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015q04 Cigarette Smoking and Lifetime Medical Expenditures THOMAS A. HODGSON National Center for Health Statisti¢~ CIGARETTE SMOKING IS KNOWN TO CAUSE LUNG cancer, coronary heart disease, cerebrovascular disease, chronic bronchitis, emphysema, and contributes to morbidity and mor- tality of these and cer~aln other diseases (U.S. Department of Health and Human Services 1989). Smoke~s at each age require more medical care than persons who have never smoked (Rice et al; 1986) and experi- ence reduced life expectancy (U.S. Department of Health and Human Services 1989). But are lifetime medical ease expenditures higher for smokers or neversmokers? Medical care use by the elderly is high and neversmokers, who live longer, might have higher lifetime medical penditures. The relationship of smoking to lifetime medical expenditures is an importam issue in terms of society's use of scarce resources, the impact on public and private health insurance programs, and which members of society bear the burden of financing medical care. Never smoking might be a cost-effective way to promote health, well-being, and a longer life even if neversmoker~ incur higher medical expenditures. However, never smoking has the greater benefit of being cost saving if expected lifetime medical expenditures are less for neversmokem I will examine this imue by estimating and comparing lifetime medical expenditures of smoket~ and neversmokem. T131060726

Studies of Medical Costs Previou~ Studies In this section I will briefly review previous studies that estimated life. time medical costs of smoking. Leu and Schaub (1983, t985) estimated that total expected lifetime medical c~re expen.ditures beginning,at age 35 for Swiss males who do not smoke will be higher than for ~mokers. Among Swiss males, the contribution of longer life expectancy to medi- cal care expenditures for neversmokers outweighed the higher average annual expenditures for smokers. In the first version of their study (1983), Leu and Schaub assumed that medical care utilization is related to smoking in the same way that motxality is related to smoking. Thus, it was estimated that the average male smoker has 8 percent more physician visits and 10 percent more hospital days per year than the neversmoker. In a revised version (1985), I.eu and Schaub analyzed the demand for medical care in Switzerland using an econometric model and concluded that smokers have somewhat fewer physician visits and slighdy more hospital days than neversmokets. The conclusion reached by Leu and Schaub in their first article, that smoking does not increase lifetime medical expenditures, was reaffirmed. In the United States. excess medical care utilization by smokers is much higher than that reported by Leu and Schaub. In the National Health Interview Survey (NHIS) Rice et al. (1986) found that the average male smoker (17 years of ag~ and over) had 19 percent more physician visits and 63 percent more hospital days per year than neversmokets. This is 2.4 times the excess physician visits and 6,3 times the excess hos- pital days reported by l.eu and Schaub for Swiss males. The higher an- nual excess medical care of smokers revealed in the U.S. data cumulated over the years a smoker is alive might mote than offset the impact of a longer life span on medical care use of aevemmokers. ldppiatt (1990) also reported that smoking lowers lifetime mediral costs. This was derived by deducting from expected lifetime medical penditures required to treat a. smoker for certain smoking-related dis- emes the additional medigal costs incurred during the longer life of a nonsmoker. Although methodologically sound, lifetime medical costs of smoking were underestimated because the data employed both underes- timate expenditures for the smoker's smoking-related diseases and over- estimate medical costs durhag the longer life of the nonsmoker. i TI31060727

