Public Health Initiative Part 1B

Principles of Economics for Evaluation of the Public Health Initiative

In order to evaluate and assess the need for the public health initiative, opportunity costs as the central economic concept will be applied. According to Mankiw (2014), “the opportunity cost of an item is what a person gives up to get that item” (p. 6). In other words, a decision maker should weigh whether he or she is ready to choose the item regarding other possible alternatives. For the healthcare field, well-being and health are the determinants of this choice. One of the central aspects of the Healthy Maryland Initiative is to increase taxes on smokeless tobacco and cigars as the products used actively by teenagers. Thus, the focus is made on the early refusal from smoking or decrease of its level as the preventive measures to smoking-related diseases development.

The developers of this initiative will appeal to the policymakers for an understanding of the opportunity costs related to the possible scenarios. The policymakers can refuse to increase taxes on cigars and smokeless tobacco driven by the pressure from the large corporations – producers of cigars and smokeless tobacco. These companies may argue that such an increase in taxes will decrease their revenues, thus the volume of taxes inflow to the Maryland state budget, and will cause them to fire employees as the cost optimization step.

However, state policymakers should consider the benefits of smoking taxes increase. As Ekpu and Brown (2015) argue, smoking brings direct, indirect costs and intangible costs as well. The direct costs of smoking are the healthcare spending on the treatment of illnesses related to smoking such as administrative services and cost of drugs as well as the cost of illness related to smoking. Indirect costs of smoking include the considerable impact on nonsmoking public and society, in particular second-hand smoking, absenteeism, loss of productivity and related costs incurred by employers in case of the necessity to cure smoking-related diseases of the employees (Ekpu & Brown, 2015). The authors emphasize that “about 15% of the aggregate health care expenditure in high-income countries can be attributed to smoking” (Ekpu & Brown, 2015, p. 2). In the United States, the productivity losses as one of the indirect costs related to smoking are estimated at US$151 billion annually. The arguments of the business players are weak compared to the positive impact of taxes on non-cigarette tobacco products and cigarettes increase.

The price elasticity of demand as an important economic issue should be also considered for evaluation of the probability of an expected decline in smoking prevalence, especially among teenagers. According to McEachern (2008), this value measures how responsive is the demand for the product or service when its price changes. It is calculated as the alteration in quantity demanded (in percent) divided by the alteration in price (in percent). Inelastic demand means that the result of the previous formula is between 0 and 1, and the demand is unresponsive to the change in price. In contrast, “elastic demand is when the price change will cause a significant change in the quantity demanded” (McEachern, 2008, p. 63).

In the case of the Healthy Maryland Initiative, the initiators base their claim of the tax increase on the cigars and smokeless tobacco on the fact that the price elasticity of demand is high: the change in price leads to the change in quantity demanded. This means that if the policy makers will raise the smoking tax, the price will grow and the customer will buy less tobacco and smokeless tobacco products. Therefore, the 1$ change on the cigarette or non-cigarette pack’s price will cause a significant decline in the purchase volume of these products.

Micro or Macroeconomic Program

As it is underlined by Hubbard, Garnett and Lewis (2013), the macroeconomic issues address the economy as a whole covering such aspects as economic growth, inflation or unemployment. The microeconomic level is the level of interactions between the individuals and the manufacturers on the market and the government as the coordinator of this relationship (Hubbard et al., 2013). Thus, microeconomics is related to the choices made at the individual level by the consumers whether to buy a product or not; by the organization what and how much to produce, what price to set and other factors. A government makes an attempt to influence such choices.

Regarding the above-mentioned information, the Healthy Maryland Initiative is the microeconomic program. Ekpu and Brown (2015) argue “smoking cessation interventions are among the most cost-effective and economically reasonable ways of appropriating health care resources” (p. 29). If the tax on smoking is increased in Maryland, the state authorities will be able to influence the choices of the consumers whether to buy tobacco products. With the rise in the taxes on tobacco products, the price will grow, too, and customers will think twice whether they can afford this product, because their disposable income will remain the same. If the state authorities agree to this Initiative, the core aim will be to decrease the demand for the tobacco products, especially among the teenagers who are limited with the level of their spending. It is expected that teenagers will refuse from buying the smokeless tobacco and cigars, thus the level of smoking and negative health outcomes will be decreased.

Public or Private Good

McEachern (2008) writes that private goods can be characterized as being exclusive and rival. The first category means that the manufactures or service providers will deliver their products or services only for those customers who are able to pay. Rivalry means that when a customer buys a product or uses a service it becomes unavailable for others or the quantity of these products or services declines. Public goods have characteristics of being non-rival (for instance, reading of the statistics provided by the Centers for Disease Control and Prevention does not limit the opportunity for other users to read the report) and non-exclusive.

The Healthy Maryland Initiative is a public good because by fighting for the tax increase on tobacco products it provides the chance to all smokers to decrease their smoking level. The initiative is non-rival and non-exclusive, because if the tax is increased, all Maryland’s citizens can benefit from it. This strategy is considered as the most effective way to reduce smoking especially among citizens with the low income and teenagers. Thus, the Healthy Maryland Initiative facilitates a positive shift in the improvement of the citizens’ health both for smokers as well as for their families and community as a whole.

According to Ekpu and Brown (2015) “the economic impact of smoking is twofold: the costs of tobacco use itself, and the costs of reducing its prevalence among smokers” (p. 28). The tobacco use costs are not simply the price for the cigarette and non-cigarette products. They impact negatively on health and economic state not only of the individuals who smoke, but also influence their families, taxpayers and employers. This includes tangible costs as well as intangible costs such as the burden of pain, suffering from the smoking-caused illness, and loss of life.

The costs of decline in prevalence of smoking level are associated with the cost savings of reduced mortality and morbidity, the marginal risk of disease and decline in the costs of illness (Ekpu & Brown, 2015). Lowering the level of smoking will cause the improvement of the life quality and longevity of life, healthier population, reduced number of fires with smoking as the main reason, related destruction and damages, costs savings for environment cleaning after smoking.

Initiative’s Financing Source

As it is stated at the Official Website of the Health Care for All Coalition (2017), the Healthy Maryland Initiative is one of the public health initiatives coordinated by the Maryland Citizens’ Health Initiative Education Fund, Inc operating since 1999 and is the part of the Health Care for All Coalition. According to the Health Care for All (2017), the fund is supported by numerous state, national and local organizations and allocates the received financial inflow among its initiatives. They include Baltimore Community Foundation, Abell Foundation, Annie E. Casey Foundation, Consumer Health Foundation, Horizon Foundation, Public Welfare Foundation and others. Health Care for All Coalition consists of more than 1,200 health, business, labor, faith, and community organizations and is one of the largest in the U.S. and the largest coalition ever operated in Maryland.

Impact on the Supply and Demand of Public Health Services

Regarding the fact that the Healthy Maryland Initiative aims at the decline in smoking levels, thus the positive impact will be made on the health of the consumers who will decrease or refuse from smoking. This will prevent occurring of smoking-related illnesses or improve the state of the chronically-ill patients who will decrease the consumption of the harmful tobacco products. Therefore, the demand for the public health services will be decreased with the falling number of smoking-related diseases. The supply of public health services will be directed to other more critical areas, correspondingly.