The way WIC’s relationship with formula companies works is that the companies bid for the exclusive contract for WIC recipients in each state. Then the formula companies that win the bids give the states manufacturer rebates — about $1.7 billion worth, according to an advocacy group, the National WIC Association. But as part of the rules, WIC beneficiaries can buy only the brand of formula that has the contract in their state, and as I noted last week, they may buy only specific quantities and sizes. Before this shortage, if a family receiving WIC assistance wanted to change formula brands, a doctor’s note was needed (though WIC requested “flexibility” in March, and requirements were waived by some states when the scope of the crisis was becoming clear).
In his newsletter, Matt Stoller, the director of research at the American Economic Liberties Project, wrote that when a formula company is granted that contract, it has a knock-on effect for consumers in that state:
This rebate system distorts the entire market in a state, because it’s just not worth having alternative formulas on a retail shelf if half of the buyers simply cannot purchase those formulas. As a result, the market tips to the WIC supplier, and that supplier raises prices on non-WIC recipients, and does so by between 26 to 35 percent.
And these contracts can make it easier for companies to dominate the market: According to The Washington Post, “Four major companies control 90 percent of the infant formula supply in the United States: Abbott, Gerber, Mead Johnson and Perrigo Nutritionals.”
The system was constructed with good intentions, said Scott Lincicome, the director of general economics and trade at the Cato Institute: The government wanted to help people pay for baby formula, which is essential for the health of millions of infants. “But they also have a countervailing mandate to save taxpayers money,” he said. As a 2015 report from the Department of Agriculture explained, “Infant formula is the single most expensive food item for WIC,” and the rebates allow WIC to provide formula to more families. However, the states have no control over the amounts of the rebates; the manufacturers determine that via the bidding process.
The House Appropriations Committee chair, Rosa DeLauro, thinks this crisis is an opportunity for reforming how WIC works. When I spoke to her this week, she said that in the short term, the goal is to get formula back on the shelves. But in the longer term, “we’re trying to vote on labor legislation to give the U.S.D.A. more power and control” over formula contracts and to empower the government to relax regulations not related to safety.
Lincicome thinks that the entire system should be overhauled and that parents who can’t afford formula should simply be given vouchers that will cover the cost of whatever brand of formula they prefer to buy. The $1.7 billion saved by WIC rebates “is a rounding error” to the federal government, he said. “We’re not talking about huge bucks. That strikes me as an easy and totally worthwhile expenditure.” Doing away with rebates would also drive down formula costs for non-WIC participants, he said, echoing Stoller’s point about suppliers raising prices on regular consumers. Theoretically, the cost would better reflect market value, Lincicome said.
