NCPA - National Center for Policy Analysis

The Medical Cost Savings Of Smoking

April 26, 1999

President Clinton claims that "smoking has cost taxpayers hundreds of billions of dollars under Medicare and other programs." So he has instructed the Justice Department to sue tobacco makers.

But recent studies challenge the assumption that smokers drive up the cost of health care. The reason is that on average their life expectancy is shorter -- leading to savings on health care they would otherwise impose.

  • Looking at medical expenses alone, Duke University economist W. Kip Viscusi reports that "the net externality cost at a 3 percent interest rate is -$0.53" per pack of cigarettes.
  • In other words, "smokers are already paying their own way in the sense that there is a net externality cost savings to society of their smoking because of the cost savings arising from their premature deaths."
  • In 1997, Viscusi estimated the average cost savings from smoking to be 32 cents per pack.
  • At the same time, excise levies average almost 53 cents per pack -- far more than any estimate of net social costs -- not even including the de facto tax hike imposed by the tobacco industry's settlement of state Medicaid lawsuits.

Viscusi's estimate is backed by a subsequent study published in the New England Journal of Medicine, which also concluded that smoking cuts overall health-care expenditures. "If people stopped smoking, there would be a savings in health-care costs, but only in the short term," the researchers wrote. "Eventually, smoking cessation would lead to increased health-care costs."

Attorney Robert Levy put the matter succinctly: "The public sector -- state and federal together -- has no claim for damages."

Source: Doug Bandow (Cato Institute), "Lying About the Public Good," Investor's Business Daily, April 26, 1999.


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