[:or lifedmt costs of smoking-related dis~-s~s Lippia~r u~ed the figures of Osier er ~l. (19a4~.b) ~or ehe expected lffedme cos~ of lun~ cancer. coron2~ he~ d~sc~e, ~ad emphysema. Ahhough ~hese rh~cc condi- tions ~re impor~an~ smok~ng-rela~ed d~se~cs, m ~dd]don, smoking is a major agent tbr chronic b~onchic~, ccreb~v~ular dis~e. periphe~ atte~ ~clmivc dheme, md c~ce~ of the oral cavity, la~, and esopha~s ~ well ~ causing bladder cancer. Smoking also incre~cs the risk of pneumonia and influenza, abdominal aortic aneu~sm, and g~cdc and duodenal ulcers; it is a contributing factor in caace~ oE pancre~ and kidney: and it is ~s~iated with cance~ of the stomach and ute'ine cc~ix (U.S. Department of Health and Human So,ices 1989. 1990). Lung cancer, cocona~ he~ d~e~c, and emphysema ac- count ~ot le~ ~ half of ~e cotat short-term hospic~ days required for all d~es linked to cigarette smo~ng (Gr~ 1988). Just ~he ~ddi- dond d~e~es for which smoking ~ a maior cause require hospital days . equal to 60 percen~ of ~c total Eot the three conditions studied by Os. ccr. By limidng ~he calculation to cos~ o[ lung cancer, coronz~ dise~e, and emphysema, Lippiatc omitted substand~ morbidity, mor- tals, md health c~e utilization ~d sevetely underestimated lifetime medkd cos~ of smoking. In o~&~ co take into ~ccouat the bngct life and medic~ c~e expen- ditur~ o~ nommoke~ during these extra yea~s, I.ippiau ad)usted the timaces by Oster ec d. o~ lifetime cos~ o~ smoking.rdated dise~es. w~ done by subtracting estimated average annual per capita medic~ ex- penditures of no~moke~s over age 65 for each year of difference in life expectan~ be~een smokers and nonsmokers. Average expenditures for nonsmokers were derived from pe~ capit~ expeadku~es for ~e total pop- ulation ove~ age 65 (tmokets ~d no~mokets), the proportion o~ smok- e~ md no~moke~ in ~ population, md ~e difference in average annual medical expenditures be~een smoke~ and nonsmokers reported by Leu md Schaub (1983). Because Lcu and S~aub severely under~ti- maced ~ d~erence in annual medic~ care me md ~xpendimres be- ~een smokers md nonsmokers in ~e United States, Lippiatt's estimate of a ao~mokefs annual medical ~eadku~ k ove~caced. By excluding expenditures for dishes ~own to he ca~ed by smoking and underrating medic~ c~e utilization md cxpendi~e differences be~een smoke~ and no~mokers, ~ppiatt underestimated lifetime medi~ cos~ of smo~ng. 8e~e ~ppiact finds ~e uadeoff be~n me~c~ expenditures and life expectm~ to be only $280 per yc~ of ex- TI3"1060728

tra life for nonsmokers (in t986 dollars), we expect mote -~ccutatc esti. maces of the ~osts of smoking-related diseases and the annuzl medical expenditures of nonsmokers would produce lifetime medical costs highes for smokers than nonsmokers. Manning ecal. (1989) examined lifetime medical czre costs of smok- ing from a somewhat different perspective, but found a posit~v¢'rel:z- tionship. Their best estimate is that medical ca, e costs of smoking were $.26 per pack of cigarettes smoked in 1986 dollars discounted ~c 5 l~ettent. In our anaJysis we me a life-cycle model to veri~ the findings of ning et ~. (1989) that in ~e ~ted States smokers have higher lifetime medk~ expenditures. We ~so e~d upon ~eir ~sis to ex~ine ~e ~ing of ~eMimtcs over the life cycle, populatioa ~ well ~ iadi- vidu~ ¢~endi~, ~d sourc~ of payment for mcdic~ c~e. Data em- ployed ~e for ~¢ U.S. popularioa and include medic~ care use and mon~i~ for dl dhgnos~ ~d comes of d~. ~us overcoming the l~tadons in ~¢ Leu ~d S~aub ~d ~ppia~ studies. ~e~e medkd c~e expeMi~t~ are estimated for m~tes ~nd fc- m~ in ~6 United States whb never smoked and for moderate md h~ smoke~, including bo~ ~ent md foyer smoke~. ~foderate smoke~ ~epo~ed smo~g f~er ~an 2~ ci~rettes a day and heav smoke~ smoked Z5 or more per day. Analyzing eversmoke~ (that is, ~rreac md foyer smoke~, he~c~er called smokers) c&es i~co account • e a~bet of yem of smoking md patter~ of quitting and recidivism e~dng ~ ~e population zc ~e ~e of data collection. ~us, esti- mated e~ccted lffe~e medical ~endim~ of a smoker reflect average e~efienc¢ ~ ~e ~pularion of perso~ who take up smoking md hdud¢ ~e ~p~ oa e~ea~mr~ of dcc~ioas co quit smoking. • h ~dg. comp~on of l~edme expenditures of smokets md never- smoke~ ~ows m to ~ ~e ~pacc of beco~ng a smoke~ versus not b~oming a smoker, but do~ not addtca ~e ~pact of quitting smok- hg on me~ ~e ~endimr~. Subsequent r~e~ is plmn~d to dyz~ quic~g md lffe~e medi~ F~om ~e m~aces of ~e~e medical expenditures we determine: I. the amount of excess medical expenditures requited by smokers 2. the relationship of medical expenditures to amount smoked T131060729

