Smokers Already Are Paying a High Cost for Their Habit

November 13, 2004 • Commentary
This article originally appeared in the Chicago Sun‐​Times on November 13, 2004.

More ammunition for the anti‐​smoking crowd will soon be released in a new book The Price of Smoking (MIT Press). According to pre‐​publication reports, the authors — Duke University economist Frank Sloan and four colleagues — estimate the actual costs of smoking at nearly $40 per pack. That includes roughly $33 for reduced life expectancy and tobacco‐​related disabilities; $5.44 for the costs of secondhand smoke, and $1.44 for pooled‐​risk programs like Medicare, Medicaid, group life insurance and sick leave.

Regrettably, the data will be exploited by zealots to stop the rest of us from making our own decisions about cigarettes. That’s why it’s important to understand the $40 cost and the public policy implications of Sloan’s work. Assuming the numbers are accurate, their principal utility lies in helping private parties make rational choices, not in promoting yet another anti‐​tobacco crusade. So let’s dissect the data.

For starters, the authors properly distinguish between $33 of costs incurred by each smoker, which can be averted by not smoking, and around $7 of costs imposed by smokers on others, which economists call ”externalities.” This distinction is crucial: With respect to the $33 component, decisions about smoking are voluntary, private matters. We do not need government making those decisions for us.

Externalized costs are different. Consider secondhand smoke. Some nonsmokers have illnesses — such as asthma or bronchitis — that are exacerbated by secondhand smoke. Still, those nonsmokers have an obvious remedy: Do not hang around places where smokers light up.

Taxpayers, most of whom are nonsmokers, should not be required to leave government‐​owned property to escape offensive smoke, especially in locations that do not afford ready means of egress, like elevators in government office buildings. But at locations that are not particularly confining, like public beaches, visitors can steer clear of smoke by taking a step or two away. In other words, very little of Sloan’s estimated $5.44 cost of secondhand smoke justifies additional anti‐​smoking regulations.

The same is true for Sloan’s other ”social” costs, totaling $1.44 per pack. Basically, smokers are able to impose social costs upon nonsmokers because the government has decided, first, to insure the health costs of low‐​income and elderly persons and, second, to fund the insurance in a manner that does not distinguish between high‐​risk smokers and lower‐​risk nonsmokers. If insurance premiums fully reflected the health risk implicit in each policyholder’s smoking habits, there would be no costs transferred from smokers as a group to nonsmokers as a group.

Moreover, there’s another factor in the equation. It may sound ghoulish, but premature deaths from smoking can generate long‐​term external benefits in the form of lower retirement and nursing home costs.

The other major pooled‐​risk programs are group life insurance and sick leave. In providing those benefits, some employers may have decided that discrimination between smokers and nonsmokers isn’t cost‐​effective, or perhaps employers fear litigation, or they’re constrained by labor contracts. In any event, the externalized costs of pooled insurance and sick leave are not very large, and the remedy, if one is needed, is to remove legal and contractual prohibitions on discrimination against smokers.

In a nutshell, then, Sloan and his colleagues have identified three types of costs: Private internalized costs can be eliminated by choosing not to smoke. Externalized costs of secondhand smoke can mostly be redressed by recognizing private property rights and providing for smoke‐​free areas on government property. Externalized costs of pooled risk programs can be remedied by permitting rational discrimination against smokers who impose those costs.

Yes, there may be some residual cost for which smokers should be accountable. But don’t forget that state and federal excise taxes already yield revenues of 76 cents per pack and smokers have been socked with a quarter‐​trillion‐​dollar cost payable to state governments under the terms of the Master Settlement Agreement. In short, smokers more than pay their way.

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