After an extensive set of federal rules was issued by the Food and Drug Administration, the $3 billion e-cigarette industry will now be subject to virtually the same regulations as tobacco cigarettes. While many public health advocates fret that e-cigarettes could serve as a gateway for a new generation of smokers, others fear that the FDA’s clampdown will make it more difficult for smokers to transition to e-cigarettes, which preliminary studies indicate are less harmful than tobacco cigarettes. Julian Reif, a professor of finance and of economics at Illinois who has studied smoking behaviors, spoke with News Bureau business and law editor Phil Ciciora about the FDA’s new regulation of e-cigarettes.
E-cigarette makers have long complained that new regulations could wipe them out. Will the new FDA rules regulating e-cigarettes benefit public health, or will they merely protect tobacco cigarette manufacturers?
The health consequences of e-cigarettes are not well understood yet, but the initial evidence suggests that they are less harmful than traditional cigarettes. If true, then imposing costly regulations on e-cigarette makers, which will raise the cost of their product and discourage consumption of that product, could actually end up harming public health. A counterargument to this is that e-cigarettes might encourage nonsmokers to begin “vaping,” and then eventually to move on to less healthy traditional cigarettes. But we don't have any good evidence that this is happening yet.
I agree that imposing costly regulations on e-cigarette makers will likely benefit traditional tobacco cigarette manufacturers. Firms like it when you tax their competition. I suspect that Big Tobacco is quite happy about the new FDA rules.
What is the argument for regulating and taxing cigarettes, and how does that argument apply to the regulation of e-cigarettes, whose only byproduct is water vapor?
There are several different arguments for regulating and taxing cigarettes. Cigarettes generate secondhand smoke, which is unpleasant and perhaps even harmful to people in a smoker's vicinity. Smoking also imposes financial costs on some public health care programs such as Medicaid. Finally, some argue that many smokers do not properly account for the long-term consequences of their smoking, and thus would actually benefit from regulations that reduce their cigarette consumption.
However, there is a fairly strong consensus that the external costs – both physical and financial – attributable to cigarettes is small, likely significantly smaller than the revenue brought in by current cigarette tax rates. One rather morbid reason for this is the fact that smokers die about six years earlier than nonsmokers, which reduces costs for Social Security and Medicare. Thus, the main remaining justification for the current level of cigarette taxes is a paternalistic one: Cigarette taxes benefit the smokers themselves. This is difficult to prove, however.
The health consequences of e-cigarettes are not well understood yet, but the initial evidence suggests that they may be less harmful than traditional cigarettes. If this is correct, then it argues for lower taxes on e-cigarettes than traditional cigarettes.
You’ve studied smoking behaviors. How can smokers be encouraged to quit? What role can lawmakers, employers and health insurance companies play in limiting smoking, whether it’s e-cigarettes or tobacco cigarettes?
One of the most effective ways to encourage people to quit smoking is by increasing the price of cigarettes. Although other regulations such as smoking bans have also been shown to successfully reduce smoking rates, taxation has two distinct advantages: It generates revenue, and it also allows those who greatly enjoy smoking to continue doing so, albeit at a higher cost.
Cigarette taxes are levied by state and local authorities. Health insurance companies cannot directly increase the price of cigarettes, but many do charge higher premiums to smokers. This is attractive to insurers because it allows them to recoup some of the extra insurance costs associated with the smokers, and – if one believes smokers make poor decisions – can even benefit the smokers themselves by encouraging them to quit smoking.