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APPENDIX TO CHAPTER 10 ECONOMIC JUSTIFICATION FOR NO BNOEIN6 POLICIES AT THE IIORxsITE By Ruth Behrens Washington Business Group on Health* The health hazards of smoking--includinq smoking at the workplace- -have been well documented. Smoking greatly increases an individual's chances of contracting serious illnesses, such as cancer, chronic bronchitis, emphysema, and coronary heart disease, and of dying prematurely as a result of these diseases. There is little doubt that smoking also has a significant economic impact. And because businesses pay a sizeable portion of America's total health care costs--estimated at $108 billion per year by the Employee Benefit Research Institute--they are paying much of the bill related to smoking through insurance premiums for their own employees, dependents, and retirees who smoke or breathe second- hand smoke, as wall as for others through programs supported by state and local taxes. In other words, smoking is costing businesses a lot of money. How much does smoking cost U.S. businesses? No one knows exactly. But a growing list of researchers are tackling the difficult job of attempting to identify these costs. OD ~ 172 ~ 00 .:,. N N

indeed cost our country a staggering amount: o Luce & Schweitzer show a cost to the nation of $52.8 billion per year in 1984 dollars; 0 OTA, $62.2 billion in 1984 dollars; and o Rice at al, $53.7 billion in 1984 dollars.3 Differina Methodolocies Make Pinoointina Rorksite Costs Hard A number of researchers also have attempted to assess the specific costs of smoking to businesses. But many problems arise when attempting to identify one, or even a "best" methodology for arriving at these costs. Among the difficulties in conducting any study of the costs of smoking is the fict that smokers differ from nonsmokers in several genetic, social, and economic characteristics that may contribute to disease. For example, the prevalence of smoking varies by race (more blacks smoke that whites), education (fewer college graduates smoke than persons with only some high school), income (males with lower income smoke more, while the opposite holds for women), and occupation (blue collar workers smoke more than professional or technical workers). If factors known to be related to health status and smoking habits are not controlled, the impact of smoking on health and the costs of smoking may be overstated.3 When examining smoking in the worksite, specifically, other methodologic issues must be resolved. Marvin M. Kristein, a m Q OD 175 O m N ~

policies: health insurance; incremental absenteeism; life and disability insurance; fire, liability and industrial accident insurance; ventilation and energy consumption for heating and air conditioning; legal liability; property damage, depreciation and maintenance; time lost to the smoking ritual, employee morale, and corporate image.7 To help illustrate the differences between Kristein and Weis's total smoking-rela*sd costs, one can look at how each calculates the costs of absenteeism to employers due to smoking. Weis uses government data that shows a smoker is absent 2.2 days per year more than a nonsmoker. using $30,000 per employee as the average annual wage and salary, including fringe and payroll taxes, the company pays approximately $120 per working day for every employee on the payroll. Assuming a 25 percent return on payroll dollars, the direct cost to the employer is $150 per absence, excluding the cost of temporary replacements. According to this formula, the total cost per smoker per year due to absenteeism is $310. A similar system is used by Weis in determining costs in other categories.7 Kristein, on the other hand, used 1979 data showing smokers are absent 33 to 45 percent more than nonsmokers, or 2.0 days more per year, and assigns a daily salary of just $40 per smoker due to smoking (versus $150 for Weis). Thus Kristein includes from $40 177

professor in the departments of economics and community preventive medicine at State University of New York at Stony Brook, and William Weis, chairman of the accounting department, Albers School of Business, University of Washington, and a member of the board of the Smoking Policy Institute, Seattle, both published studies in the early 1980s identifying the cost to business of each smoking employee. Kristein estimated the cost in 1980 dollars to be between $336 to $601 per smoker annually,4 while Weis placed the figure nearer $4500.5 Much of this rather staggering discrepancy is attributable to their selection of different categories of costs to include in the equation, the weight given each category, and the salary assigned to the iverage smoker. In a more recent article (Nov. 1984), Kristein has calculated that the costs to business are at least $300 to $350 per average smoker per year for short term losses, alone--which excludes health care costs. Kristein identifies these short-term costs as fire, accidents, ventilation, cleaning, productivity, and occupational health risks.6 Obviously, the addition of long-term costs such as medical care costs, absenteeism, early death, etc. would increase the total significantly. According to Weis, business costs in at least ten areas are affected by smoking or smoking controls, including no smoking 176

