The correct counter factual is key in cost of smoking

This is the second post looking at the FDAs recent rulemaking around Graphic Warning Labels (GWLs) for cigarettes and applying new regulations to other types of tobacco. The first post is here.

This post addresses confusion about the counter factual used in our book The Price of Smoking (MIT Press, 2004) to identify the life cycle cost of cigarettes, expressed in a NPV of $40/pack in 2000$. Frank Chaloupka and other leading researchers have written a useful critique of the FDA report, that leans heavily on our cost of smoking work. However, Chaloupka et al. have one thing wrong. On page 8  they say:

The FDA’s analysis appropriately accounts for the fact that smokers differ from never‐smokers
in many ways, including income levels, insurance status, race and ethnicity, and participation in
other risky behaviors.  This implies that these differences need to be accounted for when
estimating the health care costs of smoking, something commonly done by estimating costs for
the counterfactual ‘non‐smoking smoker’, with the difference in costs between the smoker and
the non‐smoking smoker reflecting the excess costs caused by smoking.  However, FDA’s
approach, following that used by Sloan and colleagues (2004), compared costs for smokers to
costs for current non‐smoking smokers, comprised of never smokers and former smokers,
rather than comparing costs for smokers to hypothetical never‐smoking smokers.  Given that
the difference in expenditures for current smokers and current non‐smokers will be smaller
than that for current smokers and never smokers, this approach will lead to an underestimate
of the benefits resulting from reductions in smoking in response to FDA regulatory actions (emphasis added)

This is incorrect. We used a non-smoking smoker, statistical counter factual to identify the cost of smoking net of other factors (Ch2excerptMITPressSmokingBook.8.11.14). The previous link is a fairly lengthy excerpt of the second chapter of the book describing the conceptual, life cycle approach we used that is based on the non smoking smoker counter factual. In Chapter 1 (p. 20), we announce our intentions to estimate the cost of smoking using a statistical construct of the “non smoking smoker”:

In estimating smoking-attributable mortality, it is essential to compare mortality experience of actual smokers with what they would have experienced if they did not smoke. We term the latter “nonsmoking smokers.” Such persons are as close to smokers as our data allow us to make them.

There are a series of assumptions and choices we made that are conservative in terms of identifying the cost of smoking, and therefore in the FDAs work, estimating some of the benefits of stopping are also likely conservative. I will get into some of those issues in later posts.



*The Price of Smoking. Frank A. Sloan, Jan Ostermann, Gabriel Picone, Christopher Conover, and Donald H. Taylor, Jr. MIT Press, 2004.  Note: several has asked me why the book is not titled “The Cost of Smoking”….that is what the manuscript was titled and the MIT Press marketing people wanted (and obviosly got) the titled changed.

About Don Taylor
Professor of Public Policy (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute), and Chair of the Academic Council at Duke University . I am one of the founding faculty of the Margolis Center for Health Policy. My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

5 Responses to The correct counter factual is key in cost of smoking

  1. harleyrider1978 says:

    Smokers’ lungs used in half of transplants

    Almost half of lung transplant patients were given the lungs taken from heavy smokers, with one in five coming from donors who had smoked at least one packet of cigarettes a day for 20 or more years

    Despite this, new research shows that those people given the lungs of smokers were just as likely to be alive up to three years after transplantation as those who had organs from non-smokers. In some cases, they had improved survival rates.

    “Donor lungs from even heavy smokers may provide a valuable avenue for increasing donor organ availability,” says André Simon, director of heart and lung transplantation and consultant cardiac surgeon at Royal Brompton and Harefield NHS Trust.

    “Our findings provide for the first time real world figures for the perceived risk of implantation of lungs from donors with even a heavy smoking history, and they show that such donor lungs may provide a much-needed lease on life to the critically ill patient whose chances of survival diminish with every day or week that passes by on the waiting list.

    “I believe that candidates significantly decrease their chances of survival if they choose to decline organs from smokers.”

    Lung transplantation is a life-saving therapy for patients with end-stage lung disease, but a shortage of organ donors means people are dying while waiting. UK Transplant Registry data show that only 20 per cent get transplants within six months. The figure rises to 51 per cent after three years, but by that time nearly one in three patients has died waiting for a transplant.

    The demand for lung transplants, which are carried out for suitable patients with a number of diseases, including chronic obstructive pulmonary disease and cystic fibrosis, far outstrips demand. Using lung transplants from smokers is a way of boosting supply, but such use has attracted concerns and controversy because of a perceived risk to the health of the recipients.

