Tobacco Documents Online

The Costs and Benefits of Smoking Restrictions An Assessment of the Smoke-Free Environment Act of 1993 (H.R. 3434) Prepared at the request of: Congressman Henry Waxaean Chairman, Subcommittee on Health and The Environment Committee on Energy and Commerce U.S. House of Representatives Indoor Air Division 6607J Office of Radiation and Indoor Air U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 , Apri11994

The Costs and Benefits of Smoking Restrictions An Assessment of the Smoke-Free Environment Act of 1993 (H.R. 3434) Prepaud by: David H. Mudani Ph.D Indoor Air Division 6607J Office of Radiation and Indoor Air U.S. Environmental Protectim AgeK7 t01MStreet,SW Washington, DC 20M April 1994

a. The Costs and Benefits of Smoking Restrictions An Assessment of the Smoke-Free Environment Act of 1993 (H.R. 3434) TABLE OF CONTENTS EXECLTTIYE SUMMARY . ................................................. FS-1 INTRODUC'I'ION .............................................. ........... 1 GENERAL METHODOLOGY . ................. . .................... . ........ 3 ASSESSMENT OF COSTS AND BENEFITS OF SMOKING RESTRICTIONS IN A SOCIETY WITH NO SPZOKING RESTRICITONS ....................... 5 Section L Cost of Impiementing Smoking Restrictions . .............. 5 Section 2 Benefits from Reduced Exposure to Environmental Tobacco Smoke (ETS) ................................... 10 Section 3. Savings in Operating and Maintenance Expenses .......... 15 Section 4. Increased Productivity and Decreased Absenteeism Resulting from Smoking Restrictions .................... 17 Section 5. Sav)ngs to Smoking-Related Fires . ....................... 19 Section 6. Impacts of Smoking Restrictions on Smokers ............. 20 COSTS AND BENEFITS OF H.R. 34.34 BASED ON CURRENT CONDI'I'IONS... 28 REFERENCES ............................................................ R-1 FXIHBI'I5 APPENDIX A Review of Selected Litenture APPENDIX B Technical Appendix .

The Costs and Benefits of Smoking Restrictions An Assessment of the Smoke-Free Environment Act of 1993 iH.R. 3434) Executive Summary Introduction . In August 1993, H.R. 3434, the Smoke-Free Environment Act of 1993, was Introduced in the House of Representatives by Congressman Henry Waxman (Chairman of the Subcommittee on Health and the Environment of the Committee on Energy and Commerce) with more than 40 co-sponsors. This Bill would require that all nonresidential buildings regularly entered by 10 or more persons in the course of a week adopt a policy that bans smoking inside the building or restricts it to separately ventilated and exhausted smoking rooms. The Bill would allow enforcement actions in the United States District Courts by an individual, government, or other aggrieved entity, with allowable fines of up to $5,000 per day. H.R. 3434 would effectively ban or restric: smoking in most Indoor environments. As written, these environments would inch.de such diverse establishments as office buildings, schools and other educational establishments, theaters, restaurants, hotels, hospitals and other health care facilities, sports arenas, retail establishments, and manufacturing plants. In a recent letter to Carol Browner, Administrator of the United States Environmental Protection Agency (EPA), Congressman Waxman requested that EPA analyze (quantitatively where possible) the compliance costs and the health and economic benefits of H.R. 3434. Specifically, he asked that EPA assess the cost of compliance izticluding provisions for smoking lounges; the value of benefits resulting from reduced exposure to environmental tobacco smoke and changes in smoking behavior, the value of increased productivity and reduced absenteeism; savings from reduced operation and maintenancie costs: and savings in fire related injuries and property damage. Ro1R and Limits of Cost BeneSt Analysis In principle, cost-benefit analysis can be a useful tool for helping to identify those government actions which leave society as a whole better ofE It can contribute to such assessments by providing a systematic framework for measuring and comparing the net economic benefits of policy alternatives. Cost-benefit analysis does not by itself, however, provide definitive answers regarding the merits of public health and environmental policy alternatives. Rather, net benefit estimates must be combined with other information, and weigoed with other policy considerations, to formulate effective public policy. Pursuant to this, and consistent with Executive Order 12866, EPA routinely weighs the full range of Apn7ID,1994 ES-1

