$3.1B in an Ashtray - The Hidden "Tax" of Hoosier Smoking

Everybody knows that smoking is bad, but most employers probably don’t realize just how much money the habit is costing their companies. New data published out of Indianapolis tells us how much it’s costing, and it’s sure to have many business owners gasping for breath. Collectively, all of the employees who smoke in Indiana cost their employers about $3.1 billion annually.

This is effectively an additional hidden tax for employers, amounting to about 1.7% of total wages each year. That’s all according to new research from the Richard M. Fairbanks Foundation (RMFF) in Indianapolis.

The researchers said that in Marion County alone, businesses paid nearly $609 million in this hidden “smoking tax” in 2022. The primary generators of these expenditures include adverse effects like extra absenteeism, unsanctioned smoking breaks, and excess healthcare costs.

“Indiana’s high smoking rate undermines the success of our business community and may prevent the state from attracting and retaining businesses in the future,” the foundation said.

How Did We Get Here?

The simple answer to how this situation got so costly for employers is Indiana’s notably high smoking rate. We rank about 8^th in the country among the highest smoking states. The national average rate is 14.4% and Indiana’s rate is much higher at 17.3%.

About 11,000 Hoosiers die each year from smoking related illnesses. Our annual healthcare expenditures directly caused by tobacco use weigh in at a massive $3.4 billion. (That’s different from the $3.1 billion cost to employers. The $3.4 billion is a different figure referring to cost of healthcare expenditures.)

Manufacturing Hit Hard

Indiana is a very manufacturing-intensive state, ranking in the top 10 for its industry concentration. We also have the highest share of manufacturing employment out of all U.S. states. When evaluating the costs to businesses generated by smoking, manufacturing firms are understandably hit very hard. The researchers said that In 2022, manufacturing businesses paid nearly $645 million in smoking “taxes.”

Interestingly, although manufacturing dominates the state average for losses caused smoking, things are not uniform across localities. For example, the healthcare and social assistance sector paid the largest amount in Marion County at $110 million in 2022. Which is darkly ironic.

Primary Areas of Loss

It’s crazy to think that something as common as smoking could add up to $3.1 billion a year for Indiana employers. But as the report noted, this “hidden tax” is generated by a range of different factors. Among the worst include:

• Smoking-Related Absenteeism: Employees who smoke are absent from work approximately 2.5 days more than a non-smoking employee. These costs equaled approximately $272 million paid by Indiana employers in 2022.
• Smoke Breaks: Smokers take more breaks, often more than their allotted breaks. This was conservatively estimated to be two 15-minute breaks per workday, adding up to about $1.7 billion in costs to Hoosier employers in 2022.
• Lost Productivity: Nicotine addiction has an effect on productivity. RMFF cited studies that estimate smokers work up to 4.0% less per year than non-smokers. But even if one estimated this loss at 1%, that added up to about $283 million for employers in 2022.
• Increased Health Care Costs (For Self-Insured): Employers with self-insured health care coverage are going to be paying much more to cover all the associated conductions that smoking causes. This would include cancers, cardiovascular disease, respiratory diseases, diabetes, immune disorders, and certainly many others. (The authors actually wrote this up as an “ever-growing list of diseases,” because new ones are discovered each year.) Since nearly 70% of Indiana employers are under self-insured plans, this added up to more than $757 million in excess costs in 2022.

Likely Underestimated at $3.1B

One final scary note to consider is the researchers pointed out their tally at $3.1 billion is likely an underestimation. “The actual number is likely far higher than estimated,” they said, because additional factors like higher health insurance premiums, higher workers compensation costs, secondhand smoking, and other considerations were not a part of this study.

That’s why it’s vitally important for every Hoosier company to prioritize smoking cessation programs and possibly creative incentives to help get employees off the habit. There’s no doubt about the business community being on the front line of this problem. Smoking has become a costly issue for the business community that should be taken seriously.