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What about the loss of healthy life span? That has social and economic costs.

Andrew F - "What about the loss of healthy life span?"

This argument, I think, falls under 3 - unhealthy behaviours make people unhappy, because of the associated loss of healthy life span.

I try to exercise regularly/eat well because it makes me feel good. This is sensible. Rational even.

But the healthy behaviour that gives me immediate pleasure - exercise induced endorphin highs etc - might cost society as a whole in terms of higher health care costs in the long-term. Or not. It depends whether I die expensively or cheaply.

Great post! This thought had never occurred to me, and yet it is so logical!

My only thought is that living longer increases the odds of a sudden, accidental death—but these are a very small number of overall deaths. And of course, it's also an empirical question that needs answering.

Recently my mother has had a series of nurses coming out for management of just-diagnosed diabetes. (U.S.) Of course we got all the usual recommendations, but the one Mom had trouble with: testing with (those very expensive) blood test strips. Mom could not figure out how to poke her finger all that well, nor did she want to, and all I could see were taxpayer dollars going up in smoke with every test strip. Today, as kindly as possible, we agreed to call it a day with the nurses. I explained to them that the real 'battle' to be fought was making sure Mom ate as healthy as possible, and of course Dad feels the same way. They must have thought I was terrible. But then they're not the ones who spend hours a day with the core battle: five fruits and vegetables a day, instead of only sugar snacks.

The main costs occur at the ned of life. Good management postpone but do not reduces those costs.
One of my aunt had a hip replacement a week before she died ( and no the operating shock didn't cause the death.) But she was on the list.

Daniel - thanks.

Becky - ouch, thank goodness she has you and your Dad, and you two have each other.

There was a really interesting article in the NY Times recently on the insanity of a Medicare system that will pay for an Alzheimer's patient's "medical needs", e.g. treatment for cancer or heart disease or acute infections - even though these treatments provide minimal benefits in terms of increasing the number of quality-adjusted life years she is likely to live - but doesn't pay for that same patient's long term care needs. Until she has run through all of her assets and is eligible for Medicaid. (So you have this strange phenomenon of medically-induced divorce, so in your situation your parents would divorce, your Mom would run down her assets until she qualified for Medicaid, and then your Dad would have some left over). It's enough to make you take up smoking!

And like Becky's mother ,I can't fing enough blood to test myself 4 times daily. So, I manga my diet and the glyco hemo comes fine every 6 months...

Jacques Rene - I don't begrudge your aunt that hip, though, hip replacements really do improve people's quality of life. But your anecdote does illustrate the ways in which some costs are overlooked. E.g. the cost to her of waiting=(quality of life with hip-quality of life without new hip)*waiting time - probably not a trivial amount.

Frances, thanks for your thoughtful comments. I have put up some more verbiage on the issue here:

Smoking, health care costs, and imprisoning drug users because they cost us money to imprison.

which touches a little on some of your considerations. I don't know about policy makers, but public health academics who reject what they refer to as the "net cost argument" fall into explanation 3---they refuse to countenance the argument that dying early could reduce demand on the health care system because that implies, they think, it's a good thing to die early, and they think calculating net instead of gross costs will reduce public support for tobacco policies.

Diseases are so different in the kinds of demands they make on economic systems, it's almost like everything you think you know about money and healthcare gets thrown out the window as you get older. And I have heard stories about people who divorced to get better access to Medicare, that is really sad. One thing I share with my parents is the desire to stay away from the doctor's office as much as possible. My Dad never signed up for Medicare when he was young and the times he's had to go to the doctor he really gets hit in the pocketbook. But there are more doctors in the U.S. now who are going to a far less expensive cash-only basis. I hope I can find some of those when the time comes.

Let's consider another example:

Policy option A: Kill all green-eyed children at age five, and save on their health care costs for the next 75 years or so.
Policy option B: Don't kill all green-eyed children at age five, and let them live fulfilling lives for the next 75 years or so.

Chris, interesting. In the post you link to, you write: "Notice that if health care were privately funded, this externality would go away: if I choose to increase my health care costs by smoking (or perhaps by not smoking), I have to pay those extra costs."

I'm not sure this is true. With private health insurance, if I do something that raises the cost of providing my health care --but which is not readily detectable by the insurance company - then part of those increased costs will be paid by other users in the form of higher insurance premiums. Conversely, with private health insurance, my decision to floss regularly reduces everyone else's expected insurance premiums. (Because realistically insurers cannot enforce flossing requirements).

It's a matter of insurance, not a matter of public/private finance.

You also wrote: "I am unaware of a literature on the issue of control of externalities which exist only in the presence of government programs. Anyone know of relevant stuff?"

I'm thinking of debates about the introduction of seat belt and similar safety legislation in Canada, and also the British welfare state literature, but nothing is coming to mind. I'm sure it's been discussed though.

Becky - it is really fascinating to compare US and UK protocols/frequency of treatment for all sorts of things e.g. pap smears, PSA tests, mammograms, c-section deliveries etc etc. Either people in the US are being way over-treated, or people in the UK are being way under-treated, or both.

