What are the details of the San Francisco soda tax?

The 2 cent tax would add about 40 cents to the cost of a 20oz bottle of soda. It will not be applied like a sales tax (which is added to the product cost at the cash register), but instead it will be charged directly to the beverage manufacturer (and one would assume manufacturers will pass the tax onto consumers by raising their prices). It will apply to soda, energy drinks, and other sugar sweetened beverages with more than 25 calories; diet sodas and naturally sweetened beverages like juice would not be included.

Come on, another tax?

This is a little different than most taxes in that the primary purpose is not to raise revenue but instead to influence consumer behavior. The goal is to help consumers make healthier choices, similar to the cigarette taxes that have very effectively reduced the number of Americans that smoke. This tax is expected to raise about $30 million and by law the revenue must be used to fund active recreation and nutrition programs in San Francisco public schools, parks, and recreation centers; food access initiatives, drinking fountain and water bottle filling stations; and dental health services. In other words, the revenue from this tax will go right back to the SF residents that are statistically most likely to be at risk for obesity to help educate them to make better decisions.

Doesn't this tax unfairly burden SF's poorest residents?

Unfortunately, lower-income residents are already unfairly burdened with obesity and other health issues. These same residents also consume more sugared beverages. Unlike a traditional regressive sales tax, which taxes everyday items that consumers of all income levels have no choice but to buy, there is an easy way to avoid the impact of this tax. Those that are financially burdened by the San Francisco soda tax can drink fewer sugared beverages, instead choosing other (healthier) options that will quench their thirst and not have the additional tax applied. In the long run, by avoiding sugared beverages, these residents will have saved money and given themselves a better chance to living a healthy life.

I'm an adult, can't I make my own decisions about what I do to my body?

I hear you and I agree for the most part. However, there are many kids out there that drink soda every day without knowing or understanding the long term effects this will have. In most cases, it is these same children that are not making purchasing decisions. So, if you are an adult and choose to drink soda and would be paying more for it, think about the children who will be drinking healthier beverages because they can't afford the tax or because they learned how to make healthier decisions based on tax funded nutrition education programs. A few cents tax on your soda is a small tax to pay if it can save children from a lifetime of obesity related health issues.

But will this solve the obesity problem?

Of course not, it's only a small step in the right direction! But sugar sweetened beverages are one of the largest contributors to obesity and one of the easiest things to cut out from a diet. This tax will play a role in raising awareness to how big of a deal obesity is in this country and how small changes in habits can have a tremendously positive effect on health. The programs funded from this tax will be used to teach people how to embrace an overall healthy diet (not just about healthy beverage choices).

Obesity? Is that really a problem?

Yes! It is a FACT that obesity rates have grown significantly in the last few decades. It is also a FACT that obesity is directly related to increased health problems and money spent on health care. In fact, the medical costs for someone who is obese averaged $1,428 higher than those of someone normal weight in 2008. That adds up to about $147 billion spent to treat obesity in a single year.

Is soda really that unhealthy for you?

I could bore you with lots of medical studies telling you that your body doesn't process sugary beverages the same way it does food, and that drinking sugary sodas for just two weeks contributes to the development of diabetes and heart disease. Or I could just show you this chart and let common sense be your guide.

At the heart of every Economics 101 course is the idea of the incentive: essentially giving carefully crafted incentives can lead to a happier world for all to enjoy. I've been thinking a lot about this lately for a few reasons, but mostly because of my seemingly never ending battle to stop my sciatica pain. It's now been about 10 months, $3,000+, 2 chiropractors, 3 doctors, 2 physical therapists, and one MRI later and all I know is I supposedly have piriformis syndrome and that I should avoid sitting (go ahead and try to do that for a day or two, I dare you). My most recent trips to a new pain management specialist gave me some first hand examples of where some economic incentives could drastically reduce spending on health care and most likely have zero impact on quality of care. Most importantly, this could be done through the regular HMO or PPO health care plans that most Americans use today (High Deductible plans are another way to provide a similar incentive, but I realize those are not for everyone). In my case, in my first visit the specialist billed me $532 for my initial hour long diagnostic appointment. That's pretty steep, but she did a detailed exam, spent a lot of 1:1 time with me, and my insurance company had a contracted rate to only pay $280. The treatment we agreed to was to try "trigger point injection" shots where the sun don't shine to try to loosen up my muscle. This consisted of another 4 identical visits to the specialist which each lasted less than 10 minutes. The key word here is identical, because when you look at what I was billed you'll see some big differences in what was actually billed to my insurance company.

Notice how my first two injection appointments (3/5 and 3/13) include an "ancillary" facility charge from the hospital of $400 plus a "surgery" charge of $283 (a whopping $683 for 10 minutes of a doctor's time and a clean needle - I'm almost positive the needle was empty). But after my first two visits I'm suddenly only charged $124 for "surgery" with no facility charge(3/19 and 4/2). That's a pretty significant difference that has been billed for identical appointments.

So how does this tie into incentives you ask? Well, since my health insurance plan has a $500 deductible which I've already met this year, I have zero motivation to pickup the phone and try to fix this. As a result, my plan will have paid more money to Spaulding Hospital (the winner here), my employer and I will pay a marginally higher premium next year, my doctor likely won't see a dollar extra, and the US economy is spending more than it should. I also don't have any incentive to try to find a lower cost doctor, or at least a lower cost facility that my doctor practices out of (she rotates through other hospitals).

So, here are two incentives that could have changed this situation and had a dramatic impact if replicated across the millions of Americans each year in similar situations.

Incentive #1: Encourage the patient (that's me!) to review the bills (even if they aren't responsible for them) to try to find errors. If the patient works to correct an otherwise approved bill that ultimately results in the health care plan spending less money, give them 10% (or some other %) of the savings in reduced premiums or co-pays. In this instance, there is potentially $1000 in charged amounts that I could likely recover on behalf of my plan. A $100 incentive would likely motivate me to take on that burden and it would still save my plan $900

Incentive #2: Encourage, but don't force, patients to use lower cost providers. If a patient uses a provider that is lower cost than the average in-network provider in that area, give them 10% of the savings. My MRI last year cost my insurance company almost $1600, which I found out later could have been $800 had I gone to a different place down the street. $80 in my pocket would motivate me to shop around a bit (especially for labs and images) and would have still saved my plan $720.

By the way, a few of the other reasons I've been thinking so much about this are that:

I work in the healthcare IT industry now and I'm slowly starting to learn some of the fundamental challenges and problems (or to put it bluntly, just how fu$&*d up it is)
This New York Times article highlighted the huge variance in hospital bills between medical providers and sometimes even in the same hospital:

Fees for a routine appendectomy in California can range from $1,500 to — in one extreme case — $182,955. Researchers found wide variations in charges even among appendectomy patients treated at the same hospital.

The publicity of "Obamacare" and the pending Supreme Court decision has led to a number of interesting stories highlighting just how out of whack US healthcare spending is. For example, also according to the NY Times (article here):

In 2010, the United States spent $2.6 trillion on health care, over $8,000 per American.....So the United States, with a population a quarter of the size of China’s, spends just on health care slightly less than half of what China spends on everything.

Despite the incredible amount of money we spend, our care isn't really that good. The non-profit Commonwealth Fund published this study showing the US pretty much ranks at the bottom compared to other countries.

A San Francisco Soda Tax for a Healthier City