How TO Pay for Health Care Reform

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In my last post I detailed some of the roadblocks that have kept the Democratic leadership in Washington from finding a way to pass a major health care reform bill with a public option. They’ve whittled the cost of the bill down a few hundred billion dollars by negotiating concessions from drug companies and hospitals, as well as settling on a provision that would have employers pay a fee for each employee they do not already cover. The two main proposals to fill the budgetary gap have stalled, and are possibly dead in the water. So what other options are there?

How can we PAY for Health Care in America Now?

Past the constant calls for saving money by eliminating wasteful spending, which never seem to materialize into actual legislation, we need to find new forms of income to pay for this bill. They seem to be failing at convincing enough senators to support taxing benefits and the more affluent, so what else is left?

For the most part, we pay for our governmental services through income taxes (both individual and corporate), property taxes and consumption taxes. Property taxes are used for other things and rightfully shouldn’t be on the table here. The two proposals that were trotted out for discussion by the Democratic leadership were both taxes on types of income. What remains are consumption taxes.

In a way, consumption taxes are the most fair. For instance it makes perfect sense to tax gasoline and tires to pay for roads, as those driving on those roads need those things to do so. So doesn’t it make sense to tax those behaviors that create high health care costs? The American people seem to think so.

Kaiser Family Foundation poll

Kaiser Family Foundation poll

A poll by the Kaiser Family Foundation, from back in April, found that reforming health care is one of the public’s highest priorities, that a majority of Democrats and Independents believe that we need reform now and that a majority support taxing unhealthy behaviors as an acceptable way to pay for some of these reforms. When asked it they would support raising taxes on “items that are thought to be unhealthy, such as soda, alcohol, junk food and cigarettes,” 61% approved (39% strongly favoring, with 22% somewhat favoring the idea). I’m a huge fan of proposals that kill two (or more) birds with one stone, and I think this is a textbook example of such.

To fund a health care program, it makes much more sense to tax behaviors that lead to health problems than it does to tax income in general. By doing so we can, in one fell swoop, put more of the costs of the system in the hands of those who are causing the most problems, lower the consumption of these products AND help pay for universal health care. We already have taxes on cigarettes, alcohol and items deemed luxuries like jewelry, hotel stays and amusement parks. So why not extend similar taxes to the most unhealthy ‘food’ items in the market? (I put food in quotes because one could argue that high fat and sugar content items like pop, potato chips and many fast food items can hardly be described as food)

First on the cutting block is alcohol, with 68% of respondents strongly or somewhat favoring raising taxes on it to help pay for health care reform. Smoking is more demonized in our country, but alcohol related health costs actually outweigh those related to smoking. The Marin Institute lists several alcohol related health care costs, among them $175.9 billion on alcohol related problems, also saying that they bring about “$184.6 billion dollars per year in health care, business and criminal justice costs, and cause more than 100,000 deaths.” This being the case, I see it as nothing but reasonable to levy a higher tax on alcohol, possibly in relation to which forms of it result in the worst outcomes, that is equal to the cost to society it incurs.

Still with a few hundred billion dollars to go, we come to tobacco. I was a bit surprised that a higher cigarette tax was supported by fewer than the increased alcohol tax, but this may be because tobacco products are already taxed at a high rate. Florida alone loses $20 billion dollars when you compare the taxes it collects to the money it pays out, amounting to nearly $7,000 per smoker. A study released by the CDC in 2002 showed that “For each of the approximately 22 billion packs sold in the U.S. in 1999, $3.45 was spent on medical care attributable to smoking, and $3.73 in productivity losses were incurred, for a total cost of $7.18 per pack.” These numbers are sure to have risen since then, and with somewhere in the neighborhood of 30 billion packs of cigarettes sold in the US last year, it seems more than fair to tack on at least another few dollars per pack.

Whether or not this fills the gap entirely, we also should look at taxing the most unhealthy food items. A study at University of Victoria (British Colombia) found that all income groups would benefit, although more so near the top of the economic spectrum, from a tax on junk foods that sent money towards health care programs. I would suggest that this disparity would be less pronounced in the US, where many people near the bottom of the economic spectrum have much more to gain from such an arrangement, given that it will help pay for health insurance that many of them currently do not have.

Put all of these together, and you might piece together enough to get over the hump. At the very least we could make it easier to pass one of the income tax ideas by lowering the amounts they’d have to raise through it.

One might argue that this would cause people to consume less of these products, thereby reducing the income from the levies. My response would be that we should then increase the taxes to keep up with the costs. This would hopefully create a cycle where more people would consume less, making the purchase of such products even more expensive, driving more out and lowering costs to treat those people over the long run. Herein lies the killing two birds with one stone situation.

One might also argue that this is a regressive tax. In effect it will be that way, at least at first. It is the lower end of the spectrum that spends a larger amount of their overall income on food. They also tend to eat less healthy foods. However, nobody forces them to choose to purchase these particular food items. Nobody should force them to quit, but if they want to continue to lead an unhealthy lifestyle, the rest of society should not be forced to subsidize it.

If people want to smoke, drink or eat themselves to death, then they can make a down payment on the hundreds of thousands of dollars the government will pay to take care of many of them during the last months of their lives. If we can save some of them from that fate by enacting the proposals mentioned above, thats even better.