Get Ready for that Twinkie Tax.

Thom Lambert —  1 April 2011

Arizona’s governor has proposed charging $50 to certain Medicaid beneficiaries who smoke or are obese.  As today’s Wall Street Journal reports, the point of the surcharge is to internalize the externalities smokers and snackers impose on their fellow citizens, who bear much of the cost of their unhealthful choices:

“If you want to smoke, go for it,” said Monica Coury, spokeswoman for Arizona’s Medicaid program.  “But understand you’re going to have to contribute something for the cost of your smoking.”  She said the proposal is a way to reward good behavior and raise awareness that certain conditions, including obesity, raise costs throughout the system.

That’s exactly the sort of Nannyism our former TOTM colleague, Todd Henderson, predicted.  Before Todd joined us at TOTM, I discussed his terrific article, The Nanny Corporation, on the blog:

In imposing Nanny rules, Todd argues, governments and firms are merely responding to the demands of, respectively, citizens and employees. Governments (through Medicare, Medicaid, etc.) pay many of the health care expenses of their citizens, and firms (through employer-provided insurance) usually pick up the tab for employees’ health care expenses. But, of course, the citizens and employees themselves ultimately bear these costs in the form of, respectively, higher taxes and lower wages. Thus, each citizen has an interest in reducing his co-citizens’ health care expenditures, and each employee has an interest in having safe and healthy co-employees. Nannyism, then, can be seen as a means by which governments and firms force individuals to internalize the costs of their risky behaviors. In imposing nanny rules, Todd argues, governments and businesses are merely responding to citizens’ and employees’ demands for cost-reducing paternalism. They are, in short, suppliers in a “market for paternalism.”

That raises the question: “Who is the more efficient provider of paternalistic rules?” There’s no clear answer to that question, Todd maintains, but there are reasons to believe that firms will often be the superior rule-providers. First, competition in the labor, product, and capital markets will constrain firms from overreaching (imposing liberty restrictions that are not cost-justified) and from diverting the benefits of nanny regulations. (This latter benefit results in a tighter “fit” between the rules and their cost-reducing rationale, thereby ensuring that only cost-justified rules are adopted.) In addition, firms may have an advantage in that they can adopt and enforce rules that would be difficult for governments to adopt. Obesity, for example, could be more easily regulated by an employer who regularly sees her employees than by the government. The government, on the other hand, “may have advantages both in the severity of the penalties that can be employed (and thus less need for enforcement costs) and in covering behaviors, such as consuming specific foods like trans fats, that may be difficult for firms to observe.” While the superiority of one nanny over another will depend on the liberty restriction at issue and other contextual matters, firms will likely be the better nannies in many situations.

Of course, as governments play a larger role in paying for citizens’ health care under Obamacare, demand for laws that encourage or mandate healthful conduct and discourage or ban unhealthful conduct will increase.  That’s a troubling development for a number of reasons.  First, there’s the inevitable knowledge problem: how is a lesiglator or regulator to quantify the external cost imposed by a particular lifestyle choice?  If the tax or surcharge is set too high, it will over-deter, destroying “citizen surplus.”  Second, it’s often difficult to enact a law or regulation that targets only those citizens who are capable of imposing external harm on other taxpayers.  Look for lots of Nannyisms that are promulgated in the name of protecting the public fisc but in fact apply to all citizens, not just participants in a publicly financed insurance program.  Third, the “we’re just trying to constrain public health care expenditures” rationale is so elastic that it will inevitably operate as a license to meddle. 

For example, while Governor Brewer’s $50 smoker surcharge to cut health care costs will likely resonate with her majority non-smoking constituency, discouraging smoking among Medicaid participants is probably not in the state’s fiscal interest in the long run.   In The Health Care Costs of Smoking, published in the New England Journal of Medicine in 1997, the authors “analyzed health care costs for smokers and nonsmokers and estimated the economic consequences of smoking cessation.”  They found that

Health care costs for smokers at a given age are as much as 40 percent higher than those for nonsmokers, but in a population in which no one smoked the costs would be 7 percent higher among men and 4 percent higher among women than the costs in the current mixed population of smokers and nonsmokers. If all smokers quit, health care costs would be lower at first, but after 15 years they would become higher than at present. In the long term, complete smoking cessation would produce a net increase in health care costs, but it could still be seen as economically favorable under reasonable assumptions of discount rate and evaluation period.

The authors thus concluded that “[i]f people stopped smoking, there would be a savings in health care costs, but only in the short term. Eventually, smoking cessation would lead to increased health care costs.”

In any event, Nannyism seems to be the wave of the future.  Better stock up on junk food and booze!

Thom Lambert

Posts

I am a law professor at the University of Missouri Law School. I teach antitrust law, business organizations, and contracts. My scholarship focuses on regulatory theory, with a particular emphasis on antitrust.

One response to Get Ready for that Twinkie Tax.

  1. 

    I find it ironic that our nannystate government expresses concern about obesity and diabetes, because dietary recommendations from the same government led to increased prevalence of both conditions. By demonizing fats and promoting carbohydrates, the government got many people to eat mostly no-fat and low-fat foods. Fats are digested slower and suppress appetite better than carbohydrates. People who avoid fats get hungrier sooner after eating and end up consuming more calories per day and getting fatter. People who have a genetic predisposition to adult onset diabetes (about 25% of the US population) and whose diet features high carbohydrate, low fat foods become full-blown diabetics years earlier than if they had followed a moderate fat, moderate carbohydrate diet.

    Any intelligent nutritionist knows that one diet cannot fit all people, yet government-sponsored nutritionists have been promoting only the horrid “Food Guide Pyramid” for years. They might just as well promote slow-acting poisons.