Econometrician - take a look at the post that Chris Auld links to in his comments, you'll find that Chris explicitly addresses this point.

Remember The Smiths?

She said:
I smoke 'cause I'm hoping for an early death
And I need to cling to something...

There's a world of difference between saying "Kill all green eyed children" and saying "if you want to smoke, that's your business, just don't inflict harm on me or my kids."

Sure smoking may reduce smokers' life expectancy - but that's their choice.

Alleging - without doing some serious searching for evidence - that their choices impose financial costs on others is bad economics - and bad moral reasoning.

In fact when you take into account the tobacco taxes paid by smokers, as well as the savings from not paying smokers OAS and QPP/CPP, the only puzzle is why the government isn't actively promoting smoking. (Ian Irvine at Concordia has done some interesting work on this, other people doing work on smoking are Anindya Sen at Waterloo and Kit Carpenter together with my some time co-author Casey Warman.


What is it with economics and the love of counter-intuitive conclusions?

A longer life generally means a longer *taxable* life so it's not a total loss. Further, smoking is not just a cause of lung cancer, it a cause of a whole host of things like emphysema, throat and tongue cancers, heart attacks, you name it.

What's so hard to understand that smoking is a very strong health detriment, that at any given age the ability of the body to heal and survive is increased and that medical intervention in a non-smoker is generally less risky, less invasive and has better outcomes and therefore generally cheaper?

I believe economists are falling victim to utilitarianism run amok.

And on the strip racket: I've had Type I Diabetes since I was two and I currently test four times a day, more if I feel hypoglycemic or eat something off-meal. I use a high lancer setting.

The best poking positions are 10 o'clock and 2 o'clock on your finger, on the same angle as your your nail corners to the centre of the hand. This is where the capillaries are and where you will strike a gusher.

Strips run about a dollar each, it really is a racket. The glucometer manufacturers will give you a free meter if you send in ten strip box tops or something. The money is the strips.

In 1990 or so I was in a test for a bloodless glucometer that used a laser, no lancets, no strips. I was eight years old. I was eager as anything to get it but it didn't get past the prototype stage. Biggest cry ever.

Oh well, on the plus side there is research on a genuine Type I Diabetes cure at Massachusetts General Hospital that will enter the Stage 2 Testing phase (make or break time, if it passes it is clinically efficacious) next year. Best of all it uses a generic drug, just in a decidedly innovative and off-label way. I often say that if it works the provincial Ministers of Health should fall all over themselves to spend the $100 on a dose to get rid of all the Type I Diabetics. Sorry, Type 2 Diabetics are not in line, Type 2 is a different disease under the hood.

To give credit to the researchers and to Banting & Co. in 1922, it took all this time for us to get a handle on the genetics, DNA-level chemistry and develop the computers to get a good handle on the cellular biology of Type I Diabetes. Looking back, Banting & Co. were brilliant but they were really taking a shot in the dark and got lucky.

Forwarding the excellent comment of miles123 at theglobeandmail.com, Chris Auld's study does not take the time value of money or the loss of productivity and tax/premium contributions into account.

A $10K treatment paid for at 80 years is cheaper than the same treatment paid for at 60 years for both those reasons.

On an empirical note, health insurers in the United States who take both of those facts into account, the fact that they save money if treatment is deferred and gain money if their client contributes longer, charge smokers higher premiums for health insurance. In fact it is exactly why American health insurers charge smokers higher premiums.

Nice argument Chris but there is this unfortunate reality that undermines your thesis.

Second, the NHS in the UK is the least expensive comprehensive health system in the industrialized world, only consuming 7% of GDP. Canada pays 9%, the US 14%. Given the abundance of MRI machines in the US compared to Canada, for example, the US is overtreating in some areas and the US is either the best model of an efficient national health system or is mildly undertreating its citizens. British life expectancy is shorter than Canada's but higher than the American one so this may be the case.

Determinant: "On an empirical note, health insurers in the United States who take both of those facts into account, the fact that they save money if treatment is deferred and gain money if their client contributes longer"

Remember that health insurers in the US only have to cover care until age 65 at max - so have a strong interest in deferring health care costs until that point. It's like my point (5) above, except that any costs incurred after 65 are valued at zero from a private insurer's point of view.

Note, too, that Chris isn't saying that smokers cost less money. Chris is only saying that it's possible that they might - basically it's an empirical question, the answer to which depends upon, for example, the growth rate in the cost of medical treatment, and the discount rate.

Also the cost of smoking versus not smoking will depend upon the nature of medical technology. E.g. in a world where most heart attacks are untreatable and fatal, smokers might be cheaper than non-smokers. In a world where heart problems can be treated with surgery costing tens or hundreds of thousands of dollars, smokers might be more expensive than non-smokers.

(As an aside: I was discussing the relatively high rate of smoking in Beijing with a student, and we concluded "the air is so polluted there that smoking doesn't make much difference.")

