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Tallying Up the Costs of Cigarette Smoking
Research Indicates Tobacco Industry Settlement Is Inadequate to Cover Medical Claims

by Patricia McBroom, Public Affairs
posted Mar. 18, 1998

University of California health care economists have created the first detailed picture of the impact of cigarette smoking on Medicaid costs in all 50 states.

Published March 9, the analysis provides a solid foundation for financial claims by states against the tobacco industry.

It also demonstrates that a proposed settlement being negotiated, whereby the tobacco industry would pay out $368.5 billion to 40 states over 25 years, is not high enough to cover any medical claims other than Medicaid.

Smoking-related Medicaid costs amount to $12.9 billion per year, or $322 billion in 25 years without inflation, the economists discovered. This does not include the financial impact of cigarette smoking on Medicare or private insurance companies, they said.

“The tobacco industry has caused immeasurable harm to the public health,” said Leonard Miller, professor of social welfare. “These figures strengthen the idea that economic sanctions are appropriate and justified.”

Miller’s analysis, published in the March/April issue of Public Health Reports, was co-authored by Dorothy Rice, professor emeritus of health economics at the UCSF School of Nursing, and former director of the National Center for Health Statistics. Other authors are Thomas Novotny of the Centers for Disease Control and Prevention, Xiulan Zhang, Berkeley graduate student and Wendy Max, associate professor at UCSF.

Miller and Rice have been at the forefront of a decade-long effort to isolate the economic effects of smoking on the health care dollar. Their 1994 report estimated that total smoking effects on health care amounted to $50 billion per year.

Today’s more detailed analysis of Medicaid costs by state is based on a model that has been used since 1996 in various state suits against the tobacco industry. This is the first time, however, that all state figures have been assembled in one report.

“We are now able, for the first time, to isolate the actual medical expenditures associated with smoking on a state-by-state basis, and this is only Medicaid,” said Rice. “I feel strongly that any global settlement with the tobacco industry should go beyond $368 billion.”

The report shows that in the base year of 1993, the health effects of smoking cost New York State $1.8 billion or 15.8 percent of that state’s Medicaid budget. California had the second highest outlay, at $1.7 billion (16.2 percent of California’s Medicaid costs) for that year.

Among the states with the lowest expenditures were North Dakota, with $19 million in smoking health effects (10.9 percent of North Dakota’s Medicaid budget). The lowest percentage – although not the lowest expenditure – was in Washington, D.C., where 8.5 percent of the Medicaid budget in 1993 was attributed to smoking. The highest percentage was in Nevada with 19.2 percent.

Variations in the SAF or smoking-attributable fraction among the different states are due to different demographic features and smoking rates, said Miller.

Nevada, for instance, had the highest smoking rate in the nation (30.3 percent) in 1993, while Washington, D.C., where 18.2 percent of people smoked, was among the lowest. Only Utah, with an adult smoking rate of 15.1 percent, was lower. The average for all states was 22.9 percent; California’s was 19.3 percent. These smoking rates have changed somewhat since 1993.

The analysis took particular care to isolate direct smoking health effects from other confounding factors such as poverty, marital status, race, ethnicity and health insurance coverage, all of which independently affect health and the tendency to smoke.

“We now have a more pure measure of what is caused by smoking itself,” said Rice. “The econometric approach enables us to account for these other variables.”

Analysis of three different data sets created the statistical model used to arrive at state-by-state estimates of smoking-related health costs:

1. NMES (National Medical Expenditure Survey, 1987), a face-to-face survey of 35,000 people that linked population characteristics with use of and payments for medical resources.

2. CPS (Current Population Survey, 1993), conducted by the Census Bureau for employment information.

3. BRFSS (Behavioral Risk Factor Surveillance System, 1993), an annual telephone survey of health risks and medical care, conducted by state health departments in collaboration with the CDC.

Using these and other data, Miller and his team arrived at average SAF’s for each state and five types of medical care use, which were then multiplied by actual state Medicaid Expenditures.

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