relevant policy considerations, such as distributional effects, legal issues, and Institutional issues in making regulatory decisions. In keeping with this approach, EPA presents the current analysis, which the Agency believes provides useful insights regarding many of the potential costs and benefits of H.R. 3434. Sammuy Results This analysis Indicates that passage of H.R. 3434, or similar restrictions, could achieve net benefits (i.e., benefits minus costs) ranging from $39 to $72 billion per year, excluding some potentially significant costs and benefits to amokers. For various reasons these and other potentially significant effects of H.R. 3434 could not be characterized in terms of economic value. Major costs reflected in these estimates include the costs of compliance and enforcement. Major benefits include those associated with reduced exposure to environmental tobacco smoke (E1'S) and reduced operating and maintenance expenses. Benefits are also achieved from reduced absenteeism and reduced smoking- related fires, but titiese are not significant relative to other benefits. The net effect is that estimated benefits exceed estimated costs by $39 billion to $72 billion. .As noted above, the current analysis leaves open the question of whether smokers themselves gain or lose due to H.R. 3434. Clearly, smoking restrictions Impose a burden on . smokers. The losses in terms of time and inconvenience associated with forcing smokers to shift the location and/or timing of their cigarette consumption, and the potential burden associated with quitting, may be substantial. However, thPSe losses would be offset to some unknown extent by the benefits of improved health amor.a smokers who quit, cut back, or fail to start smoking in the first place. The net economic valuation of these and other costs and benefits of smoking to smokers themselves is beyond the scope of this analysis for reasons discussed in more detail below. Nevertheless, it is important to emphasize that this analysis found that, of those effects which could be quantified, the estimated benefits exceeded the estimated costs by $39 billion to $72 billion In order to reach a finding that H.R 3434 would impose a net economic loss to society, the net effect of all unquantified costs and benefits - Including some important costs and benefits to smokers themselves - would have to be additional costs of at least $39 billion per year. Document Review While EPA makes no commitment to revise and reissue the present study, this document has been developed and submitted to Congress in a form intended for review by outside experts, interested parties, and the public The principal author of the study is Dr. David H. Mudarri, an economist in the Indoor Air Division of EPA's Office of Air and Radiation. This version of the study reflects extensive review by other EPA offices, the Office of Management and Budget, the Council of Economic Advisors, and the Department of Health and Human Services. In addition, a previous version of this report was reviewed by several economists in the public and private sectors. Apn1 20,19% FS-2

General Methodology Assessing Annual Costs and Benefit This analysis assesses the costs and benefits that would occur each year into the future for present and future generations. All estimates are represented as annual costs or benefits. That is, all costs are converted to an annual equivalent that would occur every year into the future based on 1990 population characteristics. Varying time streams of costs or benefits are converted to equivalent annual values using a 3% social discount rate. Sensitivity analyses using 596 and 7% discount rates are also provided. Throughout this analysis it is assumed that H.R 3434 would apply to all the previously stated buildings, at all times, without exception. it is also assumed that full compliance would be achieved within the first year of implementation. Choice of Baseline for Assessing Costs and Benefits Per capita cigarette consumption has been steadily falling over the past several years. In addition, recent survey data suggest that many establishatients already have some form of smoking policy, and the percent of establishments which report having such policies has been increasing in the past few years (DHHS,1992;, BNA 1991). Therefore, it was necessary to establish a baseline from which to measure the effects of H.R. 3434 from enactment forward. This was accomplished by a three step procedure. In the first step, the net costs and benefits are computed assuming current cigarette consumption levels, and assuming that there are currently no restrictions. This Is an artificial baseline used for analytic convenience, but may be interpreted as a reflection of the cost and benefit differences in a society with and without sawking restrictions comparable toH.R3434. Second, survey data were examined concerning the prevalence of smoking policies already in place, and using assumptions about the nature of those policies as well as policies in small establishunents not covered in those surveys, an estiamte was derived that 23% of the population is covered by smoking restrictions comparable to the requireatienb of H.R 3434. Current cigarette consumption levels, and 23% coverage :)y existing policies are therefore used as the baseline for this study. As a result, this study concludes that 23% of the previously calculated cost and benefits are attnbutabie to existing policies, and 77% are attributable to H.R. 3434, or other future restriction policies, including private initiatives.1 Finally, sensitivity analyses to the baseline aseumptions are conducted by calculating the changes to the costs and benefits that would result from alternative assumptions about lAs this repat was being ptepared, the Presidatt signed into law the Coab 2000- Bdunte Aaterica Act. This iegislation rastricts smoking in aII federally funded primary and s.aoodary ultoob atd in dajr on antea. Becawe a sensitivity analysis is presented of the altemnive baseline assuatpdons, no spedfic adjusta>ents to account for this new law wern mad* to the 23% baseline calculations used b ass.ss the eff.ct of HR 3434. Aprn120,199! ES-3

