Paying for the Health Costs of Smoking: Loss Shifting and Loss Bearers

Cigarette smoking is known to cause cancer, heart disease, and respiratory problems. These health costs are enormous, amounting to more than $50 billion per year. Although some of these costs are borne by smokers, many of them are externalized to nonsmokers. Recently, a number of states have sued tobacco companies in or- der to recover the costs of treating smoking-related diseases through their Medicaid programs. At the present time, the parties have agreed to a settlement that obligates the tobacco companies to pay billions of dollars to the states over the next twenty-five years. In other words, some of the losses associated with smoking are going to be shifted from individual smokers and others who currently bear them to tobacco companies and their customers. The purpose of this Article is to examine this loss-shifting process in more detail. The Article is largely concerned with the mechanisms by which losses are to be shifted from one party to another and the substantive rules that dictate when, from whom, and to whom losses will be shifted.