In today’s Los Angeles Times, Cato senior fellow Dr. Jeffrey A. Singer and I note that once the Affordable Care Act’s contraceptives‐coverage mandate took full effect in 2014, “prices for hormones and oral contraceptives stopped falling and instead skyrocketed. By 2019, they had risen three times as fast as prices for prescription drugs overall.” Here we provide the underlying data.
The Affordable Care Act (ACA) dramatically expanded insurance coverage for prescription contraceptives such as “the pill.” From August 2012 through January 2014, the federal government phased in the ACA’s requirement that nearly all private health insurance plans must cover all Food and Drug Administration‐approved prescription contraceptives with no cost‐sharing. In addition, from 2014 through 2017, the ACA enrolled an estimated 5 million previously uninsured women of child‐bearing age in either private insurance plans subject to that mandate or in Medicaid, which also covers prescription contraceptives with no cost‐sharing.
As a result of these changes, the share of consumers who are sensitive to the price of contraceptives plummeted. The Kaiser Family Foundation reports that, among women with large‐employer coverage who use oral contraceptives, “the share experiencing out‐of‐pocket spending…declined from 94 percent in 2012 to 11 percent in 2017.” From 2012 through 2014, ACA‐mandated coverage of contraceptives all by itself “account[ed] for nearly two‐thirds (63%) of the drop in out‐of‐pocket spending on retail drugs” across all consumers.
The ACA’s reshaping of the market for oral contraceptives precisely coincided with a dramatic increase in prices for those items. Since December 2009, the U.S. Bureau of Labor Statistics’ (BLS) Producer Price Index (PPI) has measured the prices manufacturers receive for a sample of domestically produced hormones and oral contraceptives. The nearby figure shows what happened to real prices for hormones and oral contraceptives before and after the ACA’s contraceptives‐coverage mandate took effect.
Before the mandate took effect—i.e., during a period when consumers more often paid for oral contraceptives directly—price changes for hormones and oral contraceptives generally followed a path similar to that of non‐prescription drugs, which insurance typically does not cover, and which also fell in real terms. Prices for hormones and oral contraceptives actually fell by 12 percent in real terms.
As the mandate began to take effect and as the ACA made oral contraceptives seem “free” to more purchasers, prices for hormones and oral contraceptives began to rise. By the time the mandate took full effect in early 2014, prices for hormones and oral contraceptives reversed five years of real reductions and caught up to the 17 percent growth in real prices for other prescription drugs.
Once the mandate took full effect, prices began to rise rapidly. From May 2013 through May 2019, while real prices for non‐prescription drugs and prescription drugs overall rose just 12 percent and 37 percent, respectively, prices for hormones and oral contraceptives rose 108 percent. That’s nearly three times the rate of price growth for other prescription drugs.
The PPI for hormones and oral contraceptives has limitations as a measure of prices for hormonal contraceptives in general and oral contraceptives in particular. First, it samples and estimates changes in the initial prices drug manufacturers receive, not the ultimate prices insurers and consumers pay. Second, it samples and estimates changes in prices only for domestically produced drugs, excluding drugs produced in other countries and Puerto Rico. Third, it encompasses drugs other than contraceptives that may have an important influence on the index.
Unfortunately, the BLS neither discloses which drugs it samples nor the relative contributions of contraceptives versus other hormonal drugs. The PPI for hormones and oral contraceptives is therefore an imperfect measure because it does not necessarily reflect the changes in consumer prices for all hormonal contraceptives available to consumers, and may instead reflect changes in (non‐consumer) prices for non‐contraceptive hormonal drugs. The BLS’s Consumer Price Index (CPI) for prescription drugs lacks some of these shortcomings. Unfortunately, the BLS does not publish CPIs for prescription drugs at the level of therapeutic class.
Even with these limitations, these data suggest that trying to make oral contraceptives “free” for insured consumers had the unintended consequence of making them far more expensive for insurance companies and women who buy them without insurance, including young women who prefer not to purchase them through their parents’ insurance.
In the Cato Institute book Overcharged, Cato adjunct scholars Charles Silver and David Hyman explain why paying for health care through insurance often causes prices to rise. Despite the supposed purchasing power of third‐party payers, insurers are not very good at reducing prices. When consumers don’t care about prices, they actively resist attempts by third‐party payers to negotiate lower prices. This dynamic gives providers, including manufacturers of oral contraceptives, free rein to raise prices.
In a forthcoming Cato Institute white paper, Singer and I propose taking away the FDA’s power to require women to obtain a prescription before purchasing birth control pills.