    The new research, conducted at Harefield Hospital in north-west London where Professor Sir Magdi Yacoub carried out the first UK heart and lung transplant in 1983, looked for any differences, including short-and medium-term survival, between patients given lungs from smokers and those who had organs from non-smokers.

    Over a six-year period since 2007, a total of 237 lung transplants were carried out at Harefield, and 90 per cent were double-lung transplants. Just over half, 53 per cent, had lungs from non-smokers, while 29 per cent were from donors who had smoked for less than 20 years, and 18 per cent had the lungs of people who had smoked 20 or more a day for at least 20 years.

    Results show that one-year and three-year survival figures were about the same for all three groups. Those with lungs from non-smokers even fared slightly worse in terms of one-year survival. A total of 77.7 per cent with non-smoking donors’ lungs were alive after the first year, compared with 90.8 per cent with smokers’ lungs. There were also no differences in a number of other measures, including overall effectiveness of the lungs, the amount of time spent in intensive care, and the length of time in hospital.

  2. harleyrider1978 says:

    Whether true or not, Breitbart has picked up the baton from The Scotsman, adding,

    Despite the best endeavours of the anti smoking lobby, what is little known is that the only objective research done into the lifetime costs of treating smokers compared to other lifestyles was completed in 2008 by the Dutch Health Ministry.

    The results calculated by actuaries found the lifetime cost from the age of twenty was the following:

    Healthy: €281,000

    Obese: €250,000

    Smokers: €220,000

    Yes, smokes (sic) are 22 percent cheaper to treat throughout their lifetime, mainly from premature mortality.

    That’s not to mention the (alleged) extra huge savings in pensions and care home costs for all the smokers who croak from a “smoking-related illness”.

    If the story is not true, as the consultant claims, did the Express fabricate the bit about people who were denied treatment going to their MPs?

    Makes you feel like shaking the truth out the lot of them…

    • Don Taylor says:

      health care costs are only one part of what we did. we didn’t find what they did on health care costs, but the point is that a societal cost estimate also has to account for the cost of lost life span

  3. harleyrider1978 says:

    Slim truth in smoking and obesity costs

    A leading actuary has lampooned health lobby figures on the costs of smoking and obesity as being extravagantly inflated and based on suspect methodology.

    “The numbers are all over the place,” writes Geoff Dunsford in the September edition of Actuary Australia. And they are “big numbers” – the implication being that they are too big.

    “Obesity costs $58.2 billion,” he exclaims, “that’s around twice the cost of age pensions!”

    The sheer size of the numbers, argues the Sydney actuary, perverts government policy. It can lead to poor spending decisions. The credibility of the numbers from the health lobby is therefore critical to government policy.

    The press and the public have been led to believe that the costs to the system are higher than they really are so the government can “justify use of taxpayers’ money on measures to reduce its prevalence and prevention”.

    Dunsford looks at three public health issues: obesity, smoking and depression.

    1. “….obesity …. drains the national budget each year by $58.2 billion”, (Sun Herald report, March 13, 2011).

    2. “…smoking … costs our society $31.5 billion each year”, (Nicola Roxon, media release, April 7, 2011).

    3. “Depression-associated disability costs the Australian economy $14.9 billion annually”, (beyondblue website)

    In the first case, the newspaper story was based on an Access Economics report for Diabetes Australia titled, “The growing cost of obesity in 2008: three years on”.

    Access Economics estimated the cost of obesity to Australia at $58.2 billion. And sure enough, this enormous headline number promptly bobbed in the press.

    On Dunsford’s analysis, however, the figures are flawed, skewed by the “non-financial” estimates to make obesity seem a lot more costly to the taxpayer than it really is.

    The costs break down as $3.9 billion for the health care system, $4.4 billion in “other” costs relating to lost work days, taxes forgone and other productivity losses.

    Then there is the big one: $49.9 billion in “non-financial costs”. This relates to “burden of disease” or the personal cost of obesity. Dunsford asks, “how come this is included in a total in an announcement which appears – at least superficially – to represent real money costs?”

    The “burden of disease” numbers are calculated by working out “years of life lost through disability and premature death” and Access came up with $6.35 million for the value of a statistical life (VSL) and $266,843 for the value of a statistical life year (VSLY).

    Dunsford argues that it is taxpayers and consumers who will end up paying for all this statistical life.

    “The elaborate details on labels of packaged food products in supermarkets are testimony to the current massive regulations supporting such details, but more are planned by Food Standards Australia NZ and the National Preventative Health Taskforce,’’ he says.