future trends. The specific variables tested include future trends in cigarette consumption, and future trends in the development of public and private smoking restriction policies which could take place in the absence of national legislation. These alternative saenarios of potential future trends are intended to demonstrate how the absolute levels of incremental costs and benefits attributable to H.R. 3434 are sensitive to assumptions about the future prevalence of smoking restrictions enacted by other public and private entities, and to future trends in cigarette consumption. Other F.canomic Impacts Economic considerations which legislators may wish to consider go beyond just costs and benefits assessed in this analysis. Where information from this analysis sheds light on • some of these considerations, they are briefly described. Summary Comparison of Costs and Benefits Exhibit ES-1 summarizes the estimated costs and benefits of implementing national legislation such as H.R. 3434, using a baseline estimate that 23% of the population is already subject to such restrictions. 'IT* following sections provide additional detail on these results. Costs of Implementing Smoking Restrictions Policy !Mp[ementation In implementing the restrictions of H.R. 3434, establishments would incur the costs of establishing a policy, communicating the policy to employees or clientele, posting signs, assuring compliance, and possibly offering smoking cessation services. The current study estimates that these activities would cost between $0.2 billion and $0.5 billion per year. Smoking Lounges The main determinant of cost is the expenditure associated with the construction and maintenance of smoking lounges. Smoking lounges meeting the requirements of H.R 3434 would be required to meet stringent standards concerning ventilation and other provisions to Insure that the air in the lonnge does not enter other parts of the building. Iin - addition, smoking policies involving smoking lounges are generally associated with greater complaints and with lower reported satisfaction than smoking bans, and smoking bans a:+e becoming increasingly popular (Sorensen. gJAL 1991;1991a,199Z; Stillman. eL-L 1991). Finally, the structural features of many existing buildings make it infeasible or cost prohibitive to construct a smoking lounge which would meet the requirements of H.R. 3434. While the extent to which smoking lounges will be relied upon to comply with this legislation is uncertain, this analysis is based on the assumption that, for the reasons mentioned above, only 10% to 20% of establishments would opt for smoking lounges. For the 10% to 20% of establishments which opt to build smoking lounges, the cost of those Apn7 20.1994 Fs-4

