How Much Should Individual Preferences Matter?

Years ago, Kenneth Arrow, an economist who was joint winner of the Nobel Memorial Prize in Economics in 1972, argued that Pareto optimality (a situation in which everyone is as well off as he can possibly be from his own point of view—given the constraints of the system) is a good thing. Unless you are willing to systematically deny people whatever it is that they want, he said, Pareto optimality would seem to be a value we all should endorse. And almost every economist I know does endorse it.

Yet, in the world of health policy, I can introduce you to a whole slew of folks who are perfectly willing to deny people whatever it is they want. For lack of a better term, I will call them “paternalists.” One of the most controversial decisions made by the Obama administration in implementing its health reform has been the notion that health insurance should cover something almost everyone can easily pay for out of pocket: contraceptives.

Why, you might ask, does this decision have to be made in Washington? Why can’t decisions like this be left to individuals and the marketplace? Why not let people who want contraception coverage pay higher premiums and get the coverage they want? Why not let everyone else pay lower premiums? In deciding to intervene, the administration paid a heavy political price. Forcing Catholic universities, hospitals, and charities to provide health insurance that includes free contraceptives (as well as sterilization) produced a reaction that was poignant and hyperbolic.

That the Obama administration was willing to take the heat shows just how strong is the desire of many health reformers to tell everyone else what to do.

Incidentally, if there were a good social reason to promote contraception, there are three things government can do that are superior to regulating everyone’s health insurance: (1) it can add to the millions of dollars it already spends making contraceptives free through county health programs; (2) it could make contraceptives available over-the-counter rather than by prescription; or (3) it could allow pharmacists to do the prescribing (thereby cutting out the expense of a doctor visit), as is done in many countries and was done in the United States before 1938. (I owe these last two points to economist David Henderson.)

For more information, please consult my latest book, Priceless: Curing the Healthcare Crisis.

[Cross-posted at Psychology Today]