This week’s deal on abortion-funding between pro-life Nebraska Senator Ben Nelson and pro-reelection Senate Majority Leader Harry Reid got me thinking about its fundamental economics. You probably know that, to secure Nelson’s essential 60th vote for the Senate’s health reform bill, the other 59 Democratic and independent senators agreed to his Read-My-Lips-No-Federal-Funding-For-Abortions ultimatum (plus an incidental $100 million in extra Medicaid funding for his native Nebraska). According to the deal, the individual states will decide for themselves whether to allow abortion coverage in their respective health insurance exchanges. But any state that allows it must also require that any women who choose it and who receive federal insurance subsidies must buy the abortion coverage separately as an extra-cost insurance policy, or “rider.” Nelson was satisfied that this will force all such women to pay for their abortion coverage with their own—not the government’s—money.
It’s been a long time since I worked as a managed-care actuary, but I distinctly remember that abortions costs less—a lot less—than carrying pregnancy to full term with all its attendant pre-natal care and labor/ delivery expenses. To update my memory, I did a quick internet search and found that the average cost of an abortion is less than $500 while an uncomplicated full-term pregnancy averages about $7,600. The numbers are a few years old but accurate enough for my purposes here.
These figures raise several questions. If an abortion costs so much less than a live birth, and since performing the former necessarily precludes the latter, won’t an insurance company save $7,100 every time one of its members elects to terminate her pregnancy? And if that’s so, shouldn’t the premium for an insurance policy that covers abortions cost less than one that doesn’t? And, if abortion coverage has to be provided as a separate rider, doesn’t that mean that the insurance company will actually have to pay the member for taking it, not the other way around as Senator Nelson envisions? In effect, won’t adding abortion coverage incur a negative cost to both insurer and member? Why, then, does Senators Nelson think it will add to the cost? I know there are active actuaries out there who sometimes read my articles, so I’ll punt to them. I’d love to know.
Speaking of actuaries, people sometimes ask me, “Steve, what is an actuary?” I always respond with the industry-standard definition that an actuary is an accountant without the personality.