lounges is estimated to be between $03 billion (10% lounges) and $0.7 billion (2096 lounges) per year- The current analysis estimates that the total cost of implementation by the public and private sector, Including the cost of smoking lounges, would be approximately $0.5 billion per year (109'o smoking lounge) to $1.4 billion per year (20% smoking lounge).2 Enforcement Costs The cost to building owners for ensuring compliance in their buildings is included as part of the cost of establishing and maintaining a policy. With respect to enforcement, H.R. 3434 provides no specific nequirements for enforcement of its provisions, other than through citizen suits in federal courL Therefore, enforcement costs are difficult to quantify. However, in a proposed rule concerning the sale or distribution of tobacco products to individuals under 18 years of age, the Department of Health and Human Services3 estimated that sting-type operations used by state goverrunents would cost between $0.1 billion and $0.2 billion per year. Recognizing that these two issues are not strictly comparable, an estimate of between $0.1 billion and $0.5 billion per year appears plausible for a society with no current restrictions, and is used in this analysis. This would translate into an estimated enforcement cost of between $0.1 billion and $0.4 billion per year under current baseline (23% coverage) conditions. Some expenditures by the Federal government and by state and local governntienta can be expected for Information dissemination, though they may well be less than the value of current resources devoted to passing controversial state and local 1egislation4 These expenditures were not quantified. . The Effects of Reduced ETS Exposure TTu Health Consequences of E73 A major component of the benefits that could be achieved from national legislation that restricts smoking in public places is from reduced exposure of building occupants to ET5- 2 Inctudes a high.r cost per loamEe. 3 DVartmett of Hnath and Human 9avk+es. 9ubuana. Atnw and Mental Ft.alth Adminl.tration, 45 CFR Part 96, Substance Abuse Prevastion and Tnatnwnt Biack Crant.: Sale or Distnbution of Tobaooo Ptodnct; to ted'eviduals Under 18 Y.us of Agt Pevpo.d Ru1e. 4 Evet when tawking merictions an paswd at the qate or local 1evd, campaignm to nullify tho legislatim or to pr+.empt local legislatian with weekw wti.l.gislatica can invdv." ocpediture of significant resomaa aa both ,ides of the issw. No attempe was anade w quantity cvcr.d aow to wta and local antiti.k tttiou6h natianal legislation would be e9ecesd b reduce many of ebese aosts. For an eccdlent analysis of this ia.ue as it is manifesmd in Califomia, see Macdonald and Clantz (1994). Apra 20,1944 ES`5

Exhibits ES-2a and ES-2b present inforaiation on the health consequences of ETS. For the purpose of valuing the benefits resulting from reduced expostue to ETS due to smoking restrictions, several conservative adjustments to these figures were made. First, all deaths and illnesses associated with maternal smoking were excluded because the primary route of exposure is not expected to be through ETS in public buildings.s Therefore, the deaths associated with spontaneous abortions, sudden infant death syndrome, respiratory conditions in newborns, and short gestation/low birth weight newborns were also excluded, as were the morbidity consequences of low birth weight and neonatal intensive care. The second conservative adjustment relates to heart disease. The American Heart Association estimates that between 35,000 and 40,000 heart disease deaths occur every year because of ETS (Taylor,1992). This is based on studies in which estimates of the effect of ETS on heart disease fall in the range of 32,000 to 40,000 deaths per year as presented in Exhibit ES-2a. Because these estimates are substantial, and because EPA did not formally assess heart disease risks in its ETS risk assessment (EPA, 1992), two conservative adjustments to these figures were made. • F'ust, the low end of the range (32M was used as the high estimate, and this was reduced by 50% (16,000) to obtain the low estimate. • Second, an arbitrary additional conservative adjustment factor of 75% to this range was applied, resulting in a base estimate of 12,000 to 24,000 heart disease deaths per year.6 'Me same proportional breakdown between home (27%) and nonhome (73%) exposure related deaths that was reported by EPA for lung cancers also applied here. Therefore, 3,240 to 6,480 heart disease deaths per year are estimated for home exposures, and 8,760 to 17,520 heart disease deaths per year are assumed to be associated with exposure outside the home. T7se Value of Benefits /'rom Reduced ETS Exposures The reduction in exposure resulting from smoking restrictions will result in • avoiding an estimated annual average of 7,000 to 12,900 premature deaths over the first 50 5 While the primary route of aqo:un is maternal making, it is stimatd that soahang r.steictions mmparable to FIR 3434 would reduce the'size of the smoking populatiat tnnuts wmm smoices would quit aad some future smokers would ndtam from initiating t#w habit fn addition, it is estimated tbat the rate of consumption of remaining smokers would be radnc.d. To the atett that ttwis changes in behavior wiD affict cuoenal smoking, some reductions in ttuae adud.d dhcts would also likely cacvr, resulting in ba<wfits. The cuaent study did not, however, quantify these poeettial benefits in our calculations. 6 Some ad)ustment may be appropriaa also b.cause there appears to have been an ince.a.e in the survival raee of h.art dis.ase patients over the past several y.ara dw to advances in medical t.duwlogy. . Apnl 20.1994 FS-6

