Saturday, 20 March 2010

Do smokers pay their way?

The Policy Exchange believes that even with tax on cigarettes being nearly £5 a pack, smokers are a drain on the economy. Let's see what other studies have concluded, shall we?

Lifetime Medical Costs of Obesity: Prevention No Cure for Increasing Health Expenditure, van Baal, 2008

Despite the higher annual costs of the obese and smoking cohorts, the healthy-living cohort incurs highest lifetime costs, due to its higher life expectancy, as shown in Table 1. Furthermore, the greatest differences in health-care costs are not caused by smoking- and obesity-related diseases, but by the other, unrelated, diseases that occur as life-years are gained (Table 1). Therefore, successful prevention of obesity and smoking would result in lower health-care costs in the short run (assuming no costs of prevention), but in the long run they would result in higher costs.

The Proposed Tobacco Settlement: Who Pays for the Health Costs of Smoking? Gravelle, 1998

A more complete accounting of the health costs of smoking not only increases the size of the costs, but also reallocates costs and implies net financial benefits for some parties. Governments save on the costs of old-age medical care, social security, and nursing home care due to the earlier death of smokers. (This result does not mean that it is desirable that people die early; it means that in determining financial cost, if that is the justification for a payment, a correct measure of the loss will only be calculated if these effects are included.) Smoking has apparently brought financial gain to both the federal and state governments, especially when tobacco taxes are taken into account. In general, smokers do not appear to currently impose net financial costs on the rest of society.

Net additional external costs borne by non-smokers worked out to $244 million for Canada in 1986. However, smokers are responsible for a much larger flow in the other direction. In the pension area alone, nonsmokers benefit from a transfer of $1.4 billion mainly because smokers tend to die before non-smokers do if we use risk coefficients established by the medical profession. Finally, the massive tax burden borne by smokers alone means that they account for a further transfer of close to $3.2 billion to the benefit of non-smokers.

The widespread belief that smokers do not pay their own way is the result of repeated assertions that are totally lacking in empirical support. There is simply no evidence that smokers impose costs on others by making more use of medical care than do nonsmokers.

The proper goal of tobacco taxation policy should be to recoup only the extra costs that smokers place on others (at most a $1/pack tax on cigarettes)
On balance, most studies find that smokers cost the government less in terms of health care outlays than the sum of what they save the government in unclaimed retirement benefits and pay the government in tobacco taxes at existing tax rates.
Although nonsmokers subsidize smokers' medical care and group life insurance, smokers subsidize nonsmokers' pensions and nursing home payments. On balance, smokers probably pay their way at the current level of excise taxes on cigarettes; but one may, nonetheless, wish to raise those taxes to reduce the number of adolescent smokers. In contrast, drinkers do not pay their way: current excise taxes on alcohol cover only about half the costs imposed on others.

The results imply that lifetime expenditure is higher for nonsmokers than for smokers because smokers' higher annual utilization rates are overcompensated for by nonsmokers' higher life expectancy. Population simulation, taking into account the effects of past smoking on present population size and composition, suggests that 1976 expenditure would have been the same if no male born since 1876 had ever smoked. The male population would have been larger, particularly at older ages, increasing medical care expenditure, but this increase would have been offset by lower annual medical care utilization rates. Thus the results imply that smoking does not increase medical care expenditure and, therefore, reducing smoking is unlikely to decrease it.

Bear in mind that since many of these studies were conducted, tobacco taxes have risen substantially and, therefore, the government's net profit from smokers has increased further.

The Policy Exchange also reckons that smokers are absent from work more often than nonsmokers, but that's not what this study found...

Do smoking, body mass and exercise affect sickness absence and job satisfaction?, Critchley (2006)

There was no difference in sickness absence between smokers and non smokers, however there was an increase in sickness absence with increasing Body Mass Index (BMI) (correlation coefficient 10.9 %-p=0.005) and perhaps surprisingly there was an increase in sickness absence with increasing exercise participation (correlation coefficient 7.7% p=0.045).

So what do we do? Tax people who take exercise?

Thanks to Klaus K.


A couple more...

Results: Health care costs for smokers at a given age are as much as 40 percent higher than those for nonsmokers, but in a population in which no one smoked the costs would be 7 percent higher among men and 4 percent higher among women than the costs in the current mixed population of smokers and nonsmokers. 

Conclusions: If people stopped smoking, there would be a savings in health care costs, but only in the short term. Eventually, smoking cessation would lead to increased health care costs.

