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Cigarette Tax Policy and Health Care

The phrase health policy denotes verdicts, proposals, and activities that are carried out to attain precise health care objectives in society. These decisions may encompass aspects concerning the financing and provision of health services, their costs, quality, and distribution of resources (Reagan, 2018). Policies in the healthcare sector influence the cost of health care services as well as accessibility and quality (Delaney et al., 2018). Therefore, it is important to analyze a policy thoroughly to understand its benefits and shortcomings before it can be implemented. Most people predispose themselves to the development of grave health complications. Encouraging changes in behavior can reduce their predisposition to disease, thereby enhancing health and increasing longevity. The purpose of this paper is to discuss the health and financial effects of a proposed policy to increase the excise tax on cigarettes. A recommendation for the evaluation of the policy and future research implications are also provided.

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Purpose of the Policy

According to the Congressional Budget Office (CBO) (2012), compulsory health care spending takes up a significant portion of the federal government expenditure. This figure was estimated at 23% in 2011 and was expected to increase to 33% in 2023 if conditions do not change. A recurring question related to this expenditure is whether the introduction of policies to encourage healthy behavior can result in savings for the federal budget. The purpose of the policy is to increase the excise duty levied on cigarettes and small cigars by 50 cents per pack (CBO, 2012). This figure is expected to be regulated annually to match inflation rates as well as an increase in people’s earnings. The expected outcomes of the policy include a reduction in health care expenses incurred in the treatment of ailments associated with cigarette smoking.

An Analysis of the Financial Implications of the Policy

The federal government incurs expenses totaling about $1 trillion on health care plans annually. Therefore, policies that encourage a healthier population are likely to have a substantial impact on the federal budget. For instance, discouraging smoking by levying higher rates of excise duty is expected to have vast financial benefits. Financial projections from CBO (2012) indicate that the proposed increase in duty increase and the corresponding effect on the health and behavior of the people would boost federal returns by approximately $41 billion and cut down expenses by not more than $1 billion by 2021. These projections were based on a 10-year interval. Approximations by the Joint Committee on Taxation show that nearly $38 billion of the extra revenues collected between 2011 and 2021 would be attributed to the higher excise tax (CBO, 2012). Increasing the excise duty would also result in an increase in federal government revenues notwithstanding the projected reduced consumption (because of higher prices).

Other sources of revenue would come from improved health, particularly through extra earning because good health would translate into more working hours and increased productivity. Furthermore, government spending on Medicare and Medicaid would reduce by a small margin due to improved health. The additional income obtained from high levies on cigarettes would be used by the government to fund other programs that would benefit the entire population.

Pros and Cons of the Policy

Pros of the Policy

Apart from the anticipated fiscal upshots of the policy, implementing the tax increase on cigarettes is likely to have health benefits. There would be a decrease in the incidence of health complications associated with smoking. For instance, smoking increases the risk of lung cancer, skin cancer, pneumonia, emphysema, and chronic obstructive pulmonary disease among others (Shaik, Doshi, Bandari, Madupu, & Kulkarni, 2016). The World Bank (2018) reports that cigarette smoking is among the leading causes of preventable deaths, accounting for nearly 7 million mortalities annually. Smoking elevates the risk of death threefold. Therefore, the life expectancy of smokers is estimated to be about 10 years less than nonsmokers (The World Bank, 2018).

A reduction in these health complications would lower mortality rates and increase life expectancy. A healthy population would translate into more working hours, increased productivity, and more earnings. Consequently, federal revenues could grow from increased taxation. Raising the price of cigarettes through a higher excise duty would discourage smoking and have a lasting effect by deterring young people from starting to smoke.

Cons of the Policy

Studies show that changing human behavior as it relates to health conduct is not a one-size-fits-all approach (Sheeran, Klein, & Rothman, 2017). Significant changes may need expensive policy intermediations or combinations of interventions. Furthermore, the response of smokers to higher prices is subject to uncertainties and elasticity in price and demand (Goodchild, Perucic, & Nargis, 2016). The policy does not address issues related to addiction, which may lower the expected reaction to the financial disincentives meant to reduce the consumption of cigarettes. In the end, there may be no meaningful financial or health benefits of the policy.

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The impact of the policy on health care spending could take a long time to be felt even if the policy changes people’s behavior and yields health benefits. Though lowering the incidence of diseases and morbidity associated with smoking could cause substantial savings on healthcare expenditure in the long run, the savings could still be counterbalanced by further spending if improved health increased the life expectancy. For example, the federal government could spend more on the Medicare program in the treatment of health conditions associated with the added years of life. There could still be an increase in other unrelated expenses such as Social Security (Chetty et al., 2016).

