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Health Long Form

Incentivizing Kidney Donations: A Tax Credit Scheme

Introduction

There is an organ crisis in America. Currently, hundreds of thousands of Americans are on waiting lists to receive organ transplantations for livers, hearts, and kidneys and fewer and fewer organs are being donated every year. The most egregious of these shortages is being seen in the kidney market where an estimated 50,000 Americans will die waiting for a kidney this year alone.

This failure of supply to keep up with demand has its roots in a failure to provide incentives for individuals to donate their organs. It is currently illegal to sell ones kidney and receive monetary compensation. The current proposals around this involve tweaking current laws to acquire ones organs after death, or repealing the ban altogether and allowing for direct compensation.

There are several practical and moral flaws with both of these initiatives, thus this paper proposes a tax-credit scheme to incentivize individuals to give up their kidneys as an alternative. This tax-credit would not violate the ban currently in place to compensate those for donation and would avoid the flaws in previous proposals to give America a fighting chance to overcome this organ crisis.

Background

In 1984, the National Organ Transplant Act was passed in the United States which deemed it illegal for anyone to sell or acquire an organ for “valuable consideration”. The passage of this law set the precedent for any and all organ transplantations to occur only if the organ was received through donation; purchase or sale of organs resulted in five year prison sentence and a hefty fine (FindLaw).

Unfortunately, only 30-40% of Americans have listed themselves as organ donors on a driver’s license or through state run donor registries (Satel), and the gap between those on the waiting-list to receive organs and the amount of organs donated annually continues to widen (Organdonor.gov).

In 2006, 70,000 Americans were waiting for life-saving kidney transplantations and around 10,000 kidneys were donated that year (Satel). As of September 8th 2014, over 120,000 Americans are waiting for kidneys and around 16,000 kidneys have been donated (National Kidney Foundation). To this day, someone on the list waiting for a kidney dies about every 90 minutes (Satel) with a staggering rate of 50,000 individuals expected to die this year still waiting for a kidney (Beard, Kaserman and Osterkamp).  

If there is no structural change in either the system of organ procurement or the technology of transplant medicine, the likelihood of resolving current shortages in kidney donation looks very bleak. A simple simulation model based on current data around US renal waiting lists predicts that by 2015 the amount of Americans waiting for a kidney will balloon to over twice the amount in 2006 to 160,000 and lives lost to kidney shortages will exceed 100,000 (Beard, Kaserman and Osterkamp).

This problem is compounded by the current health crisis in America where the conditions that give rise to renal failure such as diabetes, high blood pressure and obesity are increasing exponentially (Beard, Kaserman and Osterkamp). America will see a greater demand for kidneys in future and the current rate of donation is already not meeting the demand, thus the impending organ crisis in this country has made one thing clear – relying on altruism is not enough.

Literature Review

The solution is obvious – increase the overall kidney supply pool in some way. There have been several methods discussed to increase the supply, but they have split along two camps: those that work within the National Organ Transplant Act and those that seek its repeal. Those that wish to work within NOTA have pushed two main initiatives – expanding organ donor eligibility to patients who have died of cardiac arrest (currently outlawed) and adopting the European practice of “presumed consent” whereby citizens are considered organ donors upon their death unless they have explicitly signed an anti-donor or opt-out card (Satel). However, the total amount of organs that would be added to the pool from implementing either of those strategies alone or together would fall far short of the booming demand (Abadie and Gay).

Those that wish to repeal NOTA have championed legislation that would remove the ban on the sale or purchase of organs and would allow direct cash compensation in exchange for kidneys, hearts, livers etc. Economists globally have supported this method with over 70 percent favoring the legalization of organ sales (Beard, Kaserman and Osterkamp). From their perspective, the shortage of organs is a result of a failure to provide incentives – there is really no incentive for someone to give up a non-vital organ such as a kidney before their death if their only motivation is the desire to help someone else.  Economists argue that by opening a free-market for organs both the demand and supply side of the equation would be helped. 