    From there it would only be “a short step” to include take away food and restaurant meals and, already, in certain states of the US, it is a requirement for restaurants to display the calorific value of their meals in the same size print – “including on billboards!”

    ‘‘The cost of administering the regulations (to the government and the food industry, all of which will ultimately be paid by consumers) will be mind-boggling, but with a focus on the desire to reduce the $58.2 billion cost of obesity, such actions can readily be justified.”

    Tobacco figures are smokin’Geoff Dunsford is similarly wary of the costs estimates for smoking.

    Assessing the anti-smoking lobby’s $31.5 billion cost figure – found in “The costs of tobacco, alcohol and illicit drugs abuse to Australian society 2004-05” by David J Collins and Helen M Lapsley – Dunsford once again shines the torch on the “non-financial” costs and “intangible costs”.

    Of the $31.5 billion, some $19.5 billion are “intangible costs” – that is psychological costs of premature death borne by the smoker and others. Then there are $9.4 billion in “other financial costs” for productivity losses (smoko breaks perhaps?) and $2.2 billion in “non financial costs” such as unpaid labour costs.

    In the Collins and Lapsley report there is a discount for savings to the health system from premature deaths. But this is only $700 million on the $1 billion in actual costs to the health system.

    On the more nebulous costs, estimated by a “demographic approach”, the focus is on the additional number of persons who would have been alive today had there been no smoking deaths over the past 40 years.

    “An estimate of 369,161 was provided to the authors by John Pollard (he had no other involvement with the report).”

    To get to this $19.5 billion, the authors multiply the reduction in the population (369,161) by the value of the loss of one year’s life ($53,267), after adjustments.

    As Dunford points out, this report puts a different value on life than does Access Economics. Whether Access prices obese people more highly than skinny smokers – or Collins and Lapsley believe smokers are worth less than one-third of the value of fat people – we can’t be sure from “the literature”.

    Indeed each report mentions “the literature” and the large variation in assumptions included in “the literature”, although they also fail to explain, he says, why the numbers they adopted were relevant to their particular health problem.

    In addition, the “value(s) of a statistical life” and the “value(s) of a statistical life year” adopted were significantly different ($6.35 million and $266,843 for obese people, and $2 million and $53,267 for smokers).

    Presumably – and these are our words not Dunsford’s – the pricing of a statistical life would also become more complicated when calculating the demographic of people who are both obese and smokers. Do we just average out the $6.35 million and the $2 million?

    Dunsford however does point out the gross hypocrisy in the government’s position on smoking and revenue. Governments reap very fat profits from smokers.

    Subtracting the financial costs of smoking to the health system at $300 million, plus taxes forgone (from statistical smokers) at $2.9 billion, from the $6.7 billion in taxes levied by state and federal governments on tobacco products, leaves $3.5 billion in profit.

    Dunford says the higher welfare payments to smokers could be offset by the pension savings from higher smoker mortality. Still, a $3.5 billion profit from smokers is a tidy amount for the budget.

    When it came to the publicity for the “plain packaging” initiative, it would have been helpful, says Dunstan, to cite the $31.5 billion in “costs to society” rather than a more realistic figure.

    “Indeed, assuming the media release’s (Roxon’s office) expected reduction in adult smoking from the current 16 per cent of the population to 10 per cent is achieved, the reader could be forgiven for estimating the ‘cost’ to fall by … $11.8 billion,” says Dunstan.

    But such an assumption would be wrong as the methodology is flawed.

    “The problem with the … definition of costs is the way in which past drug abuse is incorporated into the costs for a given year,” says Dunsford. ‘‘Indeed, if all smoking stopped, (this) methodology would still generate a large cost of smoking in the next year by virtue of the effect of the past deaths.

    “This is rather counter intuitive! Arguably it renders the methodology meaningless for the purpose of addressing cost reduction initiatives”.

    ‘Burden of disease’ missing

    Finally, Dunsford points out that in the case of the beyondblue calculations, the $14.9 billion of annual costs to society from depression did not include a ‘’burden of disease’’ number. “Does this reflect the often suggested lack of interest by the government in mental health problems? Not so. Burden of disease numbers are available which show DALYs (disability adjusted life years) due to depression are significant – particularly when associated causes of death, like suicide, are included.” he says.

    He estimates that about $33 billion of non-financial costs could be added to the annual cost numbers for the personal impact on the loss of wellbeing from the burden of depression.

    Dunsford’s work is further proof we can’t place much store in lobby group costs claims. It’s more a case of plucking out a big number and working out some methodology to justify it.

  4. Pingback: Did the FDA under count the benefits of smoking cessation? | freeforall

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