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.

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  1. Anonymous says:

    An actuary responds: I think that abortion riders are always priced assuming that the individual would have the abortion even without the coverage, so that the presence of coverage does not save the cost of a pregnancy. While the point is debatable, I would be very surprised to find any data that would settle the question. In addition, abortion opponents would be very upset if a carrier paid people to take abortion coverage. Plus, you could have people who need an abortion figuring out how to switch to that coverage. There is a significant difference in the potential for selection depending on whether a group is deciding to buy a rider or an individual.

  2. Stephen Hyde says:

    Steve responds to an actuary: You suggest that current abortion-coverage pricing is a rule-of-thumb practice owing to a lack of data. However, the mandated separate-rider nature of the Senate’s abortion coverage scheme could provide strong incentives for clever insurers to obtain the data and to price accordingly for competitive advantage. The selection problem is a an interesting (and potentially real) one, but if competition makes abortion coverage ubiquitous across insurers, the issue becomes moot.

  3. Tom Keller FSA, MAAA, FCA says:

    My business partner points out that insurance companies would want to impose a surcharge because they would see any interest in having abortion covered as a marker for higher than average general morbidity costs, particularly with younger unmarried women. I’m sure Sen. Mikulski would nip that one in the bud.

    An earlier comment suggested that the lack of data has forced insurers to assume women who wanted abortions would have them with or without insurance. I have not seen any smoking gun evidence on this issue, but I have seen that the abortion rate for poor women who have unintended pregnancies is far lower than for more affluent women, 42% versus 54%. Could part of that difference be the absence of insurance?

    The same comment raised the issue of anti-selection. Put a 12 month waiting period on the benefit. No woman would plan to become pregnant just so she could have an abortion. When measured in 1994 and 2001, 5.1% of women of child-bearing age had unintended pregnancies. According to polls I’ve reviewed, somewhere between 55% and 75% of women would at least consider ending an unintended pregnancy with abortion. That’s a large potential market for what looks like a material insurable risk.

    Putting those three issues aside, from a purely actuarial perspective, charging zero would be better than giving rate credits. Giving it away would probably be enough incentive to persuade women who might consider abortion to take the rider. That would eliminate the financial obstacles for women who would consider abortion without handing out rate credits to women who would not.

    Let’s assume that approach would not fly because:
    • the state laws on which the Nelson amendment was based explicitly prohibit coverage of elective abortions without additional premium, and
    • insurance company systems may have edits that preclude “add zero” that would restrict them to making abortion a covered charge. (I hope I’m kidding about this one, but with insurance company systems, you can never be sure.)

    Let’s also assume rate credits would not fly because even a U.S. Senator knows that negative numbers mean subtraction, not addition.

    Are there other possibilities that could appeal to an insurer’s profit-making instincts while complying with the law?

    Certainly charging 1¢ PMPM would comply with the letter of the law, but that one is far too obvious.

    How about charging $10.00 PMPM for a rider that would cover the cost of elective abortions and pay a $1000 “bonus” to any woman who actually had one? That approach would actually be as financially advantageous as the 1¢ PMPM option if 37% of women not opposed to abortion bought the rider and the incentive increased the percent of those women who chose abortions to end unintended pregnancies from 64% to 67%.

    Let the games begin!

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