Smoking decreases health costs to society

The academic literature generally concludes that smoking reduces health costs to society. This is in stark contrast to commonly held beliefs about the health care costs borne by society from vices such as smoking, alcohol consumption and fatty foods (which are the target of future regulations).

In fact I will argue that as a society we would be better off if more people would take health risks, and it would be a simple solution to the aged care burden many fear will occur when the baby boomers retire.

The following academic results are typical (my emphasis).

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. If all smokers quit, health care costs would be lower at first, but after 15 years they would become higher than at present. In the long term, complete smoking cessation would produce a net increase in health care costs, but it could still be seen as economically favorable under reasonable assumptions of discount rate and evaluation period.(here)

Until age 56 y, annual health expenditure was highest for obese people. At older ages, smokers incurred higher costs. Because of differences in life expectancy, however, lifetime health expenditure was highest among healthy-living people and lowest for smokers. Obese individuals held an intermediate position.(here)

As I have said repeatedly –

My core argument in this field has been that increasing preventative health care, while having the benefits of a healthier and long life, often come at increased total lifetime health costs, rather than decreased costs as is often proposed. Remember, we all die some day, and any potential cause of death postponed will allow another to take its place, which of course has its own health costs. Alternatively, a more healthy existence may make us more productive for longer and lead to us contributing more in taxes over our lifetime than the potential increase in health costs which were paid through the tax system for our preventative care.

Governments, and subsequently economists, worry about these things because many health care costs are borne by others though tax revenue, yet the net economic effect is anything but straightforward.

To understand the health costs borne by others, it is necessary to determine whether the unhealthy vice decreases your lifetime tax contribution to health costs (due to illness) by more, or less, than the decrease in your lifetime health costs themselves (due to an early death).

I argue that most unhealthy vices provide a net benefit to society in terms - they reduce health costs by more than the reduction in tax contributions to health care which may occur due to illness.

The reason is simple. Most of the serious health problems associated with drinking, smoking and obesity take a long time to present. A smoker whose habit had no impact on their lifetime employment, but dies as a result of lung cancer upon retirement at age 65, has still contributed all his lifetime tax to society, including plenty of taxes on tobacco itself, but avoided ongoing health costs from ageing, and costs of the pension.

It sounds cruel, but it is true. The rest of us are better off if people die soon after they retire (unfortunately they are not). The costs of these health vices are therefore borne directly by the people who partake in them, to the benefit of those who choose not to. Perhaps an alcohol and tobacco subsidy is in order?

The only situation where  relatively healthy people are worse off is if the illness resulting from the vice occurs early in life and is a barrier to employment. In this case the vice would result in a massive reduction in their contribution to social health care, while the rest of society is left supporting the person’s medical costs and welfare costs.

The academic literature seems to suggest that this situation is relatively uncommon.

We can see then that the aged care burden we face is a result of people living healthier and longer lives, especially in the period after retirement. It is not the result of a lifetime of unhealthy consumption habits, which actually have a net effect of reducing the health care burden to society.

As a final note, the amazing gap between academic understanding, public perception, and political ramblings, suggest that taxes on tobacco and alcohol are more about raising revenue than reducing society wide health care costs. The counterintuitive nature these academic conclusions make them easy isolate from policy discussions, allowing politicians to keep any debate at the most superficial level.

*I am not a smoker, but am an occasional drinker, and generally want to live a long time - so I selfishly choose to stay as healthy as I can.