Determinant: Health insurance premia may be higher for smokers but the question is not the premium rate. It's the present value of the total expected amount of premium paid. If a smoker dies 10 - 17.9 years earlier than a non smoker, that accounts for a lot of premium. And then there's uncollected CPP and OAS (smokers should get a payroll tax discount!). If non-smokers live to 80, then I guess smokers live to about 65. That seems just about perfect from a fiscal perspective. So obviously there are offsetting effects. Do you know how much more smokers pay for health insurance? As a function of age?

K:

First, CPP is not, not, not a payroll tax. CPP funds never, ever go into the Consolidated Revenue Fund. They go into the CPP Investment Fund. The CPP is a universal DB pension with a DB pension formula. It is subject to conventional DB pension economics. Calling CPP contributions a payroll tax is importing American Social Security concepts into Canada. They are inappropriate and unfit to describe CPP's actual reality.

Second, present value does not enter into it the way you think it does. A health insurer looks at those likely to make a higher claim and if they form an identifiable class, they receive a higher premium. The insurer has already done the present value calculation for itself. A health insurer in the US is a direct substitute for a provincial government health plan in Canada. Smokers pay more in the US because actuaries say they should. Smokers don't pay more in Canada because we have broader pooling. However smokers do incur higher costs on the health system.

They have higher mortality (you can't defer their treatment) and higher morbidity (they get sicker more often and incur more expenses). Disability insurance is based on morbidity, not mortality, and smokers pay a higher rate for it too.

Insurers have done everything economically valid to make a claim that reducing smoking is less expensive: they have examined their claims experience, found the correlation between higher smoking rates and increased morbidity and mortality and charge smokers more.

Chris Auld is arguing against the insurance market with extensive claims experience for both smoking and obesity. Obesity will get you a higher insurance rate for both disability insurance (morbidity) and life insurance (mortality).

"Healthy Lifestyle" campaigns are nothing more than a preventative action based on claims experience. This has gone on in the insurance world forever. Building codes are a direct result of fire experience and property insurers take an active interest in them.

http://www.ncsl.org/?tabid=14345

https://www.alseib.org/PDF/SEHIP/SEHIPFY2012RateChange.pdf

https://www.alseib.org/HealthInsurance/SEHIP/FAQ.aspx

Those links provide an example of the Alabama State Employees Health Plan. That plan has employees pay 16% of the costs through premiums, deductible and co-pays. Active employees pay $75. Therefore the total cost per month is roughly $480. Non-smokers receive a $30 discount and non-obese employees get a $25 discount. Therefore smokers get at least a 5% load and so do obese employees. It depends on how the load is split. But 5-10% loads for smoking is normal in insurance of all kinds, life, disability and health.

Frances:

Actually in the US seniors you supplementary insurance for Medicare, which doesn't cover everything. Same thing, smokers pay more.

Frances, you're right, I should have been more clear that I had in mind the case where everyone pays their own costs, full stop. Insurance, public or private, leads to the problem, assuming the usual information problems, as you say.

I was going to make a point about the discount rate not needing to be very high to turn a nominal loss into a present value profit, but I think that discussion has already happenned. The only hard number I noticed in skimming Auld's piece is a 7% figure from one study, which doesn't seem very high if it means delaying spending by 10+ years on average.

Moreover though, from an overall government standpoint, "costing health care less money" is a better political message, but there's also a revenue side - healthy people are more productive for more years, generating more tax revenue. Imagine announcing that as your justification for funding a stop-smoking campaign. "Well, basically, we think smokers are trying to evade their taxes by up and dieing. We want them to stop."

Frances,
isn't the issue that people who get unhealthy earlier in life don't contribute as much to paying for their health care? (P.S. And I thought the evidence was that smoking in particular increases the amount of bad health a person had in their life. Unfortunately, these days we have got very good at keeping unhealthy people alive.-))

I must admit, my father always puzzled about all the fuss that is made about the danger of heart attacks. He always said - you have to die somehow and it seems to me it is the best way to go. Then he (suspiciously) died of heart attack in the middle of the night. He always was clever.

oops
Looks like Neil beat me too it - my apologies Neil.

While I'm sympathetic (for once) with the general gist of what Auld is saying, he's mischaracterizing his opponent's arguments. The health-nut argument is to posit implicitly (ie, fantasize) a healthy person who is able to work at a happy, fulfilling, productive job until they're 85 and then suddenly drop painlessly dead, never ever having seen a doctor in their entire lives. (Presumably their mother had an unattended homebirth away from the evil patriarchal medical establishment, and they subsisted on an organic macrobiotic diet of beans, free range chicken breasts, and lembas-bread baked in Rivendell by elven maidens at full moon). Then their cost to the health care system is 0 dollars and 0 cents.

Neil, reason "healthy people are more productive for more years, generating more tax revenue"

The years added by quitting smoking tend to be years after 65, where most people have retired, and are collecting more from various government entitlement programs (GIS, CPP/QPP, OAS) than they are paying in tax revenue. Once you add in the contribution smokers make via tobacco taxes, the fiscal case for smoking prevention weakens further.

Plus the point here is only about the impact of smoking prevention on health care expenses. There are all sorts of other reasons not to smoke.

Determinant: " CPP funds never, ever go into the Consolidated Revenue Fund. They go into the CPP Investment Fund."

