Last month on Marketplace, I published a report from my year-long investigation about how Army, Air Force and Coast Guard bases in more than a dozen states sold tobacco at illegally low prices, even as the Department of Defense (DoD) spends more than $1.5 billion a year on tobacco related costs. (Listen to the story here and view the interactive map).
While reporting this story, one of the big questions nagging at me was this: If a base did adjust its prices for tobacco, raising them to legal levels, how much would be saved on health care costs?
To find out, I figured I'd need to know three things:
- How many tobacco-buying customers each base has. Shoppers on bases include not only active duty service members, but some vets and the family of military members.
- How these shoppers would be affected by changes in price. If prices were to go up, how many less cigarettes would a smoker buy? Would they quit? Would they smoke less a day? Or, would their behavior not change at all?
- And finally, what are the health care costs associated with a single person using tobacco?
Put these three things together and they should lead to an answer.
The Army and Air Force exchange supplied customer numbers without a hitch. And we already know, thanks to the DoD 2008 Health Behaviors survey, that 30 percent of military members are smokers. But how would they respond to price changes? Answering that question proved to be a little more complex.
When it comes to cigarettes, shoppers of different ages react differently to changes in prices. Matthew Farrelly, senior director of Public Health policy research at RTI International, says 18- to 24-year-olds have twice as big a response to price increases as do older smokers. So if the price of cigarettes goes up 10 percent, younger smokers would consume 4 percent to 5 percent fewer cigarettes. But consumption among older smokers would probably only go down by 1 percent to 2 percent. When you stop and think about it for a minute, it's not all that surprising. Older smokers are generally more addicted, and have more disposable income.
Tobacco Free Kids has data on health care costs associated with Tobacco. So I asked Ann Boonn, the organization's research manager, to crunch the numbers using Farrelly's formula. Boonn says there are no numbers on the healthcare cost savings specifically from smokers in the military who quit, so her calculations (PDF) assume the savings are the same for the military as they are for the general public.
While the military was helpful enough to provide us with customer numbers for certain bases, we don't have a breakdown of customer ages. So Boonn kept the calculations a bit more conservative, using the numbers only for older adults.
Not all bases had large enough price increases to affect consumption. At Dover AFB, Andrews AFB, and the Air Force Academy in CO, the price increases were so small that they wouldn't do much to change people's buying habits. Which means few, if any, military members would quit as a result. And there would be little healthcare savings.
But for other bases, the savings are substantial as seen in this chart:
Projected Healthcare Savings from increased cigarette prices at military bases. These numbers represent savings over the lifetimes of adults who quit.
So where are the prices now?
About a month after the story aired, prices for tobacco on bases have barely risen. At one base, Fort Wadsworth in Staten Island, NY, they've actually gone down by about 80 cents. And while I spent the better part of last year calling base stores to check tobacco prices, last week two bases, Fort Hamilton and the Coast Guard base at Long Island Sound, told me they could no longer give out prices over the phone.
The Army and Air Force Exchange, which oversees tobacco pricing on bases, hasn't yet responded to my request for more information so without visiting the bases themselves it's just not possible to tell if it will or won't be raising prices. But my contact at the Coast Guard Exchange told me that did raise prices at Fort Wadsworth, their base in Staten Island, NY. But after shoppers complained, prices were lowered again. Here's the full response from the Coast Guard:
We raised our prices in May and June to the point at which our premium carton prices exceeded $100. This price change created a firestorm of complaints from our patrons. The complaints were all based on the fact that within 10 miles of our location, private sector retail outlets in New Jersey were $25 per carton less expensive. We conducted additional price surveys of the local area, including several NJ locations that were within 10 to 15 miles of our store. As you know the minimum tobacco retails in NJ, you know that our Ft. Wadsworth prices were consistently significantly higher. Based on those survey results, we reviewed the DoD regulation (1330.9, December 7, 2005) which stipulates our tobacco prices "...shall be no higher than 5% below the most competitive commercial price in the local community." The regulation does not define the local community. Moreover, the regulation does not draw distinctions between state boundaries. In our opinion, commercial establishments less than 20 miles from our exchange clearly constitute the local community. As you know, the mission of the exchange is to provide goods and services to our authorized patrons at a savings. Charging our patrons 25 percent more for any product than the commercial sector in our local community is undermining both the mission of the exchange and the privileges our military members have earned. Based on all of this information, we changed our pricing back to 5 percent below the competitive commercial prices in New Jersey (within 10 -15 miles of Ft. Wadsworth) at the end of June.