A self-imposed health-based taxation system
The path to chronic disease prevention starts with the right financial incentives.
On August 25th, Exxon was removed from the Dow Jones industrial index after 92 years in it [1]. Exxon is one example of the innovator's dilemma, a company that once dominated its market and eventually was outpaced due to innovation. In particular, Exxon failed to adapt as its industry shifted towards renewable energies. And why wouldn’t they? Renewable energy was not going to give them the same thick margins as oil did, nor were they be willing to devalue their oil fields and massive investments in exploration. Yet, despite Exxon’s chunky margins, long tradition, and oligopoly control of the energy sector: new technologies were developed, challengers rose. And today, investors recognize what Exxon failed to foresee 10 years ago: The future of energy is green.
7 out of the top 8 causes of death in the U.S. are attributed to a chronic disease. [2]
Ask a cynical insurer: what should they do if a 63-aged patient is diagnosed with type-II diabetes? Nothing, they might say! Because there is only a minimal chance the patient develops serious consequences in the next 2 years and then, the person will be the government’s responsibility. [3] It may sound crude, but ask yourself, what incentives does a pharmaceutical company has to prevent you from developing type-II diabetes if it will be able to sell you drugs for the next 10 years!? Under these unfortunate circumstances, even physicians may face mixed incentives when treating you.
Economic history has taught us that ethics is not a good enough incentive for us to make the right decisions. Like many chronic diseases, type-II diabetes is preventable, by keeping a balanced diet and exercising regularly. However, to believe that major players in the healthcare and pharmaceutical industries will lead the transition to a preventive medicine is a logical fallacy.
The Rise of Preventive Healthcare
Picture this futuristic reality: you go out for a run and get thirsty. But since you just worked out, the healthy, organic, sugar-free beverages are at a discounted price! And the opposite is also true when craving a second sweet snack, since you already had one earlier, the price would be higher.
In a deeper analysis, healthcare and pharmaceutical are not the only industries benefiting from our unhealthy lifestyle. Fast-food chains and junk food producers also benefit from offering low-quality, addictive products at a steep price. Similarly, the cheap entertainment industry, like video streaming, and movies, has also profited from our sedentary lifestyle.
Ask yourself: what would happen if the price of Netflix increased after the first 10 hours of watching? Or if we experienced generalized “inflation” of prices based on the number of hours we watched YouTube?
While these ideas may sound radical, or idealistic. It shows which industries have an opportunity to rise and challenge the prevailing healthcare system:
The food and fitness industries have plenty of incentives to compete and innovate against established players if their market is expanded to include part of the current healthcare revenue!
The preventive healthcare industry is a future trillion-dollar example of the innovator's dilemma.
Taxes shift Perception
70% of Tesla’s 2020Q4 profit came from regulatory credits. [4] That’s on top of their more than 200,000 customers that benefited from tax credits. [5] Other countries have also imposed government measures to curve demand towards electric vehicles. China imposed restrictions, and European countries increased taxes for fossil fuel vehicles.
We might not like taxes, but they surely shape our decisions. In economics, an externality is a cost or benefit caused by a producer that is not financially incurred or received by that producer. For the energy industry, pollution is the main externality: oil companies heavily contribute to its production, yet everyone suffers its consequences.
Taxation is one of the few alternatives society has to combat these externalities. In healthcare, there are also externalities associated with chronic diseases. Because, while every tax-payer contributes to the rising costs of healthcare, it is the established companies in the industry that rip up the benefits.
Natural policies to curve the prevalence of chronic diseases include taxes, subsidies, restrictions, and prohibitions against products that contribute to causing these diseases. But entrepreneurs can be more creative and avoid depending on governmental actions to create the incentives to lead the transition to preventive healthcare.
Because there is a major difference between pollution and an unhealthy lifestyle. While the cost of pollution falls uniformly across the entire urban population; individuals can avoid some of the negative consequences caused by the present chronic disease-endemic like morbidity, disability, and loss of productivity.
It is in this scenario that the utopic reality from the first section becomes really interesting. Today, technology enables startups to implement dynamic pricing of their products based on the lifestyle choices of their customers.
Consider a healthy-food startup that partners with a fitness tracker provider. They set up a custom e-commerce shop where the activity of their users influences the price of their products!
The more they work out, the cheaper the healthy food gets. This creates a feed-forward positive cycle for their customers as they receive a triple benefit:
- Enjoy healthy, high-quality, nutritious food.
- A dopamine effect derived from exercising.
- A discounted price.
This business model, financed by investors, is feasible as long they show potential to become the next Coca-Cola or McDonald’s. The startup will sacrifice profit for market share. Just like Tesla.
A Healthy FinTech Product
It is depressing to acknowledge the lack of innovation prevalent in the FinTech industry. So far, progress has focused on lower fees, higher speed, increased convenience, and crypto. But economics is much wider than that.
A study showed that when making food choices for the coming week, 74% of participants chose fruit, whereas when the food choice was for the current day, 70% chose chocolate [6].
Behavioural economics lies at the intersection with psychology. I hypothesize that we know what is good for ourselves but fail to act on those choices. For me, the ultimate fintech product is not about helping you score small wins but setting you up to make smarter decisions.
There is a concept called emotional hedge, in the sports-betting community. It’s used when you bet against your favourite team and set yourself up for a win-win scenario: if your team loses, you cash the money, and if not, your team wins! We can use the same concept to think about our health:
“Reward yourself for making healthy decisions, and be penalized for indulging in unhealthy pleasures.”
The product I envision is shaped like a credit card that implements a double-pricing system: the price you pay is different from the price you are charged. This difference in pricing would be used first to accrue savings, and secondly to subsidize healthier lifestyle choices. In that way, even if in the future you suffer from a chronic disease, at least you are financially prepared to face it.
What do you think would this idea be a viable alternative to incentivize people to live a healthier lifestyle? If so, I would love to hear your thoughts, as well as possible strategies to implement it.
Thank you for reading! I hope you enjoyed it and grant me some claps. To read more novel takes on startups, tech, and AI please give me follow. I write a new story every month.
Best,
Santiago M.