And a good chunk goes to pay for the benefits of current pensioners.

"Smokers pay more in the US because actuaries say they should."

Please see points (4) and (5) above. Insurers only care about the costs they have to pay. If costs are borne by other people e.g. the government through Medicare or Medicaid, or by private individuals, insurers don't worry about it.

Private insurers also charge what the market will bear - in a market that is far from competitive, price differentials maybe either more or less than cost differentials.

Frances: your argument at 7:20am undermines itself. On the one hand, you claim that the "years added by quitting smoking tend to be years after 65", and thus will incur higher pension costs. On the other, that "the point here is only about the impact of smoking prevention on health care expenses".

Also, I note that the point made by Determinant is precisely that CPP is not funded from the same source as health care. Whether CPP contributions are invested or passed through to current retirees is irrelevant.

The essential point made by Determinant, Neil, and Andrew F (in the very first comment) is you and Chris Auld have made an elementary logical error by considering only the cost of health care, and not the resources available to fund it. Their point is well-taken. Now, personally I do not know whether net-net a non-smoker can be expected to pay more in lifetime taxes than a smoker. But your hand-waving and unfounded assertions have made it abundantly clear that you do not either.

Economist, rationalize thyself.

Phil: "you and Chris Auld have made an elementary logical error by considering only the cost of health care, and not the resources available to fund it"

The resources available to fund health care depends upon the size of the population and the per capita productivity, not the population's average longevity (the inhabitant of the chair on the other side of the room kept on telling me I should make this point, now I understand why).

Smoking has two impacts on per capita productivity.

First, it decreases the productivity of smokers while they're alive. For example, smokers get colds more often. This effect tends to decrease per capita productivity.

Second, smoking kills off smokers, so smokers live less long. Because older people are, on average, less productive than younger people (sad, but true, search the medical literature), this effect tends to increase per capita productivity.

The effect of smoking on per capita productivity is, therefore, ambiguous.

Thus the effect of smoking on the resources available to pay for health care costs is theoretically ambiguous - as is its impact on those costs.

Determinant: " The CPP is a universal DB pension with a DB pension formula"

It is nothing of the sort. The CPP is a government promise to pay a certain amount that can be varied at the will of Parliament - that is the antithesis of a DB pension plan. If the funds in the CPPIB are not sufficient to satisfy government promises, then those promises (if they are to be satisfied - not a foregone conclusion) have to come out of general revenue. The fact that CPP premiums go into a separate account is neither here nor there (it's the same in the US, social security premiums go into a separate account too - and then are "invested" in the US government.), that's just an accounting game, those premiums are used to satisfy a government promise to pay certain amounts in the present or the future, which promise would otherwise be satisfied out of general revenue. Just because you call a tax something else and segregate it in a separate account doesn't mean that it's not a tax.

And, of course, OAS and government employee pension plans (you know, real, and quite generous DB pension plans) are paid-for out of general revenue, so even if you were right about CPP (and you're not) that's still a real savings to the various levels of governmeng about having smokers die younger.

Determinant: "A health insurer in the US is a direct substitute for a provincial government health plan in Canada. Smokers pay more in the US because actuaries say they should"

Well, not really. A health insurer in the US doesn't collect cigarette taxes (or GST/HST, PST on cigarettes), the federal and provincial governments do. If a US smoker croaks earlier, a health insurer doesn't save on Social Security, Medicare, etc., the provincial and federal governments do. Indeed, from the perspective of private health insurers if smokers die earlier than non-smokers, they're likely to cost significantly more than non-smokers, because by the time the non-smokers die they'll be on the government's health care tab (i.e., Medicare). In contrast, in Canada, the two levels of government can capture all the "savings" from the early deaths of smokers and bear the full cost of the long lives of non-smokers.

I suppose the other fiscal advantage to having smokers die early is that the fisc accelerates the tax on any savings they might have and probably ends up taxing those savings at a higher rate. If you drop dead at 65 (ignoring for simplicity the various spousal roll-over rules) you'll trigger a one-off hefty gain on any savings you might have (including RRSPs). In contrast, if you live off those savings until you're 90, at the very least the taxation of that gain will be deferred, and will likely be taxed at a much lower rate (because gains are realized, or amounts withdrawn from RRSP/RRIFs over time, at lower tax brackets, than in one lump sum, which is likely to be taxed in a higher bracket).

Frances,
"The years added by quitting smoking tend to be years after 65, where most people have retired,"

While this may be true of years of life, I don't think it is true of healthy years. I think more smokers become unable to work before the retire. If you have figures that say otherwise, please point me to them.

reason: "While this may be true of years of life, I don't think it is true of healthy years. I think more smokers become unable to work before the retire. If you have figures that say otherwise, please point me to them."

Agreed, there are two effects that work in opposite directions: smokers are a little bit less productive while they're alive, but don't have as many low productivity years at the end of their lives. Think of two curves, one is gradually declining, the other falls off much more sharply. Ultimately it's an empirical question, like the net impact of smoking on health care costs, and the answer depends upon a lot of things, e.g. the type of work done. For singers, for example, the effect of smoking on productivity is likely to be much more dramatic. For writers, smoking is actually linked to a decreased incidence of RSI, carpel tunnel et (all those smoking breaks).

