Sin taxes exist in just about every state or municipality. It was big news around here about a year ago when Philadelphia implemented a tax on sugary drinks. Taxes on tobacco, alcohol, gambling, candy, fast food, porn, etc are all considered sin taxes. It’s an easy target. People who don’t partake in these vices won’t care too much and those enjoying the activities are partaking in, well, vices, so screw them! By their nature of being vices, people think it’s okay to tax them. Have you heard “Legalize and tax it” before?
Who should decide exactly which activities are vices and should be avoided? Why would anyone think it is preferable for a powerful monopoly to decide what is good and bad for you? It should be easy to see how this could create corruption and cronyism. In Pennsylvania, we have some archaic liquor laws that date back to the end of Prohibition. Most people think they’re ridiculous, but it is almost impossible to overturn them. Certain businesses paid a lot of money for their liquor license and don’t want to open up the market. The reason these laws exist is because at one time it was thought that alcohol was too dangerous to be sold anywhere at any time. But why not let the market decide?
One way to let the market decide is through insurance. Insurance companies have their money on the line. It’s nice to create good-intentioned laws, but when your money is on the line you take it seriously. When you apply for life insurance you are asking an insurance company to pay a sum of money in the event you pass away too early. We will all die some day, but dying to early can be catastrophic to your family, friends, work, etc. That is what you’re insuring against.
If you live a dangerous lifestyle, if your liver functions are high due to excessive alcohol intake, it would be a red flag for life insurance companies. They see that as an increased risk and would put you into higher risk class, meaning higher premiums to insure you for the same sum as a healthy individual. This is a way to regulate behavior and have someone who is engaging in risky behavior bear the costs.
Having a market for insurance is very important. If company A changes $1000 for the high liver maybe Company B will charge $800. That would encourage the heavy drinkers to go to Company B. If Company B is over-exposed to heavy drinkers, they might have to increase their rates, unless their reserves can handle the claims and their underwriting is sound in other areas. Company A could lower their rates to compete, or maybe they’ll keep them higher and focus on other risks. That’s up to the market to decide. But if heavy drinking is a real risk to life, Company B would be paying more claims and needing higher premiums to do it, therefore the risk bearers pay the costs.
It’s likely we’d see the same thing in health insurance and other insurance risks that are increased by heavy drinking. This is just one example, but insurance could handle all risks that damage health. If you partake in so many risky behaviors that no insurance company will cover you, you’re not able to transfer any risk and all and are required to self insure. That would be your choice and no one should force you to do otherwise.
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