BACKGROUND: Although smoking cessation is desirable from a public health perspective, its consequences with respect to health care costs are still debated. Smokers have more disease than nonsmokers, but nonsmokers live longer and can incur more health costs at advanced ages. We analyzed health care costs for smokers and nonsmokers and estimated the economic consequences of smoking cessation. METHODS: We used three life tables to examine the effect of smoking on health care costs - one for a mixed population of smokers and nonsmokers, one for a population of smokers, and one for a population of nonsmokers. We also used a dynamic method to estimate the effects of smoking cessation on health care costs over time. RESULTS: Health care costs for smokers at a given age are as much as 40 percent higher than those for nonsmokers, but in a population in which no one smoked the costs would be 7 percent higher among men and 4 percent higher among women than the costs in the current mixed population of smokers and nonsmokers. If all smokers quit, health care costs would be lower at first, but after 15 years they would become higher than at present. In the long term, complete smoking cessation would produce a net increase in health care costs, but it could still be seen as economically favorable under reasonable assumptions of discount rate and evaluation period. CONCLUSIONS: If people stopped smoking, there would be a savings in health care costs, but only in the short term. Eventually, smoking cessation would lead to increased health care costs.