Since Don has been posting on the costs of smoking, I thought I’d offer a related excerpt from a recent NBER paper by John Cawley and Christopher Ruhm. Their subject is the economics of risky behaviors, and their paper includes the following literature review on the medical costs associated with such behaviors.
Relatively few studies have used econometric techniques to measure the causal effect of health behaviors on medical care utilization or costs. In contrast, many investigations have, in the tradition of COI [cost of illness] studies, estimated the correlation between behaviors and medical costs. For instance, Dorothy P. Rice, one of the pioneers of COI studies, quickly moved from estimating the direct costs of conditions such as cancer and AIDS to estimating the direct costs of health behaviors such as smoking, alcohol abuse, and drug abuse.
Many studies have examined the medical care costs of smoking; Sloan et al. (2004) identifies at least 165 published between the 1960s and 2002. For example, Rice et al. (198) calculated that $14.4 billion was spent in the U.S. in 1980 treating smoking-related illness. In an unusually detailed and careful analysis, Sloan et al. (2004) calculate that smoking at age 24 is associated with $3,757 higher lifetime medical expenditures for women and $2,617 greater expenditures for men (in year 2000 dollars).
Rice et al. (1991) estimated that the direct medical care costs of alcohol abuse were $6.8 billion and those related to drug abuse were $2.1 billion in 1985. Cook (2007) review COB [cost of behavior] studies of alcohol abuse; the most recent of which (Harwood, 2000) calculates that the medical consequences of alcohol abuse (including fetal alcohol syndrome) totaled $19 billion in 1998. The Office of National Drug Control Policy calculates that $15.8 billion was spent on medical treatments and prevention of drug abuse in 2002 (Office of National Drug Control Policy, 2004). French et al. (2000) compared self-reported health service utilization among drug users and nonusers and calculate that chronic drug users and injecting drug users generated $1,000 per year in excess health services utilization relative to non-drug users. Finkelstein et al. (2009) analyze data from the Medical Expenditure Panel Survey (MEPS) and calculate that, in 2006, obese people (i.e. those with a body mass index of 30 or higher) had medical spending that was $1,429 (in 2008 dollars) or 41.5% higher than that for healthy-weight people (those with a body mass index of 18.5 to 25). They calculate, across all payers, $85.7 billion (in 2008 dollars) was spent treating obesity in 2006, which represents 9.1% of all medical spending that year. To reiterate,each of these studies estimates the correlation of health behaviors with medical care costs, not the causal effect.
A smaller number of studies use IV methods to estimate the causal effect of health behaviors on medical care utilization and costs. McGeary and French (2000) use access to drug markets, neighborhood sightings of intoxicated individuals and drug sales as instrument for chronic drug use. They estimate that chronic drug use raises the probability of an emergency room visit by 30% for females and 36% for males. Balsa et al. (2008) examines how alcohol consumption affects health care utilization, instrumenting for alcohol consumption using state alcohol and drug policies and other state characteristics (including, curiously, average precipitation). They are unable to reject the exogeneity of alcohol consumption and thus prefer their non-IV estimates which show that moderate drinking decreasing the likelihood of emergency room visits for both sexes and hospitalizations for women but not men. Cawley and Meyerhoefer (2010) estimate the impact of obesity on medical care costs, using obesity status of a biological child to instrument for weight of the parents. Obesity is found to raise annual medical care costs by $2,826 (in 2005 dollars), which is more than four times as large as the corresponding OLS estimate ($676). They hypothesize that OLS results suffer attenuation bias due to measurement error in self-reported weight.
Balsa AI, Homer JF, Fleming M, French MT. 2008. Alcohol consumption and health among elders. The Gerontologist 48: 622–636.
Cawley, John and Chad Meyerhoefer. 2010. “The Medical Care Costs of Obesity: An Instrumental Variables Approach.” NBER Working Paper #16467.
Cook, Philip J. 2007. Paying the Tab: The Economics of Alcohol Policy. Princeton University Press: Princeton, NJ.
Finkelstein, Eric A., Trogdon JG, Cohen JW, Dietz W. Annual medical spending attributable to obesity: payer- and service-specific estimates, Health Affair Web Exclusive. July 27 2009.
French, Michael T, McGeary KA, Chitwood DD, McCoy CB. 2000. Chronic illicit drug use, health services utilization, and the cost of medical care. Social Science and Medicine 50: 1703–1713.
Harwood, Hendrick. 2000. Updating estimates of the economic costs of alcohol abuse in the United States: estimates, update methods, and data. National Institute on Alcohol Abuse and Alcoholism.
McGeary KA, French MT. 2000. Illicit drug use and emergency room utilization. Health Services Research 35: 153–169.
Office of National Drug Control Policy (2004). The Economic Costs of Drug Abuse in the United States, 1992-2002. Washington, DC: Executive Office of the President (Publication No. 207303).
Rice, Dorothy P., Thomas A. Hodgson, Peter Sinsheimer, Warren Browner and Andrea N. Kopstein. 1986. “The Economic Costs of the Health Effects of Smoking, 1984.” The Milbank Quarterly, 64(4): 489-547.
Rice, Dorothy P., Sander Kelman, and Leonard S. Miller. 1991. “Estimates of economic costs of alcohol and drug abuse and mental illness, 1985 and 1988.” Public Health Rep. 1991 May–Jun; 106(3): 280–292.
Sloan, Frank A., Jan Ostermann, Christopher Conover, Donald H. Taylor, Jr. and Gabriel Picone. 2004. The Price of Smoking. MIT Press: Cambridge, MA.