An alternative model for funding health care

Jan 4, 2019

By Rob Gray

In the U.S. and most other developed nations of the world, the cost of healthcare since 1960 has skyrocketed. The principal reason for this surge in healthcare costs is not in treating the historically challenging communicable diseases and genetic disorders, but in the explosive growth of chronic disease. The U.S. Center for Disease Control estimates that chronic diseases are now responsible for 75% of all healthcare costs. Add to that the indirect costs, such as absence from work, low productivity, disability and poor quality of life and you have a worldwide problem spiraling out of control.

Lifestyle choices that include a sedentary lifestyle, unhealthy foods, tobacco in any form, and overuse of alcohol are tantamount to inviting chronic illness and disease that fall into the following categories:

Cardiovascular Disease
Smoking Related Health Issues
Alcohol Related Health Issues
Alzheimer’s Disease

Many people understand the connections between lifestyle choices and chronic illnesses, but aren’t quite sure how personal habits affect health. However, most people are well aware of the link between poor health habits and illness and choose to continue unhealthy behaviors anyway. It is not uncommon to hear “I have to die from something” with little regard for the overall effects of that attitude on self, family, friends, community and country. Sadly, developing nations are rapidly adopting these same lifestyle choices, and it is causing unprecedented growth in treating these same chronic diseases.

If we look back at the U.S. in the 1960s, corporations were mostly paying for their employees’ and their families’ health insurance. But as costs associated with chronic diseases started to rise, so did health insurance costs to the point where corporations found it difficult to compete in their industry with foreign competition. And although there are other factors in addition to health insurance costs, healthcare is one of the major contributors to corporations moving jobs abroad and using independent contractors, both of which dramatically cut corporate health insurance liability. More and more people are now having to foot-the-bill for their own health insurance. And, it is pure folly to think that requiring people to purchase their own health insurance is somehow going to fix the problem.

It is my opinion that we need to rethink the model for how we fund healthcare while at the same time actually improving the ease of delivery and quality of care leading to an overall healthier population. But before we get to a funding plan, let’s begin with what the goals should be for a healthcare system in the 21st century. Here are some goals that would be a vast improvement over the current system:

* Access to all with fair pricing
* Good and efficient healthcare delivery without quotas or long waiting lists
* Focused on long-term health goals
* Encourage healthy lifestyle choices to maintain wellness and prevent illness and disease
* Encourage the consumption of unprocessed, whole, nutritious, and organic foods
* Encourage physical activity and exercise
* Encourage smoking cessation and alcohol moderation among other habits harmful to health

A system with the above goals will need to be designed in a way as to motivate people to take better care of themselves and make healthier lifestyle choices. The result of such a design would reduce the amount of chronic disease, pain and suffering, and re-purpose the existing system of “sick care” to focus on preventive healthcare while putting an end to the spiraling costs.

Let me propose an entirely different healthcare funding system, using a consumption tax, that would both fund healthcare AND encourage individuals to make healthier lifestyle choices. The central components of this system are to first, calculate the healthcare costs associated with each disease or disorder; second, to identify the contributing factors to each disease or disorder (such as habits or food choices); and third, to levy a tax on those contributing factors so that the total tax collected would offset the healthcare costs associated with each disease or disorder.

There is a theory in Economics called “Social Cost,” which in this case refers to the cost of one person’s choice that ultimately has to be paid for by the rest of society. Smoking, is one of the prime examples of pushing costs onto others. Smoking causes about 80% of deaths from COPD and 90% of all lung cancer deaths. Smoking is also a major cause of throat, bladder, voice box, liver, pancreas, stomach, kidney and colorectal cancers. The health insurance premium for a smoker in the U.S., would only cover a small part of the cost of say, lung cancer treatment, while the rest of the cost is borne by other members of society, most of whom don’t smoke.

In simple terms, think of “Social Cost” as when one person takes an action, and others get the consequences. One of the goals of a consumption tax system is to better insure that the person who takes the action also pays for the consequences of his action with each purchase. In this case, the person is self-funding his own risk of lung cancer and other smoking related diseases in a pool with other smokers and is proportional with the amount that he smokes. If at some point a smoker quits smoking, he immediately ceases paying the tax. It is true that there are considerable taxes already on cigarettes as well as liquor and other “sin taxes.” It is important that the taxes on those items go directly to pay for the healthcare related costs of using those items.

Similarly, the consumption of food, though a little more complicated, can easily be computed by actuaries. Food items could be taxed on, among others, package or portion size, the number of calories of non-whole foods in a particular product, the non-organic content of the product, and on the various chemicals found in the product and how they might cause harm or encourage (can you say addict?) consumption beyond a person’s fullness level. People consume more of a product that has added salt, sugar, industrial oils, MSG, etc., and these kinds of additives would likely be included in the computation of the consumption tax.

Physical activity and exercise is a more difficult challenge and would need to be addressed on a case by case basis. There are some very good programs out there that set very reasonable goals where people can and do succeed.

There are many other activities that people engage in that can affect their health and would need to be included in the consumption tax model. Just for example, people who drive motorcycles have a significantly higher chance of having a serious accident.

Let’s look at some the possible benefits to this model beyond a better, fairer and more stable funding source. One possible benefit is that food and other producers, once they learn the rules of taxation, might work to modify their products to be healthier to qualify for a lower consumption tax. And wouldn’t that lead to an overall healthier population as set out in the aforementioned goals?

Another benefit to the model would be that organically produced whole foods would be free of tax. This would make organic products more competitively priced and therefore become a more popular and healthy choice as set out in the aforementioned goals.

And all those people who complain about immigrants getting healthcare without insurance, would be silenced as immigrants would pay the same consumption tax into the healthcare system as everyone else, as would also visitors to the country.

The obvious challenge to a consumption tax funding of healthcare is in mobilizing the political will and then overcoming the resistance by food companies, restaurants and others that are exploiting the existing system. These companies are, of course, guilty of making money by shifting costs onto everyone else. I believe that a consumption tax funded healthcare system is a viable solution for any country struggling with the current explosion of chronic disease.

Rob Gray runs the Gran Roca Project, (, a sustainable commercial permaculture farm on a landmark property in the Yunguilla Valley, southwest of Cuenca. High quality tree fruits, berries, and a large variety of both native and heirloom vegetables and herbs are produced with pastured cattle and chickens, eggs, milk and cheese also integrated into the mix. Rob provides Deliveries and Pick-ups on Mondays in Cuenca of his fresh picked produce, meats and eggs as well as provides Farm Pick-ups in Yunguilla on Thursdays. He also publishes a weekly newsletter with an order form for Deliveries and Pick-Ups; you can sign-up on his website.

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