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.

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.