Paying for Poor Choices

Written By: Leavitt Partners

Early this year former Treasury Secretary Larry Summers made a case for taxing sugary drinks and cigarettes to deter individuals from consuming products that lead to obesity and chronic disease. Taxing such products could gain importance as policy makers consider comprehensive coverage policies such as “Medicare for all.” The reason is based both on principle and economics.

There are many determinants of health, such as a person’s genetic make-up and the quality and availability of medical care. There are social determinants of health, such as public safety, and access to healthful food and quality schools. Many of these determinants are outside of a person’s control.

There are also behavioral determinants of health (referred to as “individual behavior determinants” in Healthy People 2020), such as whether someone elects to smoke, whether someone makes healthy food choices when such options are available, and whether someone elects to exercise.

While non-behavioral determinants can increase a person’s risk for chronic diseases such as diabetes, heart disease and cancer, a person’s behavior can often prevent or delay their onset. For example, achieving modest weight loss, good nutrition, and moderate exercise goals can decrease the incidence of diabetes in at-risk populations by 58%. By contrast, choices that lead to the early onset of these diseases include smoking, excessive alcohol consumption, consumption of sugary drinks, and inactivity.

“Medicare for all,” touted most notably of late by President Obama, is often decried for its significant price tag. That price tag, in part, is driven by costly care for chronic diseases. By taxing cigarettes, soda, and other products that may contribute to the early onset of these diseases, the government can partially offset the price tag of “Medicare for all.”

In such a construct, individuals would pay up-front for poor choices that would likely impact their health and raise the cost of their care. In a universal health care or “Medicare for all” environment, individuals would simply be remunerating the government for what it would have to spend on them later. In effect, the government would be saying “we’ll help you address the health consequences of determinants you can’t control, but you need to pay for the health consequences of choices you can control.” The upside of these taxes is that consumers tend to purchase less of the unhealthy product – which means that the taxes can not only help fund health care for those who indulge, but can also nudge some people to make healthier choices.

The tax revenue from these taxes could go to a restricted HSA that would be used by the government to pay down the tab for that individual’s chronic diseases in the future. Individuals who develop chronic disease despite making good choices (that is, because of non-behavioral determinants of health such as genetics), would have been spared paying the point-of-sale taxes.
Taxing all unhealthful choices would be challenging (who will know if I don’t go running this week?), but broad and comprehensive taxes on defined product categories may become a compelling complement to “Medicare for all.”

_____________________________________

[1] In instances where such taxation has been implemented, consumers purchase less product (rather than simply spending more to pay the higher price).  This diminishes concerns that such taxes burden the poor.

Note, this post is not constituting an endorsement of M4A.