Bob, agreed.

Frances you say:
"The resources available to fund health care depends upon the size of the population and the per capita productivity"
and make the point that
"The effect of smoking on per capita productivity is, therefore, ambiguous."
concluding:
"Thus the effect of smoking on the resources available to pay for health care costs is theoretically ambiguous."

But what about the effect of smoking on the size of the population? Clearly smoking causes people to die thereby decreasing the population. So your conclusion is mistaken, isn't it?

Perhaps the endurance of the health care zombie is a symptom of a more general phenomenon whereby people associate "good" things with "efficiency" (broadly understood) and "bad" things with "inefficiency" (again, understood colloqually). So politicians, the public, anti-smoking advocates see smoking as being "bad" (which, as a non-smoker, I can't disagree with) and therefore need to feel that it must also be inefficient (i.e., it imposes social costs without offsetting social benefits).

This phenomenon has popped up in other areas of economic analysis over the years. For a long-time, the consensus view was that the Nazi war machine was hoplessly inefficient (a conclusion no doubt coloured by the fact that, hey, Nazies are evil), but recent scholarship suggests that, quite the contrary, given the constraints facing Nazi German (the fact that, pre-war, it's economy was a fraction of the size of those of its opponents, and that it lacked the raw materials that were so abundant elsewhere), it was surprisingly resilient and productive up until the last days of the Third Reich (in part, precisely because Nazi Germany was evil and could induce productivity using methods unimaginable by its democratic enemies - the same could be said of the remarkable increase in output, at least in some fields, of the war time USSR).

Similarly, the long-held view was that slavery in the US was an inefficient method of production. When Fogel and Engerman challenged that view and suggested that, no, whatever it's moral failings, slavery was an economically efficient institution, and indeed, may have been more productive than the use of free labour in the North (a view that, while not unchallenged, hasn't been definitively refuted), they were criticized as "defending" slavery, as if the conclusion that slavery was inefficient was essential to the criticism of slavery. Of course, in reality, the proposition that slavery may have been "productive" doesn't take away from the fact that it is morally repugant, but much of the criticism of Fogel and Engerman, I think, was based on a deep-seeded need to associate "bad" with "unproductive".

In the case of smoking, if you think it is morally wrong (either as being inherently bad and harmful to others, or on paternalistic grounds that people shouldn't harm themselves), the fact that smokers may well be net contributors to the fisc. (and that the rest of us may benefit from their untimely deaths) shouldn't make it any less wrong. But I think that human nature is such that if you believe that smoking is wrong, you feel you have to believe that it is also inefficient.

"But what about the effect of smoking on the size of the population? Clearly smoking causes people to die thereby decreasing the population. So your conclusion is mistaken, isn't it?"

Not really, since both the resources to fund health care and health care costs themselves depend on the size of the population. The point of the exercise is that if smokers did't smoke, and as a consequence, lived longer more productive lives, the fisc might be able to collect more taxes from them, but would also have additional expense (OAS, CPP, nursing homes, etc,). Moreover, it isn't clear that the fisc neccesarily benefits. To the extent that the years that smokers lose are their retirement years, when they're living off savings (which savings will be taxed one way or the other), it may not be the case that the longer-lives of non-smokers actually enhances the fiscal capacity of the fisc.

A second point is that, even conceding that non-smokers live longer, more productive lives than smokers (they're certainly longer), for the most part the added productivity benefits them privately (i.e. the government doesn't get all of their income). So in that sense, the biggest cost of smoking (foregone income caused by early death) is borne by the smokers themselves (and, I suppose any dependents).

Finally, it's also worth keeping in mind that smokers tend to have very different characteristics than non-smokers. I.e., they tend to be poorer, less educated, etc. than non-smokers (a fact that, perversely caused the Center for Policy Alternatives, in one of their studies, to note that the effect of cigarette taxes is to introduce a sharp degree of regressivity in the overall tax system and to impose a hefty tax burden on the poorest Canadians). And, I think, generally the view is not that smoking causes those traits (although it may aggravate them), but rather that it is correlated with them (so either poverty or lack of education cause smoking, or more likely that all three are linked to some unobservable underlying factors). Two things come out of that. First, it's not enough to note that smokers are less productive than non-smokers, rather the question is whether smokers would be more productive if they weren't smokers. Second, to the extent that smokers are poorer than non-smokers, that increases the likelihood that, if they lived longer, they would impose added costs on the fisc. (i.e. they'd collect OAS, need public support for nursing homes, etc.).

"Not really, since both the resources to fund health care and health care costs themselves depend on the size of the population."

Bob, at this point Frances was only talking about resources to fund health care.

Jason, yes, sloppy writing. But Bob Smith has it right - the issue is health costs per capita v. productivity per capita. And the effect of smoking on the two is ambiguous.

I've now fixed this in the "update", hopefully this is clear:

The fiscal sustainability of health care depends upon health care expenditures per capita relative to productivity per capita.