alone. These cost estimates were calculated by comparing the health costs and income losses from smokers in excess of the same amounts incurred by nonsmokers. The study concluded that smokers are sicker and require more medical care than nonsmokers.3 The components of the $53.7 price tag were broken out as follows. o Direct medical costs such as doctor bills, drugs, and hospital and nursing home expenses were $23.3 billion more for smokers than the average of nonsmokers. o A total of nearly $9.3 billion was lost in salaries due to smokers being sick with smoking-related diseases including lung cancer, heart attacks, stroke, emphysema, and other respiratory illnesses. o In 1984, lifetime earning losses from smoking related deaths were approximately $21.1 billion. The authors characterize their findings as "conservative" since they "did not take into account the adverse effects of passive smoking, risks of abortions, stillbirths, and neonatal deaths, or deaths under age 20 that might be associated with smoking." In their paper published in The Milbank Quarterly, Rice et al translated all three of these studies to 1984 dollars. The result is three analyses of the economic impact of smoking on the nation that demonstrate enough similarity to underscore that smoking does, 174

vehicle accidents and traffic violations," dourna cZf Medicine, Sept. 1986. New York State 185 GC ~ Gr O m bA ca 4

to $80 per smoker per year attributable to absenteeism in his total (versus $310 for Weis).2 While Kristein's estimates are based on what he called "real numbers" drawn from insurance companies, U.S. government statistics, and detailed academic studies, he cautions, "We lack meaningful 'case controlled' company comparisons of experience with smoking employees versus nonsmoking employees.... In general, the emphasis is on underestimating the costs to business."a Economic Imoact of Smokers on the Korksite Evidence also shows that, in addition to excess absences of two or more days per year, smokers exert other types of economic impacts on businesses over their nonsmoking counterparts. o smokers have twice as many job related accidents as nonsmokers.9 o Smokers are 50 percent more likely to be hospitalized than those who do not smoke. o Employers have been held legally responsible for at least part of the disability cost for smoking employees who contracted smoking related illnesses, in addition to claims from nonsmoking employees who were adversely affected by the smoke of others.l0 o Companies with certain occupational hazards can expect greatly increased costs related to smoking. For example, an 178

Costs of smokina to the Nation Three major studies have addressed the question of what smoking is costing the nation. In 1978, Luce and Schweitzer estimated the economic costs of smoking in the United States to be $47.6 billion. They further broke this down to $811 per adult smoker, or $1.56 per pack of cigarettes sold.1. In 1985, the Office of Technology Assessment, U.S. Congress (OTA), estimated that smoking costs the nation about $65 billion per year in lost productivity and health care costs alone. OTA estimates that smoking-caused illness results in $43 billion in lost productivity annually (or $1:45 for each pack of cigarettes sold), expenses borne largely by employers. Businesses also pay a significant portion of another $22 billion in smoking-related health care costs, since nearly two-thirds of the costs are incurred by those under 65. According to the OTA, combined lost productivity and health costs related to smoking equal $2.17 per pack of cigarettes sold.2 Most recently in 1986, a group of researchers, which included the former director of the government's National Center for Health statistics, concluded that smoking costs the United States at least $53.7 billion each year in direct medical costs and salary losses 173

per smoker per year. Adding longer term costs such as absenteeism, premature death, and illness would raise the cost to at least $1,000 per year for each smoker.15 Provident Indemnity Life Insurance Company charges its smoking employees the excess rate of their insurance coverage over that of nonsmokers, an amount in the vicinity of $300 per year.16 Conclusion Although estimates of the total cost of smoking to the nation in general, and to businesses in particular, differ, there seems to be no disagreement over the basic, overriding principle: smoking is the single biggest cause of premature death and disease in our country, and U.S. businesses are paying for it heavily through increased health care costs, lost productivity, and human suffering. The implementation of policies that restrict or eliminate smoking within businesses are one inexpensive, yet effective step that companies can take to discourage smoking by their employees and to vividly illustrate their concern for health, as well as for their bottom lines. 1. Luce, SL and SO Schweitzer, "Smoking and Alcohol Abuse: A Comparison of their Economic Consequences," New Enaland ~. CD 0 182 00 W F+

coronary heart disease than nonsmokers, and overall, the risk for all smokers regardless of the amount smoked, is 70 percent greater than for those who don't smoke.1s o Evidence demonstrates that smoking during pregnancy has a significant adverse effect upon the well being of the fetus and the health of the newborn, including causing lower birth weight infants and increasing the risk of spontaneous abortion and neonatal deaths.9 o Children of smoking parents have increased prevalence of respiratory symptoms and have an increased frequency of bronchitis and pneumonia early in life.1Z Two recent studies relate smoking directly with costly health- related events, stroke and automobile accidents. A study has concluded that smokers who quit can decrease their risk of having a stroke by more than half when compared to those who continue to smoke, thus cutting dramatically their potential health care costs.17 A two-year study in Worcester County, Massachusetts, comparing the motor vehicle driving records of smokers with nonsmokers found that smokers had 50 percent more accidents than nonsmokers and 46 percent more traffic violations. The study identified several reasons for the smokers' increased risk of being involved in costly accidents and violations, including 180