Did the FDA under count the benefits of smoking cessation?

This is the third post in a series on the FDA’s recent rulemaking around Graphic Warning Labels (GWLs) for cigarettes. The first two:

At the heart of the FDA’s estimate of the cost of smoking (and therefore the benefits of cessation, which in turn provide the justification for the regulation) are the cost of smoking estimates that are the essence of our book The Price of Smoking. Frank Chaloupka and colleagues note in a paper commenting on the regulations that the FDA has undercounted benefits by relying on the estimates from our book that their review wrongly states were estimated with an improper control group. This is incorrect as noted in this post, (and Frank and I have communicated and he says that they will revise their paper as it moves toward publication).

However, the FDA estimates do appear to have under-counted the benefits of cessation by not including what we termed as quasi-external costs. We specified the NPV cost per pack smoked in 2000$ as follows:

  • $33 private cost: borne by the individual, primarily through a substantially shortened lifespan
  • $5.50 quasi-external cost: borne by the smokers’ family through increased health costs, slightly lower wages and other factors
  • $1.50 external cost: borne by society, and representing the net effect of things like taxes paid, Medicaid and Medicare payments, and Social Security received

The FDA analysis appears to only count the individual mortality effect, which is roughly the same as the private cost above. The external cost could rightly be excluded because the taxes collected, on average, more than account for these purely externals costs (though there would be some state-level distributional impacts due to state tax variation). However, excluding the quasi-external costs, which would be avoided with cessation, and thus become benefits of the new regulation, the FDA likely did under count the benefits of smoking cessation.

In the next post, I will take on the issue that my friend Chris Conover is addressing here–is government intervention warranted to stop an activity that mostly imposes costs on individuals through their own actions.

How much pleasure does smoking bring?

News of a controversial cost:benefit calculation contained in new federal tobacco regulations subjecting many tobacco products to cigarette-like regulations, and creating new graphic warning label (GWL) regulations for cigarettes. The question at hand is whether the cost:benefit analysis underpinning the regulations is correct.

Most attention has focused on estimates of the benefits (pleasure, etc.) that smokers derive from smoking that were used in the analysis, and which increase the cost of the regulation (lost benefit to smokers = bigger cost of regulation). Frank Chaloupka and several other leading researchers in the economics of smoking have written a useful critique of the economic analysis undertaken to evaluate this rule. They focus on the issue of “lost consumer surplus “–or the pleasure/other benefits that smokers derive from smoking as a cost of the GWL regulation. From page 3:

The most critical concern about FDA’s cost estimation is the agency’s reliance on lost consumer surplus as a cost of smokers’ quitting in response to the GWLs.  We describe in detail why the notion of consumer surplus, predicated on well‐informed rational behavior, does not apply in this instance in which the vast majority of smokers begin smoking, and become addicted, before the age of majority.

This is important because any rule that has an expected cost of over $100 Million (in 1995$) has to undergo a detailed cost:benefit analysis to demonstrate that the benefits of the regulation outweigh the costs. As the estimate of “lost consumer surplus” rises, the net benefit of the regulation decreases, making the case for its promulgation less clear. A book that I co-authored “The Price of Smoking” (5 part series on the book from June, 2011) with Duke colleagues figures heavily in the FDAs cost:benefit analysis, and our top line findings illustrate the stakes. We estimated the net present value of the societal cost of a pack of cigarettes in 2000$ to be $40/pack, allocated as follows:

  • $33 private cost: borne by the individual, primarily through a substantially shortened lifespan
  • $5.50 quasi-external cost: borne by the smokers’ family through increased health costs, slightly lower wages and other factors
  • $1.50 external cost: borne by society, and representing the net effect of things like taxes paid, Medicaid and Medicare payments, and Social Security received

Most of the cost of smoking is borne by smokers via shortened lifespan, so netting out the “lost consumer surplus” or pleasure from smoking greatly changes the calculus of assessing the costs and benefits of a regulation whose predicted impact is smoking cessation. Note that the disagreement about the magnitude of this “lost consumer surplus” is mostly one of theory application (I think). Two polar opposite interpretations of the economic and epidemiological literature are possible: smoking is simply another economic decision, and therefore the benefits of smoking must be similar to the costs expressed in terms of lost years of life. At the other end of the spectrum, the addictive nature of the product and juvenile initiation means smoking is irrational and therefore not given to a calculus based on the economic rationality of decisions. Surely the truth lays somewhere in between.