In part I think it's the externalities. Smoking *is* disgusting (and dangerous - lots of houses burn and people die from smoking in bed). Fat, florid, flatulent people are generally regarded as unattractive. One way to discourage behaviours that are disgusting, unpleasant, unsightly, etc is to just classify them as "bad" or "wrong". It's an easy heuristic, easily taught to kids.

Also, in addition to the productivity issues raised by other: smokers/boozers/fatties switch to doing something with the time and money once spent on cigs/booze/bacon (mmm bacon). Wouldn't it really take a general equilibrium analysis to figure out the overall effects of people making healthier choices? 10 minutes with Google seems to suggest that improved health and growth go hand in hand, at least in the developing world. It may be that advanced economies have reached a point where diminishing returns and the cost of health care are telling us it would be economically better for us to just step into the suicide booth at 55, but I think I'd need a little more than Auld's word before I get on board.


"This argument, I think, falls under 3 - unhealthy behaviours make people unhappy, because of the associated loss of healthy life span."

Not just unhappy, but I think the social cost of those extra years of healthy lifespan is pretty low, for the most part. It is typically tacked onto retirement years, so they cost some in terms of government benefits, but I think it is likely that retired people generate at least that much in value/home production for their families and communities. For some people though, an extra few years during your working life (due to not developing lung cancer in your 40s, 50s, 60s) would result in a fair bit of added wealth to society.

It seems to me that not placing any economic value on those years of additional healthy lifespan (aside from how happy it makes people) doesn't sound quite right.

Andrew F: Yup. Even if it would be good for GDP if people knocked off at 65 that doesn't mean it's utility optimizing. Leisure figures pretty big in my utility function.

@Patrick: "It may be that advanced economies have reached a point where diminishing returns and the cost of health care are telling us it would be economically better for us to just step into the suicide booth at 55, but I think I'd need a little more than Auld's word before I get on board."

I have to say I'm getting very tired of responses like this. I did not say, nor imply, that early death is a good thing. I explicitly said the opposite.


@Phil: "The essential point made by Determinant, Neil, and Andrew F (in the very first comment) is you and Chris Auld have made an elementary logical error by considering only the cost of health care, and not the resources available to fund it. "

Ignoring transfers through taxes or other programs such as pensions would indeed be a logical error if the question addressed were the total effect of smoking on all financial transfers. That is not the question. The question is limited to the effect of smoking on health care expenditures. That is a well-posed question addressed by a large literature. Any objection that starts with "that is wrong because you didn't consider X," where X is something not directly related to health care costs, is non sequitur.

By way of analogy, if Toyota kept claiming that the Corolla gets better gas mileage than the Civic but was doing faulty arithmetic to arrive at that conclusion, it should be pointed out that correct math reverses Toyota's claim. If Toyota were to counter this math by saying "No, that's wrong, the Corolla is the better car because it has more interior room," Toyota would be making a logical error: whether or not the Corolla has more interior room is irrelevant to determining which car gets better gas mileage. Of course, we may at the same time think think interior room is an important characteristic.

Here, we're talking about gas mileage (health care costs) and not the much broader and more difficult question of which is overall the better car (the total effect occurring through all channels of smoking on all financial and other outcomes). Personally, I don't think the effect on health costs is a particularly interesting question, but it does come up extremely often in popular discussion, usually complete with faulty arithmetic. Most of the economic literature on smoking has nothing to do with health care costs, and I've never published anything on costs and have no plans to do so.


Boo hoo. Poor misunderstood you. I get tired of the smug economist schtick, so we're even.

You said early death was cheaper. So? Anything else to add? It's the G&M after all. The first thing many a reader is going to think is: 'what are the policy implications?'.


A: X. To avoid misunderstanding, note carefully that X does not imply Y.

B: You said Y!!! It is just stupid and evil to believe Y!!!!

A: I did not say Y, I said X, and pointed out explicitly that X absolutely does not imply Y.

B: Boo hoo, poor misunderstood you.

Ah, the internet.

Chris "I have to say I'm getting very tired of responses like this."

I hope you didn't make the mistake of reading the Globe and Mail comments. Never, ever, ever do this. Ever. They're a prime example of GIFT (Greater Internet F***wad Theorem).

It might be easier to explain your case by using the analogy of the demographic dividend. There are all sorts of reasons why it's a good idea to reduce the rate of population growth - i.e. the alternative to a reduced rate of population growth is too horrible to even think about.

However the short run and long run effects of a fertility transition are very different.

In the short run, a fertility transition is great for economic growth, because there's lots of people in their prime productivity years, but few young and old people. The dependency ratio is extremely low, and there's little need to spend a lot of money on health care, education, or other kinds of care expenditures. That's the demographic dividend - what China has been experiencing in recent years, what Japan experienced in the 70s, etc.

But eventually the population pyramid begins to invert. The number of older people relative to the number of younger people starts to increase, dependency ratios rise again, as dd the associated costs of caring. It's hard to generalize from a few observations, but so far every country that has experienced serious population aging has done pretty poorly economically.