a yeara, and approximately 7,500 to 13,000 annually thereafter. 7 'Ihe value of theae reductions, when using a"wil]ingness to pay" meastues, and discounting future reductions at a rate of 396, would range between $33 billion and $60 billion per year.' To this has been added benefits to be achieved from improved health, mostly to children, including reduced incidence of lower respiratory tract infections, ear infections, and asthma. These benefits are estimated at between $2 billion and $5 billion per year, most of which is associated with reduced asthma induction among children. For asthma, this analysis reflects an estimated reduction of between 1,200 and 3,000 cases annually. To value the benefits from reduced asthma induction, a willingness to pay measure associated with chronic bronchitis,10 which is also a chronic respiratory disease was used. The total benefit from reduced ETS exposure includes both the benefits of premature deaths avoided plus the benefits of reduced illness. The total benefits due to reduced EIS exposure is thus estimated to be $35 billion to $66 billion per year. 7 Th. 7,500 to 13,000 annual premature deaths avoided is achieved gradually over a period of about 20 y.ars. It is baa.d an the asamptiee that the gradual reduction In mortality risk from reduced ETS tposure would follow the same tiame pattern as the reduction in mortality risk for taalcets who quit sawking. Availabie data suggests that the reduction of lung cancer mortality risks for smokers who quit is gradually reduced ov.r a 20 year paiod (DF II4S.1989). The decrease in mortality risk tor heart disaa.e is known to occur mnch more quickly (e.g. Taybr,1992). 71urefom this analysis assum.d that the decrease in arorrality risk for hsart disease tik.s place twice as quickly as for lung cancer. - 8 WiDingrias to pay measures in this nse reflect the value that persons assign to r.duciag their risk of premature death. The willingness to pay ateasuze used (or reduced exposucas to ETS is $4.8 million per premature death avoided. Se. App.ndix A-1 Eor a discussion of this estimate. - Where posable, willingness to pay measures as opposed to medical cost savings and aavings in lost earnings are used as t!K valtse of avoiding premature death. Using medical costs and lost earnings alone woaid represent an ineompkee measure of the aatomie value individuals and society assign to avoiding mortal inL For wmple, using only m.dial onsls and bst.enings would impiy ttnt.ocial well being 1s impeov.d wlt.n individuala di. just atter edie~eat.nt-b.Eoe. m.dical costs are high and just after salary ineome aaa.s. 9 It is.stiatatd that saaking i..trsetions would induee 3% to 6% of cvee.nt.awkes to quit, and wooid decrease by 5% to 10% the number of peesons who..ch year become regular taakas. The smokers who qiat would eventually die of old age, so this e!l.rt would be transitflry. In addition, it would take about 50 years far te r.ducdon in smoking inittatian rates to fulty rad- r the satoking population by 5% to 1074. It is estiaiat*d that smoking restrictions would r.duce, by 10% to 157Gti, the number of cigarettes atM.d by the :emaining smoken in a 24 hour period. It has been suggested ttiat .om..awk.rs may increase th.ir consumption at home in order to auke up for lost consumption outside the home. No attempt was made to account for this posablo effect on ETS exq)osures beouse this does not appear to be the general case, and becauae the atimate of reduced consumption is a net reduction over the full day. 10 Ba..d cn willingness to pay measure for reducing the inod.ncr of dteonie bronchitis (Neumann. dfl. 1994), tfie estimated value of avoiding duanic asthma is assumd to be $1.5 million per cas.. Apri120,1994 ES-7