State Opioid Taxes Would Needlessly Harm Patients

Ross Marchand

April 3, 2018

This article originally appeared in Economics21 on March 29, 2018

Americans face a daily barrage of news of the latest casualties in the deadly scourge of opioid addiction. The estimated 115 opioid overdose deaths that happen in the United States every day cut across demographic and class lines, affecting communities across the country. More than two million Americans are caught in the grips of a dependency on prescription painkillers and street pills, with little sign of decline in most states.

Faced with this scourge of death and addiction, governments at all levels are brainstorming responses to combat dependency. The federal government recently allocated billions for opioid addiction research in hopes of finding new treatments and cures for victims of overuse. Additionally, drugs with the ability to curb the urges of addicts are being fast-tracked for approval by the Food and Drug Administration.

But these encouraging steps forward could be fatally undermined by state-level proposals to tax painkiller production. Recently, lawmakers in New Jersey, New York, Minnesota, Tennessee, and West Virginia are contemplating “penny a pill” style proposals to put the taper on opioid development. While these proposals may sound reasonable, wide-scale taxation is a recipe for increased suffering and black market activity.  In addition to these unintended consequences, any increase in medication costs will raise the costs of Medicaid and Medicare.

Over the past few months, lawmakers in some of the states most affected by the opioid epidemic have proposed taxing pharmaceutical companies for bringing painkillers to market. New York Gov. Andrew Cuomo, for instance, has repeatedly pushed for a two-cents-per-milligram opioid tax in ongoing state budget talks. While backers of these proposals claim that costs would be exclusively borne by pharmaceutical firms, experience with similar “sin taxes” suggests otherwise. Research has shown that, even in the more competitive beverage market, attempts to raise taxes on “Big Soda” have resulted in a significant share of costs being passed along to customers.

Backers of opioid tax proposals may see this as a positive development, with higher taxes inducing patients to stay away from risky medications at all costs. Granted, this picture is considerably complicated by patients’ use of health insurance to buy drugs. Many plans, for instance, have fixed co-pays for drugs (instead of a percentage of drug costs). For the insurers administering these plans, higher taxes on a handful of medications would likely be passed along to all customers. Another alternative for insurers is to simply cut back on painkiller options, as leading companies have already begun to do.

Within the overwhelming majority of opioid users that are not addicted, most patients would either absorb the higher cost or endure increased pain. An “effective” opioid tax, then, would punish millions of Americans for whom opiods are the only cure for immense physical pain.

As well as punishing those who need the medicine, any increase in prices or cutback in options could well result in an increase in black market activity. With only some states taxing opioids, some patients might try to fill their prescriptions in untaxed states, either in person or online.  

In states that have high taxes on cigarettes, tax avoidance through arbitrage is common.  Criminal organizations have been caught buying cigarettes in low-tax states such as North Carolina and selling them in high-tax states such as New York.

Criminal distribution networks can fuel other illegal activities. Cross-state cigarette smuggling, for instance, provided a financing stream for the terrorist organization Hezbollah. Additionally, al Qaeda trainees used illegal cigarette distribution networks to fund trips to Afghanistan.

Rather imposing policies that would harm ordinary patients and encourage black-market activity,  federal and state governments should consider more targeted, effective reforms. Allowing for expanded treatment options in prisons, for instance, could go a long way toward curbing addiction in incarcerated populations. Additionally, members of Congress should update current Medicaid rules that discourage the formation of large treatment facilities.

No one solution will provide a panacea for cutting down on opioid addiction and death rates across America. But a patchwork of state taxes would only harm patients who need the drugs without reducing addiction. 

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