In 2020, nationwide, the cost of treating three diseases caused by smoking may be more than seven times the amount of revenue received by states from IEPS on tobacco. This means that the funds from IEPS received by states are not sufficient to cover healthcare costs caused by tobacco.
The estimated cost of care for lung cancer (LCa), chronic obstructive pulmonary disease (COPD), and acute myocardial infarction (AMI) in 2020 in Mexico is 93.379 billion pesos, while states receive just 12.539 billion pesos in tobacco IEPS transfers.
In every state, health care costs for those not covered by social security exceed by 3 to 12 times tobacco IEPS transfers. This is an additional reason to increase excise taxes on tobacco products.
Tobacco use leads to increased health care expenditure and lost human capital. In 2018, close to eight million people worldwide died due to smoking-related diseases and 9.1% of disability-adjusted life years lost can be attributed to smoking (IMHE, 2022). In Latin America, an estimated 8.3% of total expenditure on health care can be attributed to smoking (Pichón-Riviere et al., 2016).
In Mexico, the population without social security receives healthcare mainly from the states’ health systems. This study explores whether the revenue received by states from the IEPS tax on tobacco is sufficient to cover health care costs for three conditions caused by smoking in each of Mexico’s states.
2 Results, data, and evidence
In every state there is a fiscal gap with respect to the amount needed to cover the cost of health care caused by just three smoking-related diseases, even if considering only tobacco-attributable costs. Nationally, this deficit totals over 80 billion pesos. The fiscal gap would be even wider if the full range of diseases associated with tobacco use was considered.
The cost of health care in 2020 for just three smoking-related conditions comes to 93.379 billion pesos for all Mexicans who lack social security coverage. This is 7.4 times the amount of tobacco IEPS transferred to states (Table 1).
3 Public policy implications
Treating conditions requiring highly specialized care has become more difficult with the launch of the entity IMSS-Bienestar, as the intention is to use leftover resources from the Health Fund for Well-Being (FONSABI) and no clear strategy exists for sustainable funding. There has been no mention of any new funding in addition to that already allocated for health care for members of the population without social security coverage.
Beyond the economic implications for the fiscal system, the population lacks effective access to these health services not just due to a lack of financial means, but also because conditions like COPD and lung cancer are not included in the catalog of services available to those not registered with any social security institution and therefore will face out-of-pocket expenditures, with often catastrophic consequences.
It is important to link state revenue from IEPS on tobacco to health care costs and actual spending on treating and preventing smoking-related diseases. Excise taxes on tobacco are low in Mexico still and that is one reason for the insufficient transfers to the states. This is an additional reason to increase taxes on tobacco products.
An urgent discussion is needed to align the priorities of the health sector with the Mexican fiscal system. Fundamental to this discussion should be the generation and integration of sources of sustainable funding to support those with reduced access to health services. Increasing the low excise taxes on tobacco can fill the fiscal gap by increasing the revenue transfer to the states.