The most unusual aspect of the economic analysis undertaken by the FDA is to reduce, by around half, the benefits of smoking cessation to account for “lost consumer surplus” or foregone benefits of smoking, which greatly increases the cost of the regulation. While some allowance may seem reasonable, Chaloupka and colleagues argue persuasively (see p. 11-12) that we don’t have enough empirical evidence to determine the size of the impact, and most crucially that there is no reason to expect smokers to quit smoking in response to graphic warning labels if they had undertaken smoking in a fully rational manner. This is persuasive to me that reducing the benefits of cessation that are expected to result from the regulation by half is an over-estimate of this effect, resulting in an under-estimate of the net benefits of the regulation. It does not make clear what the correct estimate might be.

There are many other interesting issues raised by the FDA regulation and the Chaloupka et al response related to the economics of smoking that I will address in several posts over the next few weeks.

CBO on Cigarette Excise Taxes

CBO has a new report “Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget.”

The study cites some of the work I have done with colleagues, namely our AJPH paper The Effect of Smoking Cessation for Longevity (2002) and The Price of Smoking (2004).

One thing to keep straight when asking “what will happen if we increase/decrease a tax” is having a clear counterfactual against which to assess any change (as compared to what?). It is easy to lose sight of what you are trying to accomplish when deciding upon the correct counterfactual with which to judge a potential policy. Further, there can be huge differences between a pure public health perspective (that tends to only look at benefits) and a fiscal one (that focuses on costs). An example of a one-side interpretation of the new CBO report can be found in this post titled “CBO Taxes Backfire

Increasing the federal excise tax on cigarettes by 50 cents per pack would eventually increase Medicare and Social Security spending, because smokers would be healthier and live longer, according to a Congressional Budget Office report released Wednesday.

The report found that the tax increase would create short-term deficit reductions. However, by 2085, the costs associated with individuals living longer and consuming more Medicare and Social Security services would outweigh the health benefits and tax revenues, causing the deficit to increase slightly.

If all you are interested in is the fiscal impact on the federal budget only, then I guess that is fine. However, as important as the fiscal impacts of any policy are, they cannot answer every important policy question. We need to look at both the benefits and the costs of public policy when deciding what to do.

update: revised and expanded the initial post.

Tobacco Control Act of 2009

I participated in a very interesting day-long Economics of Tobacco Regulation round table hosted by the FDA and ASPE last week in Washington, D.C. The major goal of the session was to discuss findings, methods and data sets related to studying smoking initiation and cessation, in anticipation of increased regulatory steps that FDA can take as a result of the passage of the Tobacco Control Act of 2009. I will write a bit over the next few weeks about the Tobacco Control Act, a law that provides some new  regulatory powers to the FDA.

What sticks out in my mind from the session was the vivid illustration of the clash of public health versus economics in the analysis of smoking (assessing costs and benefits of regulations/interventions). My Ph.D. is in Health Policy and Management from UNC-Chapel Hill, and the answer in a School of Public Health to the question, “what is the optimal smoking prevalence?” is clear.

  • The answer is a decided and emphatic ZERO.

When considering smoking from an economics perspective, the answer is more complex.

  • It depends, mostly on how you measure the costs and the benefits of smoking (and how you discount them). However, there is almost certainly a non zero level of smoking at which the benefits of smoking outweigh the costs.

Both ‘sides’ in this discussion were very respectful and could engage in a methodological discussion of the reasons for the gap in the ideal smoking prevalence between the two premises.

  • Consumer choice has to count for something, there are diversity of preferences, and humans have smoked for a long time
  • Tobacco is an addictive product, people initiate when young and many smokers state regret at doing so late in life

The practical reason this gap must be bridged is that any major regulatory initiative brought under the auspices of the Tobacco Control Act of 2009 will have to have a detailed economic regulatory analysis completed, laying out the costs and benefits. Two key methodological questions were discussed:

  • should the numerous benefits to smoking cessation (essentially avoided costs) be offset by a reduction in lost benefits from the same smoking (having the effect of reducing the net benefits of any regulation)?
  • even more startling/interesting was the question of whether initiatives that prevent initiation should net out lost benefits from avoided smoking, again reducing the net benefits of any regulation?

My reaction/quick answer is yes to the first question and no to the second, but I am going to try and work my way into those answers more fully over a series of posts.


