Taxing Fat Citizens and the Health Care Bill

July 23rd, 2012 by 

With the recent supreme court ruling upholding the decision by Congress to institute the national healthcare system, many interesting new questions have arisen.  Most prominently: should you pay for the poor health decisions of your neighbors?  And how can we deal with the adverse selection problem of insurance when insurance moves to politics... and moves nationwide?

Simply put, any entitlement program is a re-distribution of wealth. There is no way around this fact and only debate is whether it is appropriate or efficient.

One of the issues that insurance companies, used car salesmen, online dating websites and credit companies deal with is adverse selection. Adverse selection refers to the idea that if you offer a more holistic coverage (everyone is approved for credit, anybody can join the website), those who are attracted by that fact are generally ‘worse’ than the rest of the population. This is the reason why insurance and credit card companies allow you to self-select into different cost structures with different prices.

Adverse Selection, Moral Hazard, and Fast Food

This is where the nuance comes in: if you allow people to choose, only those who require the insurance (chronic illnesses, etc.) will buy it and those who are generally healthy will not - a concept known as adverse selection. The government foresaw this problem and made it mandatory for everybody to have health insurance. There are other reasons for this with more compelling and understandable aims: for two examples, insurance encourages preventative medicine and emergency rooms are over-saturated with uninsured. Thus, the government solved the adverse selection problem by making a single price (have health insurance or pay a fixed fine) and forcing everybody to have insurance.

Adverse selection: Eating Fast Food more than you'll admit to your insurance.

Why not tax fast food?

Hold on a minute: if everybody has insurance it will also encourage people to use more healthcare services. Hopefully the incidence of this new usage lies most heavily on preventative care which will generally reduce healthcare costs (a point that many will concede yet say it is overreaching). But, now that I am paying for my neighbor, how am I going to feel about him eating McDonald’s once a week? How am I going to feel when he doesn’t join a gym or decides to go tanning?

Again, I have to give the economist policy wonks who developed this system credit, there are certain aspects to my suggestion that are in the bill. Tanning salons are going to be issued a 10% tax, which is just another redistribution of wealth from the tan to the pasty white. Let's think about taking it one step further... Cigarettes and alcohol are already taxed for similar reasons, but where should it stop? Coca Cola? FritoLay? All fast food? I simply cannot imagine companies with such powerful lobbies allowing massive taxes on some of these items. Or, perhaps, FritoLay’s lobby is not as powerful as I imagine: otherwise, marijuana would already be legalized.

Should We Subsidize Crossfitters?

This suggestion can be extended to many other forms of economic coercion. Should we subsidize gym users or home gym purchasers? Once I know that I am paying for someone else's health, I want to be damn sure that they are working out.

What about other generally risky activities, such as skydiving, motorcycle driving or scuba diving? It only takes one glance at an actuarial table (and the associated health care costs with recovering from an injury) to determine that you will be subsidizing these risky ventures.

In seriousness, though, the multi-payer system sets up the incentive for those without their own insurance to be unhealthier through moral hazard. Car accident deaths increased after the seatbelt law was instituted. When I finally have to foot some of the bill, do I still want to see Americans wolfing down their Wendy’s?


Cameron Daniels

P.S. For some unintentional comedy, read that tanning salons article above. The bent that the article/author takes in the article is just rich.


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