Smoking over a lifecycle

One of the more interesting discussions of the costs of cigarette smoking is Frank A. Sloan, Jan Ostermann, Gabriel Picone, Christopher Conover & Donald H. Taylor, The Price of Smoking, The MIT Press, Cambridge, Mass, 2004.

This provides a provocative new view of what matters and what doesn't in considering these costs. The study emphasises the huge private costs associated with increased mortality and passive smoking costs for spouses. It deemphasises the role of (conventionally defined) external costs and disability costs.

The Sloan et al (SEA) team provide a remarkable picture of the social costs of smoking in the United States over a smoker’s lifetime. The costs are split into external costs (costs a smoker imposes on society), quasi-external costs (costs imposed on the smoker’s family) and internal costs (costs the smoker bears themselves). The focus is on the lifetime costs a 24 year old man or woman imposes - a ‘longitudinal’ rather than a ‘prevalence’ or cross-sectional approach.

In summary, they find that a 24 year old who smokes incurs about $141,181 (discount rate of 3%) supporting his or her habit which is equivalent to a cost per pack of cigarettes of nearly $33 dollars. The cost was $182,860 for men and $86,236 for women. External costs per pack are $1-44 (quasi-external costs excluded) and $6-88 (quasi-external costs included). These costs are lower than those determined in cross-sectional studies.

The $33 private cost of a packet of cigarettes comprised a $3-12 cost of the cigarettes themselves, a $20-28 mortality cost (a year lost was valued at $100,000) and a surprisingly low disability cost of $3-44. There were medical, social security and pension costs and a subsidy from life insurance.

The quasi-external costs of smoking per packet were a very significant $5-44 comprising mainly an average $5-20 spouse mortality cost.

The external costs per packet were a relatively low $1-44 so that excluding spousal costs suggests taxes on cigarettes are about right but including them suggests they are too low.

Among the interesting findings:

1. Mortality. The authors start off sceptical of claims that 400,000 Americans die of smoking-related causes each year. They ended up computing the actual number of deaths at 422,000 which was greater than earlier estimates. A woman who starts smoking at age 24 loses 2.4 years of life while a man loses 4.4 years of life. These figures are much lower than the differences between life expectancies at age 24 for smokers and non-smokers. For women this difference is 6 years whereas for men it is 9.1 years. The reason for the difference in results is that smokers tend to be more poorly educated than non-smokers; they drink more and have a greater acceptance of risk. Thus it is crucial to compare the mortality of actual smokers with what they would have experienced had they not smoked – SEA refers to the latter5 group as ‘non-smoking smokers’.

On the other hand, accounting for all these other factors still leaves smoking-attributable mortality very high. Accounting for characteristics of smokers does not change this basic story.

2. Outlays for personal health care. Impacts of smoking on all health care costs are assessed for adults in the age groups 24-50, 51-64 and 64+. Over the life cycle men incurred increased health costs of $2600 while women incurred $3800 in the 24-50 age range. Increased expenditures after age 50 were more than offset by lower survival of smokers beyond mid life.

3. Social security. Smoking reduces income earned over the lifecycle and reduces lifespan. Thus less money is paid via taxes into the social security coffers but benefits withdrawn towards the end of life are reduced by increased mortality and reduced contributions but increased by earlier claims based on increased likelihood of disability. Among the various effects here the main effect turns out to be the increased mortality of smokers which means that 24 year old male smokers lose $6549 in social security benefits while females lose $1519. It is important to point this out to smokers since it provides another mechanism by which they lose from smoking. On the other hand it reduces the claim by public agencies that they are out-of-pocket because of smoking. Here smokers subsidise non-smokers. The findings also mean that reducing the incidence of smoking will substantially increase aggregate social security costs.

4. Private pensions. SEA points out that a comparable finding to 3 holds for private pensions. Reducing smoking will reduce the value of private pensions to non-smokers and reduce the market value of pension schemes because of increased liabilities from the reduced mortality.

5. Life insurance. Life insurance companies will make increased payouts for smokers though it might be difficult to determine a person’s smoking status. A recent quitter would provide an increased mortality risk but could describe themselves as a ‘never smoker’. It turns out that there is a large subsidy paid by non-smokers to smokers who are not charged an actuarially fair premium. For a 24 year old male the subsidy by non-smokers is worth $12,013 while for women it is worth $2019. This subsidy promotes a dangerous activity and can only be eliminated by requiring insurers to pay a specific surcharge to smokers.

6. Morbidity and disability. These are some of the most interesting of the SEA findings. It is known that smoking causes increased mortality. What are its effects in promoting ‘unsuccessful aging’ and disability? SEA estimate that in 1998 4.6 million Americans aged 24+ were in fair or poor health because of smoking. Of these 2.1 million had emphysema – the probability of contracting this disease for current smokers is 20X that for never smokers. At all ages smokers self-report a higher incidence of being in ‘fair or poor health’ than do non-smokers. The effects on time spent in ill health due to smoking however were surprisingly low on average. A man aged 24 dies much earlier if they smoke but the period they spend in ‘fair or poor’ health is only increased by about 11 months. For women the figure is around 15 months. For specific diseases such as emphysema the effects are more pronounced but the prevalence of these diseases was not high enough to alter the average. Smoking kills but it does not extent life with major disabilities.

7. Passive smoking. SEA provide an excellent survey of the costs of various smoking externalities. Sidestream smoke is the smoke emitted from a smouldering cigarette whereas mainstream smoke is the smoke inhaled and exhaled by a smoker. Environmental tobacco smoke (ETS) is 85% sidestream and 15% mainstream. Sidestream smoke is more dangerous partly because it is unfiltered. ETS promotes cancer and heart disease in non-smokers and has numerous harmful effects on young children. SEA perform a spouse study on the effects of ETS and define ETS simply bas being married to a smoker. They found significant passive smoking costs though much lower than the costs a smoker imposes on themselves – about 8X the mortality damage accrues to the smoker than their spouse. Attaching values to these costs and to induced disability costs shows that these impacts are much greater than the effects of smoking on health service costs.

8. Summary points. The external costs of smoking are relatively minor – certainly much lower than the private costs. However spousal costs of passive smoking were high and exceeded US tax receipts from smoking. An interesting conclusion was that smoking shortens your life but does not greatly increase the time you are disable – it does however bring that period forward. Mortality costs are the major component of overall costs and they are particularly high for young men.