Wednesday, January 19, 2000
submitted by Stanton A. Glantz
Most people disapprove of the tobacco subsidy, meaning the tobacco price
support program for farmers. This program costs tens to hundreds of
millions of dollars and is not the most important or largest subsidy that
the tobacco industry receives.
The REAL subsidy of the tobacco industry operates through the medical
system, with the general public (either as taxpayers or through their
private health insurance) to underwrite the excess medical costs tobacco
use imposes on society. These costs -- which amount to about $50-$60
billion a year -- should fairly be borne by the tobacco industry. Doing so
would be reflected in higher prices for cigarettes or lower profits for
cigarette companies. By externalizing these costs, the industry keeps
prices artificially low and consumption (and profits) artificially high.
This fact was at the core of the law suits that the states filed to
recover smoking-induced Medicaid costs.
The industry settled these cases for a nominal payment of $206 billion
over twenty-five years (and continuing in perputity after that). $206
billion sounds like a lot of money, but it is not. Indeed, because it only
returns a small fraction of the costs that the tobacco industry imposes on
society, the settlement locks in a substantial subsidy for the tobacco
industry through the medical system.
To illustrate this point, consider the situation here in California.
- The MSA provides California about $1 billion a year.
- Smoking costs MediCal (Medicad in California) over $2.4 billion a year .
- By only reimbursing the state for part of the costs that smoking imposes
on MediCal, the MSA ensures a perminant $1.4 billion subsidy for the
tobacco industry from the people on California.
The only way to end this subsidy is to reduce tobacco consumption.
Allocating a substantial fraction of settlement funds to an effective
tobacco control program directed at reducing consumption as quickly as
possible will rapidly reduce the subsidy.
A program simply directed at kids and primary prevention (even if it would
work in isolation) will do nothing to reduce the subsidy of the tobacco
industry through the medical system during our lifetime since most
tobacco-related costs come in middle age.
Note: The subsidy of the industry through the medical system including
other public and private payers is much larger. In California
smoking-induced medical costs exceed $11 billion a year, yet the MSA only
returns $1 billion. The comparable national numbers are about $50-60
billion and $8 billion).
Politicans who want to protect the public purse from the real tobacco
subsidy should be using settlement funds to reduce tobacco consumption not
just fill potholes.
 Zhang, et al., "Cost of Smoking to the Medicare Program, 1993,"
Health Care Financing Review 20 (4) 179-196, 1997 updated to 1998 numbers
using the medical inflation index.