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Why Incorporating DHIP Could Help, Even Without Raising Taxes

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A Better Way to Fund Warren’s $52 T “Medicare For All”; Why Incorporating DHIP Could Help, Even Without Raising Taxes

WASHINGTON, D.C.  (November 1, 2019) – Senator Elizabeth Warren has just revealed that her “Medicare For All” plan would cost some $52 trillion, much of which would be funded by taxes on employers, financial transactions, the wealthy and large corporations.  It reportedly includes what is essentially a payroll tax increase on employers, something economists often claim can hit workers in the form of reduced wages.

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But there's a way to pay for much of this additional cost without new taxes, and one which, unlike all other plans, would actually slash health care costs rather than simply shifting the enormous burden of paying them onto others, including those who do their best to keep their own medical costs low.

It involves imposing personal responsibility through DHIP, says public interest law professor John Banzhaf, who helped popularize the concept, and then make it legal.

According to the American Lung Association, smoking costs the U.S. economy over $332 billion in direct health care costs and lost productivity every year.

These huge annual costs are now borne by the great majority of taxpayers who are not smokers (in the form of additional medical costs under Medicare, Medicaid, Veterans and Indian benefits, and other programs), nonsmokers with health insurance (in the form of bloated premiums and increased deductibles), and workers (in the form of fewer benefits and/or lower salaries).

DHIP and tobacco

Indeed, a law suit in which Banzhaf participated proved that a typical smoking employee costs his employer over $12,000 each and every year (in 2019 dollars).

Thus, if only 15% of a company's work force are smokers, there is about $1,800 of the cost attributed to those smoking employees which is not available for increased health insurance coverage, higher salaries, or other benefits for each employee.

Rather than continuing to force the great majority of Americans who do not smoke to shoulder this enormous burden, there is a very different approach called "differential health insurance premiums" [DHIP] which was pioneered by Banzhaf.

As a law professor, he persuaded the National Association of Insurance Commissions [NAIC] to support the principle in 1986, and to recommend the approach to insurance commissioners and health insurance companies in various states.

Shortly thereafter, he also helped obtain federal approval for it, and then, as a lawyer, brought an action to make legal.  He also helped to persuade Congress to include it under Obamacare.

Under this system, people who engage in activities such as smoking, which are highly likely to cause serious and expensive medical problems such as lung and many other cancers, heart attacks and other cardiac events, strokes, etc., are required to pay more of their own medical costs than people who don't smoke - primarily through higher health insurance premiums [DHIP], and/or higher deductibles, etc.

The higher cost is not necessarily as a punishment or even as a deterrent, but simply to cover the hugely inflated medical costs their dangerous actions generate, and which would therefore otherwise have to be paid for by the overwhelming majority of taxpayers and workers who wisely choose not to smoke.

In other words, he says, we would finally impose on people some personal responsible for their own health care, at least in the sense of requiring them to pay some of their fair share of the medical costs their own voluntary actions now impose on others.

Smokers have long been charged more for their life insurance because of the deadly dangers their activity creates - with almost half of all smokers dying as a result of using tobacco.

In some cases, smokers have also been charged a surcharge for home insurance since the majority of home fire deaths are caused by smoking, and even for automobile insurance because smokers have a substantially higher rate of driving accidents than nonsmoking drivers.

The costs of smoking are enormous, and adopting a DHIP or smoker surcharge program can slash those costs for everyone, because imposing an additional charge for tobacco use helps smokers do what most already wish to do: quit.

Under DHIP, these additional medical expenses are largely borne by those who cause them - smokers - and the great majority of taxpayers and workers who do not smoke are not forced to pay for them through higher taxes, bloated premiums, and lost or reduced benefits in the workplace.

Requiring smokers to pay some of their fair share of the huge costs their own habit imposes on the nation's health care system is fairer than continuing to force the overwhelming majority of taxpayers and workers who are not smokers to shoulder these costs, argues Banzhaf.

It is also much fairer and more humane to require them to pay for the cancer and other diseases their smoking causes now, when they can still quit and thereby largely avoid the deadly disease and the entire smoker surcharge, than denying them medical coverage after their deadly lung cancer or other pre-existing condition has been detected and it is too late - for example, if protections for pre-existing conditions were to be eliminated or even reduced in the future.

Such DHIP plans would impose, for the first time, widespread personal responsibility for individual health-related decisions, which is something both Republicans and Democrats insisted was necessary to slow ever escalating health-care costs, rather than Obamacare or the "Medicare For All" approach which largely simply shifts these huge costs from one population group to others.

In other words, without DHIP, paying our ballooning health care costs is largely a zero-sum game under which the costs of smoking are now largely shifted to nonsmokers.

With DHIP, the number of smokers - and therefore the costs of what would otherwise become pre-existing conditions such as lung cancer, heart attacks, and strokes - are substantially reduced, and virtually everyone wins, including especially the families of smokers who are finally able to quit.

We already know from many studies that even small incremental increases in the cost of being a smoker - e.g., small hikes in the per-pack tax on cigarettes - clearly have a significant impact on helping the overwhelming majority of smokers who already want to quit to do so, notes Banzhaf, thereby slashing the nation's total medical care costs in the future.

While some of those cost savings will take years to realize - e.g., from reductions in lung cancer - others will occur much more quickly.

For example, as young pregnant teens and adult smokers, who would otherwise have enormous additional costs of giving birth and prenatal care - and leave behind a larger number of children with major life-long health conditions - quit smoking, the savings in medical care costs will be realized very quickly.

Thus it is reasonable to believe that a multi-thousand-dollar smoker surcharge on yearly health insurance premiums under "Medicare For All," even if broken up into monthly or bi-monthly payments, would have an even bigger impact - especially since smokers will see the figure all at once, rather than spread out over time as they do for a typical one-pack or two-pack a day smoker and a higher cigarette tax.

Indeed, the Wall Street Journal and the British Medical Journal have reported that the Obamacare surcharge on smokers in the ACA can slash smoking rates among employees by 50%.

Regardless of which health care plan is eventually agreed to, members of Congress should fund it in part by a premium surcharge on smokers; a move which will slash medical care costs by reducing the number of smokers, and also force those responsible for the remaining costs to pay them, suggests Banzhaf.

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John F. Banzhaf

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