Private, public smoking costs

• Article
• Comments ()
• Click-2-Listen
• Videos

By

More ammunition for the antismoking crowd will soon be released in a new book from MIT Press titled "The Price of Smoking." According to prepublication reports, the authors -- Duke University economist Frank Sloan and four colleagues -- estimate 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 Mr. Sloan's work. Assuming the numbers are accurate, their principal utility is in helping private parties make rational choices, not in promoting yet another antitobacco 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 -- like 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. On private property, the owner should determine whether to admit smokers, nonsmokers, neither or both. Persons who object may go elsewhere.

To be sure, not all property is private. Government-owned property, for example, belongs to the taxpayers, most of whom are nonsmokers. They should not be required to leave their own property to escape offensive smoke, especially in locations that do not afford ready means of egress, like reading rooms in public libraries, waiting rooms in public hospitals and 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, or avail themselves of smoke-free areas. In other words, very little of Mr. Sloan's estimated $5.44 cost of secondhand smoke justifies additional antismoking regulations. Almost all that cost is easily avoidable.

The same is true for Mr. Sloan's other "social" costs, totaling $1.44 per pack. Basically, smokers can 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.

Thus, the remedy for tobacco-related costs that deplete Medicaid and Medicare coffers is to increase the "premiums" for smokers or reduce the benefits payable for their illnesses. Taxpayers have a right to demand responsible behavior from those who receive public benefits.

Moreover, there's another factor in the equation. It may sound ghoulish, but premature deaths from smoking can generate long-term external benefits of lower retirement and nursing home costs. Those benefits (less any payroll taxes otherwise paid by deceased or disabled smokers) are an offset to near-term medical outlays. "If anything," concludes Mr. Sloan, "Medicare should compensate smokers and tobacco companies, not the reverse."

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

In a nutshell, Mr. 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 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.

Robert A. Levy is senior fellow in constitutional studies at the Cato Institute and author of "Shakedown: How Corporations, Government, and Trial Lawyers Abuse the Judicial Process" (Cato Institute, Nov. 2004).