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Forbes.com

 

Why Tax Botox?

December 07, 2009

By Josh Barro

The alarming sin tax trend.

The Senate health care reform bill, released last month, is over 2,000 pages long. It would generate nearly $850 billion in new federal spending over 10 years, cut over $400 billion from currently scheduled Medicare spending and levy $372 billion in new taxes. Washington is abuzz, dissecting the bill, analyzing and demagoguing it, trying to figure out what it all means.

Meanwhile, in certain parts of Beverly Hills and Manhattan, a much smaller provision will be generating much debate and discussion: a 5% excise tax on cosmetic surgery and related procedures, colloquially known as the “Botox Tax.”

This tax will raise only $6 billion in new revenues over 10 years, less than 1% of the bill’s total price tag. But Washington policy makers should pay more attention to this small tax, because it attacks one of the few parts of our medical system in which market forces impose cost discipline. It also continues a negative trend of funding government with “sin taxes” on unpopular minorities.

Cosmetic medicine is one of the few well-functioning components of the American health care market. Freed from the third-party payment structure that complicates incentives in the “real” health care market, cosmetic procedures trade like normal services. Sellers compete on price and quality. Buyers comparison-shop for the best deal. New treatments start off expensive and fall sharply in price as they become more widespread.

Increased consumer-direction could bring these benefits to the broader health care industry and cut costs. We should modify our tax code to end incentives to over-insure, and instead have Americans pay directly for most of their health care through Health Savings Accounts, so people would think as hard about where to get the best deal on an MRI as they do about where to get Botox.

Instead, the Senate wants to tax cosmetic medicine to help pay for health care. Unlike the other taxes contained within the bill, there is no logical link to health care reform. Taxing elective medical procedures won’t affect the cost of insurance-covered care, and so won’t help to bend the cost curve. The tax also is not an offset for benefits that cosmetic surgeons will receive from expanded coverage. The only plausible reason for the tax is that Botox is a politically easy target.

This tax will raise only $6 billion in new revenues over 10 years, less than 1% of the bill’s total price tag. But Washington policy makers should pay more attention to this small tax, because it attacks one of the few parts of our medical system in which market forces impose cost discipline. It also continues a negative trend of funding government with “sin taxes” on unpopular minorities.

Cosmetic medicine is one of the few well-functioning components of the American health care market. Freed from the third-party payment structure that complicates incentives in the “real” health care market, cosmetic procedures trade like normal services. Sellers compete on price and quality. Buyers comparison-shop for the best deal. New treatments start off expensive and fall sharply in price as they become more widespread.

Increased consumer-direction could bring these benefits to the broader health care industry and cut costs. We should modify our tax code to end incentives to over-insure, and instead have Americans pay directly for most of their health care through Health Savings Accounts, so people would think as hard about where to get the best deal on an MRI as they do about where to get Botox.

Instead, the Senate wants to tax cosmetic medicine to help pay for health care. Unlike the other taxes contained within the bill, there is no logical link to health care reform. Taxing elective medical procedures won’t affect the cost of insurance-covered care, and so won’t help to bend the cost curve. The tax also is not an offset for benefits that cosmetic surgeons will receive from expanded coverage. The only plausible reason for the tax is that Botox is a politically easy target.

Original Source: http://www.forbes.com/2009/12/07/health-care-botox-sin-tax-opinions-contributors-josh-barro.html

 

 
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