On the supply side, given that demand is so high for the organs there would be a huge incentive to sell one’s own organs or those of a deceased family member and collect a very good price. Economists argue that legalization could single-handedly eliminate the shortage for organs given that the average cost for a kidney transplantation is $259,000 and even a fraction of that as compensation would skyrocket supply (Becker and Elias). On the demand side organ exchange businesses would arise and begin selling organs at lower prices. As competition to buy organs increases given the increasing demand, companies would continue to slash prices to capture the market demand leading to overall lower prices for those in need of organs as well (Andiew and Block).

The push-pack to this proposal has been strong from many fronts, in particular the Institute of Medicine cautioning that this will lead to a slippery slope of treating the body as if it were “for sale”. Studies have shown that financial incentives may actually lead to a decline in the supply of organs because it distorts the signal about preferences that organ donation gives which is meant to be purely altruistic in nature and perhaps “cheapens” the process (Byrne and Thompson).  

Proponents of the legalization of organ sales argue that that form of thinking is outdated given that America has already accepted a free market approach for human eggs, sperm and surrogate mothers (Satel). However, there is legitimate concern that the legalization of organ sales could spur unethical and even criminal exploitation of vulnerable donors (Danovitch and Delmonico). Opponents argue that legalization will set off a global race of “transplant tourism” where organized crime rings would travel across impoverished areas in the United States and around the world to capture and harvest organs from powerless individuals and sell their organs on the market for a profit (Danovitch and Delmonico). This possibility has shown to be uniquely likely for kidneys. In Hong Kong and Israel where the sale of kidneys had been legalized, there was a sharp increase in unnamed or unidentified kidney sales (Danovitch and Delmonico).

Given these risks, this paper argues for a third option as an alternative to legalization and methods that still maintain NOTA – providing a weak economic incentive to donate organs. Thomas Søbirk from the University of Roskilde in Denmark has argued that individuals are more likely to donate to a particular cause the more of their donations they are able to deduct from their taxes. Extrapolating from this conclusion, a tax-credit mechanism to compensate individuals for organ donations may be able to satisfy the demand for kidneys. If individuals can only receive deductions in their taxes in that country that should theoretically eliminate the risk of foreign organ sellers who would not be able to collect the benefits of harvesting illegal organs, but still able to increase the supply of the overall organ and kidney pool.

Analysis

A tax-credit scheme as a solution to the current shortage in kidney donations, in particular the one I am proposing, will take form in two separate ways. The first is offering an annual tax credit (~$500) for an individual agreeing to be an organ donor upon their death. The second is receiving a tax credit for donating a kidney as a living donor. There are two components to this as well – the first is that there is a fixed rate of a $5,000 deduction in taxes per kidney donated. Humans cannot survive with less than one of their two kidneys so this will be a one-time deduction. The second component is where any costs incurred as a result of donating the kidney (the procedure, recovery, travel etc) will be deducted from their taxable income.

To prevent against abuse and exploitation of this system, I propose a $15,000 cap on deductions as well as all expenditures being cleared by a medical doctor as an expense derived from the removal of the kidney.  This tax-credit should theoretically increase the pool of kidney donations in two ways. First, it works to address the negative impacts of donating an organ by compensating individuals and secondly it attaches a positive incentive to donate with the promise of future deductions in their taxable income. If all individuals in this economy are seeking to maximize their utility, this measure ensures that individuals are not worse off after donating their kidney and are in fact better off in the future.

According to the Grossman Model, health is an investment that can accumulate or depreciate over time. The choice to donate an organ is detrimental to one’s health even if only in the short-term since there are costs associated with recovery. The equation below projects an individual’s lifetime utility. The individuals discount date, δ, is a measure of much they value utility now more than in the future. In this scenario, an individual choosing to give up a non-vital organ like a kidney in exchange for the reward of tax reduction (indirectly compensation) indicates that they value utility in the future more than they value utility now and thus have a large δ.

I now want to address potential concerns with this proposal as opposed to the ones discussed in the literature. The first concern is that the tax-credit will ultimately have no effect on increasing the rate of kidney donation and may actually decrease the number of people willing to donate. The idea that the tax-credit proposal would be counter-productive in increasing donation draws from the Byrne and Thompson paper that financial incentives distort the signal of organ donation and cheapen the process – this is formally known as the Titmuss objection.

