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The Proposed Tobacco Settlement: Who Pays for the Health Costs of Smoking?

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Publication Date: April 1998

Publisher(s): Library of Congress. Congressional Research Service

Topic: Health (Health care financing)

Abstract:

One of the issues raised in the consideration of the proposed tobacco settlement is the compensation of various parties that might pursue lawsuits to recover the health costs of smoking. These parties include states, tentatively allocated $5 billion per year in the agreement reached in June 1997, and individuals. Popular estimates of the annual medical costs of smoking range around $50 billion, with the states accounting for slightly under $4 billion, individuals about $10 billion and the remainder paid for by the federal government and private entities. Some recent estimates have reported higher costs. A more complete accounting of the health costs of smoking not only increases the size of the costs, but also reallocates costs -- and implies net financial benefits for some parties. Governments save on the costs of old-age medical care, social security, and nursing home care due to the earlier death of smokers. (This result does not mean that it is desirable that people die early; it means that in determining financial cost, if that is the justification for a payment, a correct measure of the loss will only be calculated if these effects are included.) Smoking has apparently brought financial gain to both the federal and state governments, especially when tobacco taxes are taken into account. In general, smokers do not appear to currently impose net financial costs on the rest of society. The tobacco settlement will increase the transfer of resources from the smoking to the nonsmoking public. (This report will be updated periodically.)

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