Cost effectiveness of smoking cessation

I was prepping over the weekend for a meeting Wednesday on the economics of tobacco control and ran across this very clear brief from the British Medical Journal that I thought was worth highlighting. Many of the health benefits of cessation accrue via life extensions, but they point out the morbidity differences by smoking status (measured by self rated health). Precise measurement of the morbidity benefits of cessation is likely important for continued cessation success (the chart below is cross sectional and doesn’t show changes). Communicating the benefits of cessation in different forms and formats maximizes the chance that change will be initiated.

More to the point, the article nicely lays out the cost effectiveness of simple smoking cessation interventions in terms of the cost of a life year saved as compared to common strategies to prevent heart attack.

The paper notes the following caution:

Care should be taken when extrapolating the results of these evaluations, as cost effectiveness estimates are likely to be time and country specific and highly dependent on the healthcare system in question. In a system of fee for service, as in the United States, monetary rewards may be necessary to encourage provision. On the other hand, if patients who stop smoking place a reduced burden on the primary care budget in future years, the incentives to provide such services may be inherent in the system.

While I don’t think I would describe the U.S. health care system (systems?!/non-system?!) as being simply fee for service, that helps to underline their point that precise estimates of the costs and benefits of smoking cessation are needed for each nation and likely sub-population to best target smoking cessation strategies. Smoking cessation is an old problem that remains a top public health priority. The CDC has declared tobacco to be a “winnable battle” and there is much work to do in this area.

II-Smoking Cessation: Selection Effects

This is the third in a series of posts looking more closely at the methods used to quantify the benefits of smoking cessation using this paper as an example; earlier posts:

A RCT of smoking cessation couldn’t and wouldn’t be done, so some sort of observational data must be used to quantify the benefits of smoking cessation. The choice of the Cancer Prevention Study II (CPS-II) presented benefits and costs:

  • Biggest benefit: large number of person-years of follow up (7.2 million for females, 4.3 million for males)
  • Biggest cost: selection effects that its use introduced

By selection, I mean the participants in CPS-II differed from the overall population:

  • They were whiter (93% of CPS-II v. 80% 1990 Census) and they had higher levels of education (30% college degree in CPS-II v. 9% U.S. adults).

What does this mean for our estimates of the relative risk of death by smoking status? First, the direction of any bias due to selection is ambiguous, unlike measurement error in smoking status that provides a predictably conservative bias toward identifying no effect. Using racial differences as an example, two stories seem plausible. First, whites could receive more benefit from cessation because they have a longer background life expectancy than minorities. On the other hand, non whites could receive more benefit from cessation at later ages because of healthy survivor effects. I am unsure what direction the net effect that selection bias of this sort may go.

In the end, 11.5 million person years of follow up covers a multitude of sins, and we were able to control for race (white v. non white) and education in the estimation of the relative risk of mortality calculations that underlie our models. However, even though we had large enough cell counts to control for these variables, there is still worry that the underlying population is different from that used to obtain the relative risk estimates.

Other cohort studies available were even whiter and based on one geographic locale (Framingham), or were based on the experience of General Practitioners in the U.K. (British Doctor Study). It would be great to have a long term follow up database that was representative of the overall population in terms of race and education to update this study, particularly given the increase in the Hispanic population of the U.S. The Health and Retirement Study, which is approaching 20 years of follow up could be an option for updating, and the tradeoff would be smaller cell sizes vs. being more representative. Are there other databases that should be considered?



After Tobacco

Sarah Kliff has a post on a new book After Tobacco: What Would Happen if Americans Stopped Smoking (by Peter Bearman, Kathryn Neckerman and Leslie Wright; Coumbia Univ. Press, 2011). I haven’t read the book but will try and get to it soon. Kliff highlights a few of the outcomes in a post-Tobacco world that may seem counterintuitive to some:

The economic effect on public programs, however, would be more of a mixed bag. States’ Medicaid costs would noticeably decrease: lower-income populations have higher rates of smoking and the negative health outcomes that follow. But states would also lose revenue from cigarette excise taxes, which amounted to $13.75 billion in 2006. If Americans stopped smoking altogether, states could see a 1.4 percent decrease in revenue, according to a chapter from Hunter College’s Howard Chernick.

A similar, spilt-effect would be true for Social Security. With Americans living longer, Social Security would bear the increased cost of supporting people for a longer time. But those costs are slightly offset from an increase in healthy workers, who “tend to earn more and retire later,” leading to higher contributions. On balance, “After Tobacco” estimates the end of smoking means a slight, 1.58 percent increase in Social Security outlays.

We found similar cross subsidies in The Price of Smoking that I have blogged about. I will be most interested in the methods they used and hope to blog about them in the next few weeks.