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Should there be a 'fat tax'?

Offering incentives for lifestyle choices likely to cut medical costs is an idea worth considering.

April 11, 2011

If an individual's body mass index isn't a purely personal matter, what is? We have the right to choose between healthy food or junk food, even if the latter is more likely to result in obesity and related health problems. But once our choices affect others, there's a natural conflict between individual freedom and social responsibility. In a nation where rising healthcare costs and diminished access to medical care are issues of grave concern, personal decisions are no longer strictly private. The treatment of obesity- and smoking-related disease is tremendously expensive, which in turns drives up health insurance premiums for everyone, as well as raising the costs for Medicaid, Medicare and health coverage for public employees.

These legitimate concerns have resulted in a raft of nanny-state proposals to shape the public's dietary habits by taxing this food or that drink or by outlawing free toys that accompany unhealthy children's meals at some restaurants. Such proposals raise inevitable questions of fairness and effectiveness. Does it make sense to tax a can of soda but not a fruit juice that contains more calories per cup and very little additional nutrition? Would a vitamin-fortified soda be exempt from the tax? And it's hard to figure out whether the bigger obesity culprit is a small order of fried chicken at a fast-foot outlet or a giant slab of prime rib at a pricey restaurant. Or, as many dietitians now think, maybe it's the carbs; has the time come for a public pasta tax? In any case, there is much uncertainty about whether such tactics would have any effect on the country's collective bulging belly.

We prefer the approach most recently proposed in Arizona, where officials hope to levy a $50 annual fee on some Medicaid patients who don't take steps to improve their health. It is vague at this point how the proposal would work, who would be liable for the fee and under what circumstances; but some examples mentioned are obese patients who fail to follow their doctors' plans for losing weight, smokers who shun programs to help them quit the habit or certain diabetes patients who ignore medical advice on lifestyle changes that would improve their lab results.

News reports have cast the Arizona fees as a way to bring in more money for the state's Medicaid program, which might then be able to afford to reinstitute coverage for organ transplants for poor people. Even if that were the point — and it's not — there's no way the state would save money in the short term with what some are calling a "fat tax." Administrative expenses alone would be higher than the $50 fee; the state would have to figure out which Medicaid recipients were affected, oversee progress and deal with appeals. In addition, the state would pay for at least some level of treatment, such as smoking-cessation programs or regular doctor visits for diet check-ins and advice. Instead, the program is expected to help Arizona's bottom line over time, by reducing healthcare costs for those patients.

Private companies already are trying similar strategies, with financial incentives for employees who make the kinds of smart decisions that are associated with better health. Safeway, for instance, offers significant discounts on health insurance premiums to employees who don't smoke and who maintain healthy weight, blood-pressure and cholesterol levels. The company reported that its per-person healthcare costs remained flat for four years during which such costs rose 38% for most companies.

For several years, Alabama has levied a health insurance surcharge on state employees who smoke or are obese and who fail to seek help for these conditions. Several other states have approved similar policies.

Of course, carrots — by which we mean incentives for healthier behavior, not the beta carotene-rich vegetables — are more popular with the public than sticks such as surcharges. But those terms lose some of their meaning when it comes to healthcare, with its rapidly rising costs. Whether it's a surcharge or an incentive makes no difference — people who lead healthier lifestyles pay less, while the higher costs associated with obesity, smoking and a life on the couch are assumed by those who generate them.

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