$10 Sugar Tax on a $15.99 Case! – There is a Better Way

Although many have expressed concern about the growing number of jurisdictions imposing taxes on sugary soft drinks in a effort to improve public health and reduce skyrocketing health care costs – e.g., $10 sugary soft drink tax on $15.99 case in Seattle – there is a simple and well tested alternative which appears to be equally effective, more precisely targeted as well as fairer, and one which avoids major arguments against the sugary soft drink tax.

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That alternative – or, actually, a supplemental approach – is called “differential health insurance,” says public interest law professor John Banzhaf, who helped develop and promote it.

He has also been called “The Man Behind the Ban on Cigarette Commercials,” “a Driving Force Behind the Lawsuits That Have Cost Tobacco Companies Billions of Dollars,” and “a Major Crusader Against Big Tobacco and Now Among Those Targeting the Food Industry,” and has been a strong supporter of imposing and increasing the tax on what he calls “liquid candy,”

Differential health insurance means charging more for health insurance (through higher premiums, different deductibles, etc.) for people who smoke, are obese (or at least morbidly obese), etc. to provide the same kind of financial incentive as taxes do to help people adopt a more healthful life style.

It is a technique which Banzhaf helped develop, and then persuaded the National Association of Insurance Commissioners [NAIC] to adopt, and through legal action the federal government to sanction.

It has been used successfully for more than 30 years, initially with regard to smoking, and more recently with regard to obesity. Even more recently, the idea was incorporated under Obamacare in a unique provision which permits the imposition of the 50% surcharge on health insurance premiums for smokers.

Differential health insurance may have several advantages over taxes on individual fattening products such as soft drinks, ice cream, cakes, etc.

First, it eliminates the argument of unfairness which is sometimes raised: e.g. why should someone who consumes sugary soft drinks only in moderation and/or someone who, despite excessive consumption, maintains a healthful weight, blood sugar, etc., have to pay more to purchases their sodas?

A surcharge on the obese, rather than a tax on sugary sodas, solves this problem.

Second, differential health insurance arguably tackles the underlying problem, not just one of many underlying causes, and eliminates another major argument of unfairness which is sometimes made: e.g., why single out sodas when ice cream, cakes, cookies, etc, also are major factors contributing to obesity?

Evidence clearly shows that people who are obese (and especially the morbidly obese) have, on the average, much higher health insurance costs.

While sugary soft drinks may be a major factor in causing obesity, so too can consumption of other fattening (high calorie density) foods, and it may be difficult if not impossible to design taxes on different fattening foods such as cakes, pies, cookies, ice cream, etc. which are fair, effective, enforceable, etc.

An insurance surcharge based upon obesity solves this problem directly and easily.

Third, although any individual employer concerned about skyrocketing health insurance costs can’t impose or increase a tax on cigarettes, on sugary soft drinks, etc., it can use virtually the same economic incentives to target smoking and obesity by adopting differential health insurance.

Obamacare, for example, permits charging smokers up to 50% more for their health insurance, and up to a smaller percentage because of obesity (with certain conditions).

Even if these economic incentives do not alter behavior, it is arguably fairer – and more in keeping with the principle of personal responsibility – for those who engage in dangerous life styles to pay the expected costs, rather than forcing others to absorb them (e.g. through higher taxes for Medicaid, Medicare, Obamacare, Veterans Benefits, etc., as well as through grossly inflated health insurance premiums).

Thus it is fairer for employers to require those who smoke and/or are obese to pay more of their fair share of the costs of these dangerous lifestyles than to impose them on other employees.

For example, if a company does not charge those who smoke more, it may be imposing a cost of almost $2000 a year on the great majority of their workers who do not smoke. Ignoring obesity can likewise lead to the imposition of thousands in unfair and unnecessary financial burdens on most workers.

These costs on individual employers are huge; up to $12,000/year for every single employee who smokes, and thousands for every employee who is obese.

Thus one alternative is for a company to simply decline to hire smokers (or at least to employ a strong preference for nonsmokers), and perhaps adopt similar policies with regard to obesity.

Interestingly this practice is not illegal in most states, despite the presence of so-called smokers’ rights laws in some states, and it also appears to be legal in most states, says Banzhaf.

Forcing those who engage in unhealthful and expensive (in terms of inflated medical costs) lifestyles, through taxes on individual products as well as through health insurance surcharges, rather than forcing those who practice more healthful life styles to share the costs, is fairer and imposes some personal responsibility.

Each has advantages and disadvantages, and are probably most effective when combined, says Banzhaf, who has been a leader in fighting both smoking and obesity.