Richard Titmuss established the framework of blood donation using payment as an incentive versus a system of altruistic unpaid donors (Buyx). In his work, he alleges that paying for giving up your blood changes the social meaning of giving blood because it denies those individuals the ability to gift those who are in need and makes them less likely to donate. The proposal may succumb to this criticism as a tax deduction in exchange for kidney donation would make the donation no longer a pure gift, thus depriving donors the ability to make a moral choice and theoretically making them less likely to donate.

While Titmuss bases his conclusions empirically, they may not apply to organ donation as they do to blood donation.  As mentioned earlier, studies have shown that individuals are more likely to donate to a particular cause the more of their donations they are able to deduct from their taxes, and in particular studies suggest that even a modest cash payment would increase the number of organ donors (Kittur and Hogan).

However, a tax-credit does not have to be compulsory and could avoid the Titmuss objection all together. Individuals can choose to donate their organs without receiving the tax deduction and could in fact give monetary value of the tax-break to a charity of their choice, thus retaining the donation as purely an altruistic act. Ultimately what is more important is preventing people from dying on waiting-lists for organs and if a tax-credit can help reduce these needless deaths we have a moral obligation to pursue it even if may rob some of the ability to perform an altruistic act. The kidney shortage has compounded into a crisis precisely because of the failure of altruism to provide the necessary impetus to donate organs.

The second objection is that this tax-credit scheme could lead to exploitation of the poor. Tax benefits are intuitively less appealing to the wealthy since they are already retaining a sufficient amount of their income to live comfortably, thus this policy will disproportionately affect those in lower income brackets trying to take advantage of the promise of lower taxes. This, however, is not really an argument against the efficacy of the tax-credit if it ultimately increases the number of kidneys donated to the pool. More importantly, the action of giving up ones kidney is a voluntary choice and as long as the poor can benefit from this proposal while also helping others in need it should not be considered exploitative.

The more important question is if this proposal is able to address concerns of transplant tourism as a form of exploitation of the poor. As mentioned before, one of the principle concerns of legalizing organ sales is the fear that individuals may forcibly remove organs from the poor domestically and internationally to sell both in legal and black markets. This proposal works against such insidious acts in two ways. First, in order to claim any tax deductions the organs must come from the claimant’s body itself which can be verified with simple medical scans. Secondly, if there is an influx of organs donated following the implementation of this tax-credit this would eliminate the value of illicitly obtained organs abroad or domestically because supply is already catching up to demand and registered, “legally obtained” organs would already be available.

The idea of legally obtained organs begs the question of the final concern – is a tax-credit for donating organs legal under the National Organ Transplant Act? I believe it is under certain legal interpretations.

First, NOTA explicitly prohibits donors from transferring human organs for “valuable consideration”, but the tax-credit does not give deductions based on the expense of the organ itself but on the expenses incurred in donating the organ. In other words, the donor is not being compensated for the value of their organ, but rather being compensated for the travel, lodging, lost wages, recovery costs etc associated with donating the organ.

Second, NOTA’s jurisdiction extends only as far as inter-state commerce is concerned, if states implement this policy at the local and state level in ways that would have no bearing on inter-state commerce then it should remain perfectly legal. Preventing the tax-credit from interfering with interstate commerce could occur in a few ways – recipients can only receive organs from donors within their state, donors can only receive a deduction in their state taxes not federal taxes etc.  Despite these work-around methods, more should be done to help those dying every day on kidney transplant waiting lists and political action to repeal NOTA maybe what is truly needed to make a substantial dent in organ shortages.

Conclusion

As is, supply will not catch up with demand in the organ transplant market and hundreds of thousands will die every year waiting to receive a kidney. Unfortunately this trend will only grow as more and more individuals are succumbing to the epidemic in diabetes, obesity etc which is leading to increased kidney failures. In order to change the market there needs to be a change in incentives.

This paper proposes a weak economic incentive, a tax-credit, to encourage individuals to donate their kidneys for those in need. This tax-credit works two-fold: a smaller tax-credit (~$500) every year for agreeing to be an organ donor upon their death and second larger tax-credit which compensates individuals for the costs incurred to donate their kidney. While this is certainly not the silver bullet needed to close the large gap for organ transplants, it will go a long way. Though many have reservations about this proposal, both from a legal and moral perspective, it is the most viable option compared to the alternatives.

