Cigarette tax hike would help ease state’s Medicaid shortfall, leaders say
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The Indy Chamber has lobbied unsuccessfully since 2018 to raise the state’s cigarette tax, and it is ready to give it another go in the 2025 legislative session.
The chamber held a panel discussion this week to help prime the issue. Employee health care advocates argued that a tax hike would help reduce smoking in the state, generate additional revenue that could be used to help pay down the state’s $1 billion Medicaid shortfall and reduce health care complications that would in turn cut that state’s Medicaid costs.
But state Rep. Brad Barrett, who would hold significant sway over any potential legislation as chair of the House Public Health Committee, said one hurdle a cigarette tax hike would need to overcome is idea fatigue.
“You’re dealing with something, and you’re beating your head against the wall … How many times do you do that?” said Barrett, a Republican from Richmond. “That has been an issue that’s entered into the equation, the fatigue of the idea, although we see the huge benefits that that would have to our state.”
He noted that the state continues to suffer from a nearly $1 billion Medicaid miscalculation that could lead to budget cuts and last year resulted in the stalling of about 20% of the bills sent to his committee.
Indiana’s current cigarette tax is 99.5 cents per pack, which is the 39th lowest tax rate among the states and hasn’t been increased since 2007.
Tax hike proposals in recent years would have increased Indiana’s tax to $2 a pack.
A Richard M. Fairbanks Foundation report says a $2 tax would bring inspire several benefits, including a state revenue increase. The chamber says reducing tobacco use will contribute to an overall healthier workforce by decreasing chronic health issues.
Taylor Hughes, Indy Chamber’s chief strategy officer and chief of staff, told IBJ over email that increasing the tax to $2 a pack could result in $356 million in annual revenue, which could help mitigate the Medicaid shortfall. Long-term healthcare savings could amount to $795 million a year, he said, since smokers typically have higher Medicaid bills.
Jennifer Pferrer, executive director of the Wellness Council of Indiana executive director, told the room of business leaders and employers that supporting this measure will improve the health of their employees, which will in turn reduce their costs over time.
Some estimates say tobacco use results in $7.6 billion in health care costs and lost productivity in Indiana each year. Each additional employee who smokes costs the business an additional cost of $5,800 yearly
“You are the gateway to access for most healthcare,” Pferrer said. “You should take that very seriously.”
Paula Pape, wellness coordinator at Concentra Onsite at Allison Transmission, added that tobacco use also impacts injuries and the time spent on workers’ compensation. She said the habit can increase recovery times, which could lead to companies spending more on time off.
The Centers for Disease Control and Prevention said increasing the price of tobacco products, such as through sin taxes, is one of the most effective methods to curb use. Several states have raised tobacco taxes significantly, including Midwest neighbor Illinois at nearly $3.
“We know that if we have a tobacco tax, we will reduce the tobacco use in the state of Indiana,” Jennifer said.
About 16.2% of Hoosier adults said they were smokers in 2022, according to the Indiana Department of Health. That rate is higher than the national average of 14%.