A $1 Cigarette Tax Increase is the Solution to Medicaid’s Long-term Funding Problem

The Communities for a Clean Bill of Health (CCBH) is disappointed that Governor Haley Barbour’s proposal for funding Mississippi’s Medicaid program does not include a cigarette tax increase. It is even more disappointing when you consider that a great majority of Mississippians and even a majority of legislators favor a $1 cigarette tax increase to fund Medicaid.

The Governor’s current proposal and the parliamentary rules of the special legislative session limit the ability of legislators to consider all available options to provide stabile funding for Medicaid. We call on the Governor to amend his proposal and allow for all funding options to be considered—including a $1 cigarette tax increase.

Since 2002, CCBH has advocated for the increase of Mississippi’s excise tax on cigarettes. The coalition is made up of more than 40 national, state and local organizations, including AARP, The American Cancer Society, The American Heart Association, The American Lung Association, Children’s Defense Fund, Mississippi Health Advocacy Program, and the Partnership for a Healthy Mississippi.

The Governor’s plan would essentially levy a “bed tax” on every non-Medicare hospital bed in the state. It makes more sense to tax a product that puts people in the hospital and costs the state millions than establishments that take care of the sick and ill.

Mississippi’s Medicaid program has a structural deficit that results in a $90-$100 million funding hole each year. A $1 cigarette tax increase is the solution to Medicaid’s long-term funding problem. The Stennis Institute of Government found that a $1.00 per pack cigarette tax increase would result in $174 million in new revenue. It would also prevent 46,100 kids alive today from ever becoming smokers—leading to over $1 billion in long-term health-care cost savings.

Smoking directly affects Medicaid’s budget. The Division of Medicaid alone spends $264 million on smoking related healthcare costs each year while the state’s excise tax on cigarettes only generates $46.9 million annually.

Sustained Revenue

The featured graph, presenting data from Massachusetts, shows how state cigarette tax revenues do not decline sharply in the years following a significant cigarette tax increase.

CCBH Addendum to the Governor's Tax Study Commission

A $1 CIGARETTE TAX INCREASE IS A HEALTHY INVESTMENT IN MISSISSIPPI’S FUTURE

Throughout your deliberations this summer the Communities for a Clean Bill of Health (CCBH) strongly encourages you to consider Mississippi’s full income statement. The recommendations of this body should come as a result of measured counsel on not only state revenues but state expenditures as well.

As our remarks will entail, tax policy can have a direct effect on not only the economics but the health and wellbeing of Mississippians. Due to the encompassing nature of this study, CCBH believes this should be the first of several opportunities for public comments to this Commission. Also, all subsequent meetings, including those of the newly announce subcommittees, should be open to the public.

The Governor’s Tax Study Commission is a noble undertaking and the service of those on this body is commendable. The recommendations you put forth should serve as an investment in Mississippi’s future. Any long-term investment in the state would be incomplete if it does not include policy aimed to improve the health and productivity of Mississippians. To that end, we recommend a $1 cigarette tax increase as the best option to ensure a health and financial impact that would move Mississippi forward.

Dr. Ed Thompson, State Health Officer, coined the phrase “worst firsts” to describe the fact that Mississippi leads the country in prevalence of diabetes, heart-disease death rate, population served by primary-care physicians and age-adjusted death rate.

Mississippi is also one of the worst in nation in terms of taxation on cigarettes. The state’s excise cigarette tax, 18 cents, has not been increased since 1985 and ranks 49th lowest in the nation. A $1 cigarette tax increase would provide both immediate revenue gains and a long-term health care investment because of the resulting reduction in youth and adult smoking.

Smoking declines produce enormous public and private sector savings that more than offset any state revenue reductions from fewer packs being sold. More specifically, smoking reductions among pregnant women and lower income households translate directly into reduced smoking-caused expenditures by the state’s Medicaid program.

Study after study— from the Centers for Disease Control and Prevention, the John C. Stennis Institute of Government, and even tobacco giant Phillip Morris – reveal that cigarette tax increases are the strongest way to reduce smoking, particularly among youth. It is only with a $1 increase that we reach the maximum health and financial benefits of a cigarette tax. Numerous studies have found that for every 10 percent increase in the price of cigarettes there is a 3 percent to 5 percent reduction in overall cigarette consumption.


A $1 cigarette tax increase would result in:

Ø 46,100 kids alive today, who will never becoming smokers
Ø 26,600 adults who would quit smoking
Ø 21.4% reduction in youth smoking
Ø $174 million in additional revenue
Ø $1 billion in Long-term healthcare

Looking at revenue side of $1 cigarette tax increase alone, cannot begin to tell the entire story of the impact it would have on Mississippi or the costs the state incurs due to smoking. The state spends $719 million annually on tobacco related health care expenditures. The Division of Medicaid alone spends $264 million to treat tobacco related illnesses while the current cigarette excise tax only generated $46 million in revenue in 2007. The state is essentially providing millions of dollars in health care subsidies for smokers. Smoking costs everyday Mississippians:

Ø 4,700 tobacco-related deaths annually in Mississippi
Ø $8.37 in smoking caused costs per pack of cigarettes sold in Mississippi
Ø $564 per Mississippi household to treat tobacco-related disease
Ø $1.41 billion smoking caused productivity losses

Significant tobacco tax increases always produce substantial net new revenues that last. In every single instance where a state has passed a significant cigarette tax increase, the state has enjoyed a substantial, sustained increase to its state cigarette tax revenues. This occurs, despite significant declines in smoking rates and taxed pack sales, because the increased tax per pack brings in much more new revenue than is lost by the declines in the number of packs sold and taxed.