• The cost of smoking

    I talked with a reporter last week who asked me a simple question:

    • do smokers actually save society money because they die sooner?

    The short answer is no, smoking imposes large costs on society. However, as I talked with the reporter, I realized that he had many questions underneath this simple one, that not only related to aggregate or net costs (social cost), but to the distribution of costs (who bears the burden).

    I am going to do a series of posts looking at the cost of smoking to society, based on a book that I wrote with Frank Sloan and others (The Price of Smoking, MIT Press, 2004). Our book provides a comprehensive life cycle estimate of the social cost of smoking. This was done by taking the present value of the life cycle stream of private, external, and quasi-external costs for a 24 year old smoker (all costs shown in 2000 dollars). Using many sources of data, we created smoking life tables, and also provide a detailed accounting not only of net costs, but of various cross subsidies that exist. The NPV social cost of a 24 year old smoker was around $220,000 for men, and $106,000 for women. Our calculations account for the purchase cost of cigarettes as well as excise taxes paid. The bottom line of $171,000 shown below is a mean social cost of smoking for a 24 year old smoker, weighted by gender (table 11.4 of the book (p. 257):

    We further estimated that the social cost of smoking in 2000 was around $40/pack of cigarettes, distributed as follows:

    • $33 private cost: borne by the individual, primarily through a substantially shortened lifespan
    • $5.50 quasi-external cost: borne by the smokers’ family through increased health costs, slightly lower wages and other factors
    • $1.50 external cost: borne by society, and representing the net effect of things like taxes paid, Medicaid and Medicare payments, and Social Security received

    Our estimates show that smoking imposes very large social costs. It is true that a large proportion of the costs are borne by the smoker themselves (what we called private costs), which could lead someone to think that this is mostly a private decision and not a matter of public policy. However, there are other costs, some borne by a smoker’s family (we called them quasi-external costs), including children, and others borne by society as a whole (external cost). And the relatively small magnitude of external costs as compared to private ones obscures the sheer size of the external costs of smoking. Our estimates imply a total external cost of a cohort of 24 year old smokers at $35 Billion over their lifetime ($7 Billion for external, plus $28 Billion for quasi-external). Note that this is an incidence cost, so for each cohort (the next year of smokers and so on) there is another $35 Billion in external costs imposed by smoking.

    For the remainder of the series, I am going to delve more deeply into what we measured (and didn’t measure) to estimate private costs, quasi-external costs, and external costs. I will also identify cross-subsidies of one program versus another that may be of more interest to some than even the net, or the social cost. Finally, I will describe how our book can and cannot be used to answer direct policy questions like ‘should a given state charge smokers a higher cost share in Medicaid?’ Or, ‘should cigarette excise taxes be raised?’

    Other Posts in this series addressed the components of the social cost of smoking:

    Full citation: Frank A. Sloan, Jan Ostermann, Gabriel Picone, Christopher Conover and Donald H. Taylor, Jr. The Price of Smoking. MIT Press: 2004. The Price of Smoking is available as an ebook.

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    • Our estimates imply a total external cost of a cohort of 24 year old smokers at $35 Billion over their lifetime ($7 Billion for external, plus $28 Billion for quasi-external).

      What’s this figure as a percentage delta from non-smokers? Are we talking about smokers incurring 10% more external lifetime costs than a nonsmoker? 1% more? 0.1% more?

    • @ Mark N
      this is a good question. Not sure of answer off top of my head (been awhile, just digging back into all this). I will likely fold into future post(s).

    • What about the costs of the “extremely healthy”e.g. cyclists- but i would guess average health expenditures for these individuals would far outweigh that of a social smoker.

      • I would guess that this is not the case at all. Bicycle deaths are in the hundreds each year, and 80% of those are bicyclists who are riding unsafely (no helmet, running red lights, etc)

        The average cyclist, or enthusiast who rides regularly for health is very safety conscious.

        Smoking kills hundreds of thousand of Americans every year. I don’t know how many of those were only social smokers, but I bet the number is quite a bit higher than a few hundred, since even one cigarette can induce a heart attack. And social smoking commonly leads to heavy smoking, so you have to factor the risk of addiction in to social smoking.

        Plus, exercise extends people’s lives. Social smoking and the resulting second hand smoke can only reduce life span.

        So I am not sure what your point is – smoking is obviously dangerous while cycling is beneficial.

    • Save Social Security; start smoking.
      Lung cancer from smoking most often occurs after the victims most productive years. There are few effective treatment and death is within 3 to 5 years thereby avoiding an additional 25 years of medicare costs.
      Think about it. What is the real cost of smoking?

    • @Dave
      smokers do cross-subsidize non smokers in Soc Sec even accounting for the effect of early mortality on spousal benefits. This is one of the issues I will get into in later posts on the external costs of smoking. There is a new post today on the private cost of smoking. http://theincidentaleconomist.com/wordpress/the-cost-of-smoking-ii-private-cost/

    • Looking at the “Private Cost” line in that table, I did some simpleminded arithmetic. With a Mean Cost /smoker of $141,181 and a cost/pack of $32.78, I arrive at a total of just over 4300 packs. At 1 pack/day that works out to about 11 years. Something about this does not seem right. Are you saying that a 24-yo who smokes until (s)he’s 35 will ultimately incur a $140K loss through reduced life expectancy?

    • The $40 figure is stunning, and it’s in year 2000 dollars. Adjusting for CPI inflation that’s $50.13 in 2010 dollars!

      Calculator at:

      http://www.westegg.com/inflation/

    • I believe your article is seriously flawed. In your article you are basing the cost per one 24 year old smoker and the cost comparative of healthcare and taxes. If you were to base the total number of smokers and the cost comparitive the the figures are upside down. Lets say 20% of the US population smokes. Based on the 2010 census this would be 20,000,000. If each smoker purchased 1 pack per day at a 1 dollar per pack tax, this would be 20,000,000 a day in taxes. Then if you times that number by 365 days you get 7,300,000,000. Now based on medical figures a smokers life expectancy is reduced by 13 years. If the average life expectancy for a male is 76, that would be death would be at 63. Now if you multiply the number of smokers times the tax per pack times the number of years lived as a group, a male smoker has 1,149,750 for medical costs. I would think that would be enough to cover his medical costs.

    • I’m very surprised that the prices are higher for men than women, mostly because I think of mother’s who smoke and the impact it has on children. I have moms smoking and getting into a van with the kids, windows up, and it is just devastating to me thinking of the impact this has on the kids. Also working in the percentage of money that is invested per sex would be interesting considering the women are likely paying a higher percentage of what they make based on the lower average income, perhaps folding public assistance numbers in?

      On a whole different topic, I’d be interested in seeing a workup like this about eating fast food. Financial consequences of society in particular that come from the subsidies that keep the food affordable.

      Thanks for the information!