The smoking situation is exactly parallel. Suppose there's a successful campaign to induce people to quit smoking. The people who you persuade to quit smoking now are healthier, and the people who might have quit smoking if the campaign had begun earlier - well, they're dead already. So there's a health dividend: the average health of the population increases.

But eventually, as you observed in your original post, the people who once might have died young from a smoking-related cause begin to age and suffer from non-smoking related health problems. The average health of the population falls again.

Andrew F: "It seems to me that not placing any economic value on those years of additional healthy lifespan (aside from how happy it makes people) doesn't sound quite right."

Economists tend to write (and think) in a utilitarian framework where the benefits of being alive = the happiness enjoyed while being alive. So I'm using happiness in a technical way as a metaphor for the value of life.

Patrick "it would be economically better for us to just step into the suicide booth at 55"

Some people might be happier if they could step into the suicide booth, not at 55, but whenever the pain and suffering of life got to be too much.

This is going to be one of the big policy issues of the next 20 to 30 years.


Frances, good analogy. There's another graph in 1997 NEJM paper I cited which simulates exactly what you suggest. Figure 2 shows health care costs over time if smokers just up and quit. In this model at these parameters costs fall in the short run and rise in the long run, by how much depending on the discount rate.

I tried not to focus too much on such results because the sign of the long run effect varies across studies, and focusing on the sign distracts from the key point that the gross costs are much larger than the net costs, whatever the sign of the net costs.

Rule #1: Never Read the Comments. (Irony noted.)

Patrick: "10 minutes with Google seems to suggest that improved health and growth go hand in hand, at least in the developing world"

Yes, but is that because growth improves health or vice-versa (in the developing world, growth is also associated with increased smoking, but I'm not sure anyone wants to suggest that the latter causes the former).

Andrew F: "It seems to me that not placing any economic value on those years of additional healthy lifespan (aside from how happy it makes people) doesn't sound quite right"

Value to whom? And what's the value of those foregone years to the smoker relative to the "benefits" (whatever they are) of smoking? If we wanted to apply a rational addiction model, we might suggest that, for the smoker, the foregone years are less valuable than the benefits of smoking (and, that might be consistent with the empirical evidence that smokers are generally disadvantaged vis-a-vis non-smokers - i.e., extra years of life might just not be as much fun for them as it is for the rest of us). I suspect for most of us, the value of the foregone years for Joe the Smoker in Montreal is precisely zero.

K: Andrew F: "Even if it would be good for GDP if people knocked off at 65 that doesn't mean it's utility optimizing. Leisure figures pretty big in my utility function."

But does the leisure of smokers figure pretty big in your utility function? Probably not (unless you happen to live with a smoker). And clearly the perceived benefits of smoking (whatever they are) outweigh the advantages of a longer live to smokers - because they keep smoking.

Patrick: "You said early death was cheaper. So? Anything else to add?"

This is a prime example of the heuristic I discussed above. So what if death is less expensive than living, it doesn't follow that it's "good". One's a factual statement (which may or may not be empirically correct, but which is at least verifiable), the other's a normative one. "Good" =/= "Efficient", "Productive","Inexpensive" and "Bad" =/= "Inefficient", "Unproductive", "Expensive".

This debate reminds me of an anti-smoking ad campaign that someone ran in Toronto a few years ago. They put ads on the buses which read "If you smoke, you have a 50% chance of dying". "Are you telling me" I asked "that if I smoke, there's a 50% change I won't die? Someone pass me a pack of Camels". Ultimately, the mortality rate is 100% for smokers and non-smokers alike - a few weeks later the ads were modified to read "... from tobbaco related causes".

If we really wanted to reduce health costs, we would encourage sky diving amongst senior citizens.

Patrick "It may be that advanced economies have reached a point where diminishing returns and the cost of health care are telling us it would be economically better for us to just step into the suicide booth at 55, but I think I'd need a little more than Auld's word before I get on board."

I don't know if that number is 55, but it is unquestionably the case that there is some point at which it might ECONOMICALLY (understood in purely material terms - which is I think how you intended it) better for society for people to "step into the suicide booth" (a point recognized by doctors who refuse to devote further medical resources, beyond hefty doses of morphine, to dying patients, a common enough practice in even well-equipped hospitals) - whether it's normatively better (or how it it is reflected in our utility functions) is a different question, and depends heavily on the moral tradition which you follow (which is why we have debates around euthanasia, suicide, "death panels", and why end of life decisions are often litigious). Personally, if smokers, quite literally, CHOOSE to end their lives early doing what they like, well, I'm quite happy to reap the benefits of that decision - thanks guys!

Thank you for providing me ammunition against those who want to control every aspect of our lives in the name of minimizing health care costs.

Take a few slow, deep, breaths.

Nicotine-infused ones, if that helps.

And mellow out guys.

"Nicotine-infused ones, if that helps."

You're just saying that so you don't have to pay for my CPP, OAS and health care. :)

Bob: "I suspect for most of us, the value of the foregone years for Joe the Smoker in Montreal is precisely zero."

(This reminds me of the discussions on immigration policy.) I think for the average Canadian the value of the foregone years for Joe Stranger must be >0. If this is false why do we (appear to) care about famines, tsunamis, forest fires, HIV treatment, lupus, cystic fibrosis, plane crashes, train wrecks, foreign dictators, or any other front page news story?

