The way WIC’s relationship with formula companies works is that the companies bid on the exclusive contract for WIC recipients in every state. Then the formula companies that win the bids give the manufacturer rebates — worth about $1.7 billion, according to an advocacy group, the National WIC Association. But as part of the rules, WIC beneficiaries can only purchase the brand of formula the contract has in their state, and as I noted last week, they are only allowed to purchase specific quantities and sizes. Before this shortfall, a doctor’s note was required if a family receiving WIC assistance wanted to change formula brands (although the WIC asked for “flexibility” in March and some states waive the requirements as the magnitude of the crisis became apparent).
In his newsletter, Matt Stoller, the research director for the American Economic Liberties Project, wrote that when a formula company gets that contract, it has a knock-on effect for consumers in that state:
This discount system disrupts the entire market in a state because it just isn’t worth having alternative formulas on a store shelf if half of the buyers just can’t buy those formulas. As a result, the market tips the WIC supplier, and that supplier raises prices for non-WIC receivers by 26 to 35 percent.
And these contracts could 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 built with good intentions, said Scott Lincicome, director of general economics and commerce at the Cato Institute: The government wanted to help people pay for baby food, which is vital to the health of millions of infants. “But they also have a compensatory mandate to save taxpayers money,” he said. As a 2015 report from the Department of Agriculture explained, “Babies Error is the Most Expensive Food Item for WIC,” and the rebates allow WIC to provide bottle feeding to more families. However, the states have no control over the amount of the discounts; the manufacturers determine this through the bidding process.
House Appropriation Committee chair Rosa DeLauro thinks this crisis is an opportunity to reshape the way WIC works. When I spoke to her this week, she said the short-term goal is to get formula back on the shelves. But in the longer term, “we are trying to vote on labor laws to give the USDA more power and control” over formula contracts and to allow the government to relax regulations unrelated to safety.
Lincicom believes that the whole system needs to be overhauled and that parents who can’t afford formula should simply get vouchers that cover the cost of the brand of formula they prefer to buy. The $1.7 billion saved from WIC rebates “is a rounding error” for the federal government, he said. “We are not talking about huge amounts. That strikes me as an easy and absolutely worthwhile expense.” Eliminating discounts would also lower formula costs for non-WIC participants, he said, echoing Stoller’s point about suppliers raising prices for regular consumers. Theoretically, the cost would better reflect market value, Lincicome said.