Now that a heath-care bill has cleared the Senate Finance Committee, the U.S. is one step closer to a number of harsh realities, in everything from income-tax surcharges on high-wage earners to reduced Medicare reimbursements for health-care providers. But there's one possible source of reform funding whose fate remains quite uncertain -- the soda tax.
The players
First off, let's be clear that a "soda tax" would likely apply to an array of sugar-sweetened beverages, including sports and energy drinks and certain juices and iced teas. So while PepsiCo (NYSE: PEP) and Coca-Cola (NYSE: KO) may be the most obvious potential losers, the line of Monster energy drinks that's been powering Hansen Natural's (Nasdaq: HANS) growth could also see a sales slump.
The plan's proponents, who include doctors, scientists, and a bevy of policymakers, argue that a one-cent-an-ounce tax would generate $14.9 billion in its first year, while also reducing obesity-related health costs. Adding roughly 50% to the price of popular soda products, such a tax has the makings of an effective consumer deterrent.
Of course, shoppers might simply shift from name brands to cheaper private-label goods, such as those produced by beverage-maker Cott. In such a scenario, noble intentions would have no greater effect than rebalancing fortunes within the beverage industry.
Meanwhile, Fred Hassan, CEO of pharma giant Schering-Plough (NYSE: SGP), supports a tax on sugary drinks. In fact, he's argued for higher payments in general from people who engage in unhealthy, and ultimately more costly, behaviors. Sure, allowing the government to strong-arm consumers into healthier lifestyles would no doubt boost the margins of health-care providers UnitedHealth (NYSE: UNH), Aetna (NYSE: AET), and Wellpoint (NYSE: WLP) -- without the industry having to lift a finger, financial or otherwise.
The outcome
Within this debate, it's tough to find commentary or strategy that rises above myopic partisanship. Is it reasonable to address America's obesity problem through public and private policy? Yeah, probably. But the ensuing and essential question, then, is whether we should attempt to modify consumer behavior through a system of rewards, or one of punishments.
I believe positive incentives are more effective, and in this case, they're also the closest thing to a free-market approach. Specifically, why not focus on expanding an existing health-care reform amendment that compensates healthy living? So if I choose to gulp down the occasional cola, I'm not subsidizing the gluttonous behavior of my neighbor. Alternately, we'll avoid a situation in which the beverage industry is partially paying the price for all those fattening Friday nights that consumers spend at their local Cheesecake Factory.
Of course, I wouldn’t hold my breath in hope of sane legislation. Nor would I assume that Congress has the pith to defy the beverage industry's lobbying efforts.
But if the soda tax doesn't melt away like a load of ice cubes in some senator's vest pocket, I continue to favor Coca-Cola as an investor's safest bet in the cola wars. No, I don’t think the company's new 90-calorie mini-can is going to save its hide, but I do like its significant ex-U.S. exposure. And even PepsiCo derives much of its revenue from non-drink options such as snacks. In international and emerging markets, such legislation, one hopes, has yet to bubble up in the minds of policy makers.
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