4 May 2016

Should smokers pay more for their health insurance?

Mark├ęta writes:*

Although, it is well-known that smoking significantly damages individual’s health, there are still approximately 32% people who are smokers in the Czech Republic. Even more alarming is the fact that smoking is nowadays most popular among young people (15 – 24 years). It is estimated that 44.7% of them are regular smokers. Further, on average smoking is the cause of premature death in one of five cases in the Czech Republic. One fifth of total healthcare spending (48.2 bln CZK, in 2011) was allocated for extra treatment of people who suffer from the diseases directly caused by smoking (27 CZK=1€). If the external cost which is imposed on the non-smokers (“society”) is added, it is estimated that the total social cost would increase to 75.3 bln CZK (2011), which was actually equal to 3.8% of the Czech GDP in 2011. Such disturbing numbers often lead to highly discussed question whether smokers should pay more for their heath insurance or not. 

picture taken from: Wikipedia
The conflict of interest has arisen because everyone who gets salary in the Czech Republic is required by law to pay for the health insurance (government pays for children, students and seniors). The amount that the individuals must pay is not however based on individual’s likelihood of using healthcare, but rather on the income level. It is undoubtedly easier to create and run system based on income than based on the likelihood of using healthcare, since it is hard to accurately estimate the individual’s likelihood of using healthcare. On the other hand, the average estimations of using healthcare become quite accurate when there is large sample. Many politicians, economists and doctors argue that it would be more beneficial to have a system in which individuals who damage their health by their own lifestyle (particularly smoking), would have to pay more for the health insurance, because they on average use healthcare more than non-smokers. Simply stated, the smokers should pay more, in order to compensate the “additional” spending in healthcare, since the tax on cigarettes has not helped to fully cover the cost of the treatment of the diseases directly caused by smoking. 

Even though, this is a classic example of market failure which is caused by negative externality, where the demand and supply fail to allocate the right amount and price of smoking that would be accepted by the individuals and the society, it is extremely difficult to come up with an effective solution. Firstly, if smokers were required to pay more for their health insurance, the Constitution as well as Health Act would have to be changed, because they guarantee “free of charge access to healthcare.” Such process could be lengthy, complicated and could not ensure quick fix of the system which is needed. Secondly, large percentage of the smokers are young people who are exempted from paying health insurance anyways, since the government pays the insurance for them. Third of all, it would be hard to come up with the system that would fairly determine how much an individual should pay, mostly because the health effects usually appear in the long run. Lastly, if such system was imposed it would have to be ensured that the additional collected money is used in healthcare spending and not in other areas of government-public spending.

Bottom Line: People who damage their health by their own lifestyle (particularly smoking) should pay more for their health insurance, because they are using health care more than the average citizens of the Czech Republic. However, although morally everyone could say that it is a good suggestion, in reality such decision might be very hard to enforce because of the limitations (stated above).

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.