.

Dave Hansen February 11, 2012 at 9:00 pm

Despite the inherent value of this research, its findings are a distraction from what should be the focus of the ongoing brouhaha over Obamacare’s contraception mandate–namely, why is “insurance” being used to pay for regular and predictable expenses? That’s not insurance, but it’s certainly a cause of higher, hidden costs and fewer incentives for innovation.

Miley Cyrax February 11, 2012 at 9:29 pm

Indeed.

Bill February 12, 2012 at 11:35 am

What’s predictable about sex?

Dave February 14, 2012 at 2:55 pm

Regular doctor checkups are a regular and predictable expense. So are many other medications, your argument is specious.

Eclectic Obsvr February 14, 2012 at 1:17 pm

It would appear to me that the study does make the case that access to cheap or free (yes I know TNSTAFL) insurance coverage promotes family planning. If that is a worthy social outcome then policy direction should be clear.

Oh and for the libertarian absolutists out there, no there has never been a country that didn’t have policies that do favor or work against economic and social behavior– never. Which to me, means it’s impossible as a practical ideal to get to that state.

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