The study found that although annual health-care costs are highest for obese people earlier in life (until age 56 years), and are highest for smokers at older ages, the ultimate lifetime costs are highest for the healthy (nonsmoking, nonobese) people.

Thanks to Dave A for spotting these.


DaveA said...

On the money again CS. There of course are these 2 studies, one American and the other Dutch.

"Conclusions If people stopped smoking, there would be a savings in health care costs, but only in the short term. Eventually, smoking cessation would lead to increased health care costs."

"Dutch researchers have confirmed what fat smokers have waited years to hear - that healthy people are actually a greater burden on the state, because they live longer and oblige the taxpayer to deal with the cost of "lingering diseases of old age like Alzheimer’s and Parkinson’s".

That's according to the Netherlands’ National Institute for Public Health and Environment, which found that while "a person of normal weight costs on average £210,000 over their lifetime", a smoker clocks up just £165,000 and the obese run up an average £187,000 bill.

The team's findings, published in the Public Library of Science (PLoS), are based on modelling "three hypothetical populations from the age of 20, to see how much they would cost in medical bills throughout the different stages of their lives",

Witterings From Witney said...

As MW pointed out a few days ago, CS, us smokers die earlier thus saving shed loads of money in health care costs and pensions.

As ever, an excellent post on your part CS.

Moriquendi said...

Do these studies take into account the full gamut of smoking-related costs to the infrastructure? Most of them pertain to simply lung cancer and a few other respiratory diseases, but neglect strokes, long-term asthma, infertility (and its acompanying long term treatment), miscarriages, childhood asthma, bowel cancer, adult amputation (and it's long term cost in infrastructure) (amongst others) and all second-hand environmental health effects. Sick-days are also unaccounted for, as quite rightly one cannot say with any confidence whether a specific day is lost to the economy through smoking, but one can reasonably assume that in the general picture, a significant amount of them will be so.

Then there are house fire deaths, which bear a cost for health, emergency services and legal investigation, the vast majority of which are smoking related. Road deaths caused by the act of igniting, smoking and extinguishing cigarettes are a factor too. More disturbing to me is the relatively low increase in tax on cigarettes compared to the alarming rise of the cost of healthcare, which renders the pre-2000 studies as pretty much obsolete.

Also, to make the leap from 'smoking keeps you thin' to ' all fat people are non smokers so the health burden of all fat people must be weighed in on the non-smoking side' is utterly ridiculous, for obvious reasons.

And, lurking behind all this is the idea that the cost of a long life can be unfavourably compared to an early death from smoking; a great example of where desperate scrabbling for supporting statistics can land you. If early death from smoking is a positive, then to extrapolate this view, then surely the earlier the death, the better. The absolute ideal outcome would, in fact, be for humans to either do the decent thing and die after reproducing and working their lowest-paid years or, to cut out the paperwork, never exist at all.

Snowdon said...


The studies generally take the total health care costs from all smoking-related diseases, including SHS. The most quoted studies (ie. NOT those above) include all sort of other costs which are private costs (eg. sick days, smoking breaks, house fires), internalities (eg. private medical costs, lost earnings), or intangible (emotional costs, years of life lost). The taxpayer pays for none of these so it is only the public costs (health care, police, fire brigade) that need to be considered in the context of sin taxes and 'paying their way'.

Whether the cause of death is lung cancer, CVD, stroke or whatever, the key question is whether these diseases are more expensive to treat that the diseases smokers would have died of had they not smoked. The answer is no, and the savings in pensions, prescriptions, nursing care, operations etc. outweigh any extra costs of smoking during a smoker's working life. The Baal study does a good job of explaining this 'substitute disease' effect. Many of the cost studies that are commonly cited are just that - cost studies. What policy makers need are cost-benefit studies, which are listed above.

No studies assume that "all fat people are nonsmokers". I'm not sure where you got that from, nor do I know why you think tobacco taxes have been relatively low since 2000. They have continued to rise and are far outweigh even the highest estimates of smoking-related costs to the treasury.

Your last paragraph is technically correct. The cost-effective age of death is 65. Therefore it should be obvious that it costs for state more if people die at 70 than at 80. No one is suggesting that smoking be encouraged to save the taxpayer money. What the studies are saying is that the argument that reducing smoking (or obesity, or - probably - drinking) will save the taxpayer money is ill-founded.