Initiatives that work purely within the National Organ Transplant Act would not be able to contribute enough organs and primarily require waiting on individuals to pass on before acquiring their organs – this is time we do not have. Initiatives that ask to repeal NOTA and allow direct compensation for organ donation, although popular, risk “transplant tourism” where individuals may kidnap the poor and helpless and harvest their organs and sell on the market. In addition, full legalization and compensation faces the Titmuss objection that alleges compensation commodifies the social meaning of purely altruistic donation and will turn people against donation.

A tax-credit proposal avoids most of these concerns. Empirical research has shown that charitable donations increase if they are tied to reduction in taxes, and more so any form of compensation is an impetus to donate organs – this should allow tax-credits to increase organ donations in the short-term. Tax-credits are able to avoid the Titmuss objection because it retains the donation of ones organ as purely a gift and only compensates the individual for the costs they incur in bestowing the gift, not awarding them anything in addition for doing a good deed.

Tax credits are also able to avoid fears of transplant tourism by ensuring that those who receive the deduction can only provide organs from their own bodies and additionally the increase in supply in the market will reduce the inclination to accept organs from unidentified donors. Finally, this proposal is able to skirt questions of legality under NOTA. First, it is not directly compensating donors for the value of their organ but the cost undertaken by the donor to give up their organ, and secondly it can be implemented by the states as to avoid issues of inter-state commerce – where NOTA is able to enforce its jurisdiction.

Ultimately, someone is dying every hour and half from needing an organ transplant. By next year, over 100,000 individuals will die in the wealthiest country in the world waiting for a kidney. We have a moral obligation to prevent these needless deaths from occurring and a tax-credit scheme to incentivize individuals to donate their kidneys is a promising first step.


Works Cited

  • Abadie, Alberto and Gay, Sebastien. “The impact of presumed consent legislation on cadaveric organ donation: A cross-country study”,  Journal of Health Economics 25 (2006) 599–620
  • Andiew, Scott and Harold, Block. “Organ Transplant: Using the Free Market Solves the Problem”, Journal of Clinical Research in Bioethics, May 2011
  • Beard, Randolph, Kaserman, David & Osterkamp, Rigmar. “The Global Organ Shortage: Economic Causes, Human Consequences, Policy Responses. Stanford University Press, page 68-71 and 207-212 (appeared in a review in the Journal of Political Economy)
  • Becker, Gary S., and Julio Jorge Elías. 2007. “Introducing Incentives in the Market for Live and Cadaveric Organ Donations.” Journal of Economic Perspectives, 21(3): 3-24.
  • Buyx, Alena. “Blood Donation, Payment, and Non-Cash Incentives: Classical Questions Drawing Renewed Interest”, Transfus Med Hemother. Oct 2009; 36(5): 329–339
  • Byrne, Margaret and Thompson, Peter. “A positive analysis of financial incentives for cadaveric organ donation”, Journal of Health Economics. Jan2001, Vol. 20 Issue 1, p69-83. 15p.
  • Danovitch, Gabriel and Delmonico, Francis. “The prohibition of kidney sales and organ markets should remain”, Current Opinion in Organ Transplantation: August 2008 – Volume 13 – Issue 4 – p 386–394
  • FindLaw, “Can I Sell an Organ”, http://healthcare.findlaw.com/patient-rights/can-i-sell-an-organ.html
  • Kittur DS, Hogan MM, Thukral VK, et al “Incentives for organ donation?”, Lancet, 1991; 2:1441.1991;2:1441
  • Satel, Sally. “Death’s Waiting List”, http://www.nytimes.com/2006/05/15/opinion/15satel.html?_r=2&oref=slogin&
  • National Kidney Foundation. “ORGAN DONATION AND TRANSPLANTATION STATISTICS”, http://www.kidney.org/news/newsroom/factsheets/Organ-Donation-and-Transplantation-Stats
  • Organdonor.gov. “The Need Is Real: Data”, http://www.organdonor.gov/about/data.html

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