Taxing Drugs, Doc Visits and Even Surgery?
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The Fiscal Times
April 19, 2012

One of the major flaws in the nation’s health care system is that most resources go to treating people with chronic diseases, while little goes to preventative care. So, what to do?

One controversial idea being promoted by a team of health care experts is to impose a tax on every doctor visit, surgical procedure and prescription. That recommendation is contained in a recent report issued by The Institute of Medicine, a highly regarded organization of medical professionals and researchers. The study said that a medical transactions tax could be a key ingredient in bolstering public health care services enough to bring down long-term health costs.

The upside to this plan is that the cost of preventive public health care services would be built-in to the cost of receiving medical care; the downside is that consumers will fund that change in the form of steeper co-pays or deductibles, higher premiums, or higher amounts taken out of their paychecks for health insurance.

“As a country, we are paying twice as much as other countries for delivery of illness care, without the health outcomes they are able to achieve,” said David Fleming, Seattle’s director of public health and one of the report’s authors.  “So tapping a small portion of those expenditures as a source of revenue to invest instead in mechanisms to keep people healthy and out of the hospital in the first place makes good, logical financial sense.”

The IOM does not propose a specific federal tax rate on medical care, but estimates that a half a percent transaction tax would raise $12 billion a year if levied on all medical transactions paid for through private insurance, Medicare, Medicaid, out of pocket, or otherwise. 

A2 percent transaction tax, which Minnesota currently levies on all medical transactions to expand access to care in the state, could yield as much as $50 billion per year.  But report authors who spoke with The Fiscal Times say they believe a rate closer to half a percentage point is more reasonable on a national scale. 

The institute wants to use the money for expanded public health services focused onpreventative care such as anti-smoking and anti-obesity programs, vaccinations against communicable diseases, and chronic disease screening.  The report’s authors argue that the U.S. under-invests in targeting these conditions, which they say are major culprits pushing overall U.S. health care expenditures up about 4 percent each year on top of inflation. 

Critics of the plan say that preventive health care is built into most plans and that incentives have not made dramatic differences.  Michael Tanner, Senior Fellow at the Cato Institute said, "I assume they’re going to put out more public-service ads that say, '“being fat is bad,'" but I can’t see how that would make a dent.  We've been telling people in this country that obesity is a bad thing for a long time, but we keep getting more obese.  The lifestyle choices that are involved are not something that's amenable to 30-second ads on TV or even legislation."