Friday, 5 November 2010

Health costs of tobacco

My critique of the Ministry of Health's tobacco cost figure is in today's Christchurch Press. For readers coming in from the Press, here's some of the supporting argument:
  • Kip Viscusi's work showing that smokers save the government money
  • Des O'Dea and George Thomson's report on the costs of smoking - the source of the $350 million figure. Their headline figure is much larger as it includes a lot of costs that smokers impose upon themselves, like their spending on tobacco products. That's not a cost to the health system, the taxpayer, or anyone other than the smoker. My critique of their report, in the New Zealand Medical Journal, is here.
  • I'd first noted the $1.9 billion tobacco cost figure here, then figured out its source, started worrying about the method given the RIS on the tobacco excise tax increase, got the workings by OIA, then first critiqued the workings here.
  • Hon. Tariana Turia's letter, cited in the Press piece, is reproduced here.

The piece from today's Press copied below. I suspect it puts me off MoH's Christmas Card list. I'm more of a Festivus guy anyway.

Politically convenient numbers

You could be forgiven for thinking that the health system could save $1.9 billion dollars if tobacco had never existed. That’s what the Ministry of Health says smoking costs the public health system. But, you’d be wrong. The Ministry’s latest estimate of the cost of smoking has nothing to do with the costs that smokers impose on taxpayers or the costs that could be avoided if smoking were to disappear. Rather, it’s a politically convenient number whose promotion has much to do with gaining voter support for anti-tobacco initiatives and nothing to do with real economic costs.

I was pretty surprised when this figure started being cited earlier this year. It was much higher than the previous estimate of $350 million dollars – a figure produced not by the Big Tobacco lobby but rather by Des O’Dea in a report commissioned by anti-tobacco crusaders Action on Smoking and Health. And so I was also pretty surprised that nobody seemed at all skeptical of the new figure. Here’s how they derived it, courtesy of an Official Information Act request and extensive correspondence with the Ministry. After sorting the population by age, gender, income, ethnicity and smoking status, they then compared the costs of providing health services to smokers as compared to non-smokers for each group. The excess costs of the smoking group were tallied up to produce the $1.9 billion figure. But there are two very big problems with this way of estimating costs.

It’s easiest to think of smoking as bringing forward a whole lot of end of life costs. Smokers die earlier than non-smokers. We know that. And the costs to the health budget of somebody who is dying are rather higher than the costs of somebody who is healthy. But everybody dies sometime and most of us will incur end of life costs that will be paid for by the public health system. Suppose that a smoker will die at age 65 and a non-smoker will die at 75. Comparing 65 year old smokers to 65 year old non-smokers and calling the difference the cost of smoking then rather biases upwards the measured costs of smoking; we ought to be comparing the health costs of a smoker dying at age 65 with the health costs of a non-smoker dying at age 75. And, perversely, the deadlier cigarettes are, the greater will be this bias. The younger smokers are when they die of smoking-related illnesses, the greater will be the measured cost difference between smokers and non-smokers because a smaller proportion of comparable non-smokers would be incurring end of life costs. The figures assume that in the absence of smoking, smokers would never have imposed end of life costs on the health system. But for their smoking, all smokers would have died of a sudden, and cheap, heart attack and would only have had average health costs up to that point. That’s clearly nonsense, but the $1.9 billion figure only makes sense if it’s true.

Further, we might well expect that there are differences between smokers and non-smokers beyond those accounted for by income, gender, ethnicity and age. Imagine a 45 year old white female of average income who happens also to be an active jogger, moderate drinker and health food enthusiast. Is she more or less likely to be a smoker than a 45 year old white female of average income who happens also to avoid the gym, drink too much and never touch a vegetable? On average, we’d expect that folks who are more health conscious on other margins are also less likely to smoke. But the Ministry’s method, which doesn’t correct for those other health related behaviours, necessarily lumps all of the differences between smokers and non-smokers into the cost of smoking rather than into the cost of having a generally unhealthy lifestyle that includes smoking. It’s only if smokers and non-smokers are otherwise identical, on average, in their health-related behaviors – after correcting for income, gender and ethnicity – that the Ministry’s figure holds up. But that’s also pretty clearly nonsense.

Worse, the Ministry of Health seems to know that the figure is nonsense. Writes Hon. Tariana Turia in correspondence, “[w]hile giving a good indication of what the current costs are of treating the health damage caused by smoking, this figure [$1.9 billion] has never been portrayed as a measure of what might be saved if compared to a world where smoking had been eradicated.” But that’s the only way of making sense of the number’s use in comparison to the aggregate tobacco excise tax take of roughly a billion dollars. Why would we even start comparing the costs of smoking as represented by the $1.9 billion figure with the excise tax take if we didn’t think that the figure represented some measure of the costs to the public purse that could be avoided in the absence of smoking? It’s troubling that the Ministry continues to promote the figure when it bears no relation to the costs that could be avoided in the absence of smoking.

There seems to be a hard core of staffers at the Ministry of Health who view the ends as justifying the means in the war against the sins of the flesh. Not content with haranguing smokers about their habit, they want to rally non-smokers against smokers by arguing that smokers cost non-smokers money through the tax system. I might be happy to live and let live (or otherwise) if a smoker does it in his own house and well away from me but less so if I think that every puff he takes costs me. Thankfully, every other estimate I’ve seen has smokers paying well in excess of what they cost the system. Concluded Des O’Dea in the report cited above, “[i]t appears certain that smokers contribute considerably more in taxes than the net ‘economic costs’ to the rest of the community caused by their smoking.” If smoking disappeared tomorrow, your taxes would have to go up to make up the difference. Thank the next smoker you meet for helping to keep your taxes down. And be as skeptical of numbers coming from the Ministry of Health as you would be of numbers produced by the tobacco industry. Neither is a disinterested party.


  1. Well done, a good article - but this does NOT count towards the feats of strength.


  2. Sound argument and very valid criticism of the Ministry of Health's well-intentioned bias. If I were someone who had worked in the Ministry's tobacco team, which I'm not saying I am, I might be in a position to confirm that there is an end-justifying-means approach to tobacco-control policy in New Zealand. But as I say, I can't comment ;-)

  3. @Dennis: Shooting fish in a barrel is never a feat of strength. But if they're rabid fish, somebody's got to do it.

    @Policy: Isn't there legislation protecting whistleblowers in NZ? Come out!

  4. The costs attributed to car accidents is the same. They quote the so called 'social cost' of deaths at around $2 million per head. And how do they get this? They survey people and ask how much they would be prepared to pay to not get killed. Or not have soemone in their family killed. BUT they dont have the $2 million. Its a complete crock. They use the huge figures to justify enormous expenditure on road safety ads. There are facts - and there is propoganda. Long live the State which knows better than all of us.

  5. @Anon: I'm less worried about that one. It's not crazily out of line with market-based estimates of the value of a statistical life - those tend to be around $7million in the US. I'm happy for that kind of number to be used as the cost imposed on folks who aren't at fault in an accident; I'm less happy about it being used as a measure of the cost of a drunk driver killing himself or of a speeder killing himself. In the latter cases, they assumed the risk voluntarily and must have enjoyed consumption benefits that offset the expected risk.

  6. Not to mention the costs to the taxpayer saved by smokers who die earlier than non-smokers. Thats 10 years or so of pension we're not having to fork out for, so thanks smokers for being good sports and giving up your life to help save our back pockets :)

  7. @Lats: The MoH figures were counting only the costs to Vote.Health. True that we would want those other bits in for a full "costs to the fisc" accounting, but that wasn't MoH's aim.