Healthcare of business: Universal coverage plan includes new business taxes

06 Mar Healthcare of business: Universal coverage plan includes new business taxes

Over the past year, MedTech Futures has concerned itself mostly with the business of healthcare. Today, the tables will be turned and we will discuss – albeit only briefly in this short space – the healthcare of business.
Following the lead of California and Massachusetts, Illinois Gov. Rod Blagojevich has called health insurance a “fundamental civil right” and announced on Sunday an ambitious new plan called IllinoisCovered to cover the estimated 1.4 million uninsured as well as underinsured adults in the state.
Of course, this will cost money – an estimated at $2.1 billion annually – and the Chicago Tribune also reported on Sunday that “the proposal relies on a new gross-receipts tax, which would require businesses to pay the state each time they got paid for a product or service.”
It is estimated that this new tax would generate $3 billion in the first year and $6 billion when fully operational, with most of the receipts going to fund IllinoisCovered and the rest going toward education funding.
Will it sink Illinois?
As a physician and simply a human being, the concept of covering the uninsured makes a great deal of humanitarian and economic sense. For the uninsured, delaying or even foregoing adequate healthcare as well as the inappropriate use of emergency facilities creates enormous human and economic costs.
Although we may not realize it, as a society we ultimately all pay for the costs incurred by the uninsured. These costs are passed on directly through implicit subsidization (e.g. higher costs passed on by hospitals or physicians to the government or the insured) or indirectly because of the loss of productivity by those who are avoidably ill.
There are other less tangible but very real costs as well. For example, your child might get sick because some of her classmates with an infectious condition are not adequately treated, or you may get into a car accident because the other person has an untreated and painful back condition that compromised his concentration on the road.
On the other hand, for those in business (like myself) and for the free-market theoreticians at the University of Chicago, the second part of the plan presents some problems.
IllinoisCovered obviously needs to be paid for – and, as pointed out above, we are paying for the uninsured whether we realize it or not – but the question is whether an across-the-board business tax is the most efficient or fair way to do that.
MidwestBusiness.com reported on March 1 that Chicago was ranked the No. 1 city in the U.S. for business investment, according to Site Selection magazine. Will that advantage be sustained in the face of significantly increased business taxes? What will be the impact on developing new businesses or bringing new businesses to Illinois?
Even more ominously, could this even result in businesses leaving Illinois?
“Unintended consequences” comes to mind as one thinks through a scenario in which new job growth becomes stunted in the state. This could swell the ranks of the uninsured and cause the IllinoisCovered plan to become even more expensive. In turn, this could result in even higher business taxes and so forth. Such a vicious cycle would not be pretty.
Vice versus virtue
To lighten the picture a bit, let’s take a little digression. On March 2, I saw a fascinating segment by Jim Cramer on CNBC’s “Mad Money.” Most of you may be familiar with Cramer’s wild and fiery style. This episode featured an intriguing study of “vice versus virtue.”
Cramer presented a study in which 10 “vice” stocks (the “bad guys” such as tobacco, gambling, and alcohol stocks) convincingly beat out a group of 10 “virtue” stocks (good corporate citizens such as IBM, Motorola, Green Mountain coffee, and so forth). While not a definitive analysis by any means, the results – even discounting Cramer’s flamboyant presentation – were compelling.
The “bad guys” gave an equal-weighted return of 35.7 percent over the past year as compared to the “good guys,” who were flat over the same period. Cramer argues that if you want to do good – and even this bastion of unabashed capitalism agrees that this is admirable – you are better off making money on sin stocks and then donating your proceeds to your favorite charity.
Are corporate returns (and, by extension, the stock market) truly reflective of a free market? Do the “bad guys” truly have to pay all costs related to their businesses?
In economics, these costs – which are typically unaccounted for – are called externalities. These externalities can be positive when an external profit or benefit is created, or negative when an external cost is paid for by others (by society rather than by the company).
As an example with the tobacco industry, efforts through the courts and class-action suits have attempted to correct these externality costs. This has been largely ineffective and at best inefficient. While “sin” taxes also exist, these do not necessarily cover, for example, the externality costs of second-hand smoke or drunken driving.
What would the comparative returns of “vice versus virtue” be if all costs were truly paid? While I would speculate that the “bad guys” may still do better, they certainly do significantly better.
A more efficient healthcare tax
What does that have to do with IllinoisCovered? Most Americans – with economists at the University of Chicago especially so – would like to have a free-market system. Though they are steeped in a deeply humanitarian tradition, even doctors balk at the prospect of “socialized medicine.”
To be sure, IllinoisCovered does not smell of socialized medicine. However, the concept of an across-the-board business tax does raise important questions and concerns (the potential vicious cycle noted above) as to whether this is the most efficient way to pay for universal healthcare.
If one considers that some businesses create more of a healthcare burden (an externality) than others, it would appear that apportioning these taxes along these lines would be a more efficient and fair way to pay for universal healthcare. Here’s my proposal. It is simple.
For the purposes of funding universal healthcare, businesses should be taxed according to their respective healthcare burdens.
Of course, one can counter that a vast bureaucracy would need to be created to validate and document such “healthcare burdens.” There is certainly enough health-impact data to make rough assessments for the purposes of taxation. One does not need to overanalyze in order to be efficient, and as a first step, identifying the “good, bad, and ugly” should be fairly straightforward.
In order not to be unfair for the “unhealthy” companies – namely to avoid a double penalty – higher taxes for these firms should also come with legislated immunity against health-related, class-action suits. While there should always be room for individual claims, many have argued that class-action suits of this sort are relatively ineffective and inefficient.
Under a proposal for increased healthcare taxes for “vice” companies, one can certainly argue in the face of a class-action suit that these companies are indeed paying their due to society.
On the flip side, companies that actually contribute to the overall health of society should not necessarily be penalized by having to pay a healthcare tax that is equivalent to a company that generates a large illness burden.
Such companies – such as hospitals, biopharma, and medical technology companies – may end up paying very little or no such tax. The exact apportionment obviously needs to be calibrated to the mix of “virtue” and “vice” companies in the state as well as the overall funding needs of the IllinoisCovered plan.
A healthy state?
There is also a fascinating unintended consequence to this proposal. If Gov. Blagojevich were to implement such an idea, we’d have an interesting scenario in which “unhealthy” companies would be discouraged from setting up business in Illinois while “healthy” companies would be encouraged to stay in the state.
Illinois could literally become healthier and more environmentally friendly. Instead of the vicious cycle that is possible under the blanket taxation proposal, Illinois could – relative to other states – experience a virtuous cycle that would be healthy for its businesses and citizens alike.
Benjamin Franklin once famously said: “In this world, nothing is certain but death and taxes.” Still, that doesn’t preclude optimizing the latter to minimize the former.
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