At a bare minimum, I think to support your claim you would need find enough people for whome the value is negative to offset the anonymous kidney donor.

*sigh*

Frances, in complete honesty, your argument with CPP can be levied at your Carleton Pension which is also DB (with Additional Voluntary Contributions, it is not DC. I had this debate with Nick in a different thread a while ago, Carleton puts its info online and in public). DB Pensions are a form of life annuity and therefore life insurance. By design they involve pooling of risk and reward. CPP is no different in this way than any other DB plan.

Bob:

Please stop using American concepts. The CPP benefit is set by legislation, just as a pension formula is set by the employer. Pension formulas in multi-employer plans can be changed. There is no legal recourse under legislation to the Consolidated Revenue Fund for a CPP deficit. A CPP deficit has to be met with a benefit cut (50% loss of indexing) or a rate increase up to 9.9% of pay.

Recourse to sponsor funds, either employer or government is a well-known concept. Single-employer plans operate this way, their forulas cannot be reduced, the sponsor has to make up a deficit. CPP is actually more conservative than employer pensions.

Your government pension plan arguments are simply baseless. Take a look at the Public Service Pension Plan, the one for the Public Service of Canada. I did, I have applied for PS jobs and had interviews.

Frances:

The case for anti-smoking is actuarial. Actuaries divide the population into two groups, smokers and non-smokers. Smokers, based on experience in diverse lines of private insurance and in government programs, have shorter lives and *Higher claims and costs*. The people who live longer and are allowed to catch anything they can get still make lower claims. We have already allowed them to be as expensive as they want to be and still they cost less.

Public Health is intensely actuarial and empirical.

Chris Auld's argument is the same as arguing that we shouldn't build more expensive fire-proof homes because the initial cost is higher. The house has a finite life anyway. The real world says we are all better off if we build better homes.

There is a deep misunderstanding here of economic predictions vs. actuarial predictions. Actuaries start from evidence, not theory.

"Economists tend to write (and think) in a utilitarian framework where the benefits of being alive = the happiness enjoyed while being alive. So I'm using happiness in a technical way as a metaphor for the value of life. "

I guess what I'm getting at is that aside from this happiness, people who are healthy also tend to produce goods and services, pay taxes, etc. Ie, does someone with x+3 years of healthy lifespan have a higher NPV to society than someone with x years?

Ah, the dismal science.


I believe the "stupid" policy makers have it right. When considering what might be good or bad for society one not only needs to take costs into account but one also needs to consider something like a social welfare function. The social welfare function would be a sum current and future utilities for all persons. There are two different scenarios we can consider, a world with and without smoking. I think that the social welfare function in the world with smoking lies unambiguously lower (is worse) than the social welfare function in the world without smoking because people die off early and their utilities are not in the sum. True, some people actually enjoy smoking to the point where maybe they're glad to have done it even taking into account if they die early. But given the number of people who regret it and the externalities involved I think society believes that it is a bad and that social welfare is lower with smoking.

There is also the cost side which would affect the resource constraint. As noted we can't really tell whether on net there's an increase or decrease in costs to smoking. But it seems that this consideration is orders of magnitude smaller than the effect on the social welfare function to be not even worth considering. Incidentally, it's also why we care (or should anyways) about people suffering from mental illness, drug addictions and other kinds of illnesses.

ml -

On your utilitarian calculus: It's not obvious whether a utilitarian should try to maximize the sum of utilities or average utility. The two have quite different implications, as you can see in the example you give.

Andrew F:

"does someone with x+3 years of healthy lifespan have a higher NPV to society than someone with x years?"

After reading your comment, I spent a gloomy half hour contemplating whether or not the NPV of my existence, i.e. the difference between the happiness I generate and the resources I consume, is greater than zero. And even if it's true now, will it be true in 10, 20, 30, 40 (if I live that long) years time?

Thank you ml for your very wise post.

ISTM that we should try to optimize average utility. Optimzing the sum rather than the average implies we are happy with one person or a small group's social utility dominating the sum, in other words an unequal world. If you care at all about equality, "social justice", fraternity or anything like that you should go for the average.

Frances: At this point many people turn to religion.

Frances, I wonder because also in the back of my mind (somewhat related to this topic) is the issue of life extension. Oddly, many people are opposed to life extension because they somehow believe that living a long time is awful. But if you couch it in terms of delaying or reversing the effects of age-related diseases (ie, extending healthy lifespan), people are generally in favour.

It seems to me that if you can extend life expectancies by 10 years without extending the period of decline at the end of life (quality of life is more like a rectangle with a short, sharp decline at end of life rather than a longer slope down), that would be a very worthwhile endeavour for society, even if it came at the result of increased healthcare costs.

I didn't intend to trigger a melancholy reverie. I expressed it in terms of NPV to help get my point across, but I think the social welfare function is a better way of expressing it. I certainly wouldn't use strict social NPV analysis as a basis for morality! We are more than the sum of our discounted cash flows.

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