17.2 The various costs of tobacco use

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Methods used for estimating the costs of tobacco use are complex and varied.19 The definition of cost depends on the question being asked. The perspective from which costs are defined is crucial, with different costs to be included depending on whether the study is undertaken from the point of view of smokers, employers, the health care sector, the government or society as a whole.

17.2.1 Private versus social costs

In economic terms, the total costs of tobacco to the community can be thought of as consisting of private costs and social costs.4

Private costs of smoking are defined as those costs knowingly and freely borne by smokers, on the assumption that they use tobacco in full knowledge of the possible consequences. Social costs are referred to in the economic literature as external costs and are the costs borne by the rest of the community including by users of tobacco products who are not freely choosing to use such product in full knowledge of the consequences.

• Total costs = private costs + social costs

From the viewpoint of public policy, it is social costs, not private costs, which are relevant in determining appropriate responses from governments.

If individual decisions to smoke were made rationally, on a fully informed basis, and if individual smokers themselves bore all the costs that their smoking caused, then their decisions could be assumed to accord with their own self-interest and no-one else would be affected. In these unlikely circumstances, government intervention could not improve the situation of smokers or others. As outlined in Section 17.1 however, this is not the case with tobacco use, and government intervention does have the potential to improve the welfare of the community as a whole.

17.2.2 Cost of illness studies versus studies examining economic costs

Several studies in Australia have estimated the burden and the costs to the Australian health system that may be attributed to smoking.

Research commissioned by the Australian Institute of Health and Welfare found that smoking tobacco is the risk factor responsible for the greatest burden of disease in Australia at 7.8% of the total burden in 2003.16 It was the cause of 15,551 deaths in 2003, and the loss of 204,778 disability-adjusted life years. It caused more than 9.9% of the total burden of disease and injury in males and 5.8% in females.

Extrapolating from an earlier study by English,Vu and Knuiman which examined hospital utilisation data for a population of smokers and non-smokers in Western Australia,20 Hurley estimated that almost 300,000 hospitalisations and 1.47 million bed days costing $682 million could be attributable to smoking in Australia for 2001–02 alone. The actual costs would be even greater than the estimates because the following were not included: hospitalisation costs for those aged 80 years and over; costs of pharmaceuticals provided from hospital, follow-up community care costs (such as general practitioner visits); and patient contributions to hospitalisation costs.21

Note that the purpose of these cost of illness studies is to estimate the number or proportion of current health care services that can be attributed to smoking. Such studies do not attempt to quantify the number of services that are not being provided in any one year due to people having died prematurely due to smoking. Neither do they attempt to quantify costs resulting from tobacco use that fall outside the health care system.

In contrast to cost of illness studies, estimates of the economic costs of smoking attempt to quantify the full impact of smoking on society as a whole.