There is a likelihood of resistance from tobacco industries because the policy reduces the consumption of cigarettes. Such resistance has been reported in countries like Mexico and the Philippines (Savedoff & Lopert, 2020).

Implementation of the Policy

The implementation of the policy would involve levying an excise duty of 50 cents per pack of cigarettes. These costs would be passed over from manufacturers to distributors and finally to the consumer. To keep up with the rates of inflation and economic growth, annual calculations of new rates would need to be done. This process would require the input of financial analysts to compute the inflation and increase in annual income to determine the new rates of excise duty.

Evaluation of the Policy

To determine the impact of the policy, it would be necessary to collect baseline data on the incidence and prevalence of cigarette smoking. Other important datasets that should be collected include the incidence of smoking-related health complications and the cost of treating these diseases. The same data should be collected after the implementation of the policy. However, the tangible effects of the policy may take time to manifest. Therefore, post-intervention data should be collected after at least a year of implementing the policy.

A comparison of the two datasets pre-and post-implementation would determine the effect of the policy. It would be expected that implementing the policy would cut down the incidence and prevalence of smoking, health complications associated with smoking, and health care spending on treating these complications. On the contrary, the general health and life expectancy would be expected to improve following the execution of the policy. A statistical evaluation would be done using independent-sample t-tests at 0.05 level of significance. P-values of less than 0.05 would indicate that the policy has a statistically significant impact on the incidence and prevalence of cigarette smoking, smoking-related disorders, health care expenditure on smoking-associated complications, and life expectancy. Therefore, the policy would have been successful in attaining its purpose, Conversely, p-values greater than 0.05 would be an indication that the policy is unsuccessful. However, it would also be necessary to carry out an impact evaluation of the policy to determine its long-term impact given that it takes time to get a true depiction of measures such as life expectancy.

Future Research Implications

The potential impact of the policy on the federal budget has been explained. However, its impact on state budgets remains unknown. Future research should consider investigating the effect of increasing the excise duty of cigarettes on state budgets and personal income. For the policy to be effective, it needs to be simple, which means that complex tax regimens should be avoided. Additional research should also be done to determine the simplest tax regimes that can be used to impose additional levies on cigarettes.


Health-related behaviors are consequences of complex interactions between many factors. Financial incentives and disincentives play a vital role in determining personal expenses. Therefore, a policy to raise the cost of cigarettes by increasing the excise duty per packet is expected to generate financial and health benefits. However, these benefits may take time to be evident, which may necessitate the collection of pertinent data over a long period following the implementation of the policy.

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Chetty, R., Stepner, M., Abraham, S., Lin, S., Scuderi, B., Turner, N.,… Cutler, D. (2016). The association between income and life expectancy in the United States, 2001-2014. JAMA, 315(16), 1750-1766.

Congressional Budget Office. (2012). Raising the excise tax on cigarettes: Effects on health and the federal budget. Web.

Delaney, K. R., Naegle, M. A., Valentine, N. M., Antai-Otong, D., Groh, C. J., & Brennaman, L. (2018). The effective use of psychiatric mental health nurses in integrated care: Policy implications for increasing quality and access to care. The Journal of Behavioral Health Services & Research, 45(2), 300-309.

Goodchild, M., Perucic, A. M., & Nargis, N. (2016). Modelling the impact of raising tobacco taxes on public health and finance. Bulletin of the World Health Organization, 94(4), 250-257.

Reagan, M. D. (2018). The accidental system: Health care policy in America. New York, NY: Routledge.

Savedoff, W., & Lopert, R. (2020). Sugar, rum, and tobacco: domestic resource mobilization for low-income countries through excise taxes. Web.

Shaik, S. S., Doshi, D., Bandari, S. R., Madupu, P. R., & Kulkarni, S. (2016). Tobacco use cessation and prevention–A review. Journal of Clinical and Diagnostic Research: JCDR, 10(5), ZE13-ZE17.

Sheeran, P., Klein, W. M., & Rothman, A. J. (2017). Health behavior change: Moving from observation to intervention. Annual Review of Psychology, 68, 573-600.

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The World Bank. (2018). Taxing tobacco: A win-win for public health outcomes and mobilizing domestic resources. Web.

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