Ministry's figures need analysis

OPINION: The Ministry of Health's estimates on the health costs of smoking are just politically convenient numbers, writes Dr ERIC CRAMPTON.

You could be forgiven for thinking that the health system could save $1.9 billion 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 sceptical of the figure.

Here's how they derived the figure - number reckoning revealed 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 nonsmokers for each group.

The excess costs of the smoking group were tallied up to produce the $1.9b 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 nonsmokers.

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 nonsmoker will die at 75. Comparing 65-year-old smokers to 65-year-old nonsmokers 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 nonsmoker 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 nonsmokers 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 in this scenario 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 $1.9b figure only makes sense if it's true.

Further, we might well expect that there are differences between smokers and nonsmokers 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 nonsmokers are otherwise identical, on average, in their health-related behaviours - 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 Associate Cabinet Minister Tariana Turia in correspondence: "While giving a good indication of what the current costs are of treating the health damage caused by smoking, this figure [$1.9b] 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 $1b.

Why would we even start comparing the costs of smoking as represented by the $1.9b 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 nonsmokers against smokers by arguing that smokers cost nonsmokers 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: "It 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 sceptical of numbers coming from the Ministry of Health as you would be of numbers produced by the tobacco industry. Neither is a disinterested party.

* Dr Eric Crampton is a (nonsmoking) senior lecturer in economics at the University of Canterbury.

More detailed analysis of the ministry's cost estimate is available at his blog, http://offsettingbehaviour.blogspot.com.

- © Fairfax NZ News