4. the timing of medical expenditures during the life cycle and the phases during which expenditures of smokers exceed those of nev- crsmokcrs and vice vccsa 5- the monetary burden smoking imposc~ on private sources of fund- ;ng (for example, individuals and employers) and public sources (for example, the federal government's Medicare program) 6. the distribution of current medical care expenditures among the population of smokers and persons who never smoked 7. the ongoing bill for excess medical care required by the popula- tion of smokers 8. the aggregate furore excess expenditures of the current population of smokers Ot~er Eaonomic Costs There me other economic costs associated with smoking in addition to medical ca~e expenditures. These include expcndituses and payments lated to sick leave, disability, group life insurance, pensions, and retire- meat benefits (Manning et al. 1989: Warner 1987). The impact of smoking on Social Security benefits is among the most knporsant of these and is substantial. Shoveno Sundberg. and Bunker (1987) estimate that because o~: shorter llfe expecran~ single male smokers earning the media-q wage receive almost $18",000 less in benefits than they contrib- ute, whereas nonsmokers receive almost $3°400 mote than they pay in (in 1985 dollars). For single women with median earnings the difference between smokers and nousmokets is smaller, but still considerable. Smoking thus results in a net tranffe~ of Social Security benefits from smokers to nonsmokers. Further consideration of economic implications of smoking other than medical ca~e expenditures lies b~/ond the scope The Model The model estimating lifetime medical caxe expenditures is briefly de- scribed here, with additional derails p~ovided in the appendix. Medical care use, costs, and mor~ali~ experience of cross-sections of th~ popula- tion during each age interval ase used to generate longitudinal ptof~lm TI3q OfiOTE

of costs from age 17 to death. Expected. in the sense of average, lifetime expenditures rather than actual lifetime expenditures of any one indi- vidual a~e estimated. The principal data sources are the National Health Interview Survey for use of hospital and physician services; the National Nursing Home Survey and the National Health and Nutrition Exarfilna- r.ion Survey Epidemiologic Followup Study for nursing-home carL: the American Cancer Society's Cancer Prevention Study Ii for mortality; and the National Medical Care Utilization and Expenditure Survey and Medicare data files for charges for medical care. In general, an individual's expected expenditures during age interval t are given by: where ~, = expenditures during age interval t if the individual survives through t El, = expenditures during age interval t if the individual dies in t P~ = probability of surviving through age interval t P,, = probability of dying during age interval t" " • It is necessary to distinguish whether the individual survives or dies be- cause much higher expenditures are incurred by decedents than sur- vivors. Lifetime expenditures from age 17 are given by the sum of expected expenditures, Et, during each of the age intervals: t = ages 17-34, 35~!4, 45-54, 55-64, 65-74, 75=84, 85 and over Expenditures are discounted to obtain the present value of the stream of dollars occuuing over time. It is assumed that all persons surviving to age 85 enjoy the average remaining lifetime calculated by the National Cente~ for Health Statistics, or approximately five years for males and six years for females (National Center for Health Statistics 1990). This simplification is acquired by lack of data on life expectancy at age 85 for smoket~ and nevem'aoke~s resulting most likely in overestimates of ex- penditures for smokers and underestimates of expenditures for never- smokers at ages 85 and over. The impact on lifetime expenditures is T131060731

negligible, however, because expected expenditures at age 85 and over are a small proportion of the total, especially among smokers. Lifetime expenditures are estimated for males and females, and ac- cording to amount smoked (never smoked, moderate, or heavy smoker). Age- and sex-specific rates of medical care use and mortality according to amount smoked are employed. Medical case expenditures included ate for short-term inpatient hospital care, physicians' services (to hospi- tal inpatien~s and ambulatory patients in doctors' office~, hospital clinics and emergency morns, patients" homes, and by telephone), and nursing- home care. These medical services account for about three-fourths of to- tal personal health care expenditures (Wald~ et al. 1989), The principal services omitted from the analysis because of lack of data on how utiliza- tion relates to cigarette smoking are drags and dental services. Medical care utilization and expenditures are not evenly distributed throughout the life cycle. Variation of medical case use with age is easily accounted for by employing age-spedfic data. Equally important, dece- dents requite much more medical care and incur far greater expendi. tures than survivors among both elderly and nonetderly populations. Decedents have higher expenditures relative to survivors, not only in the year of death, but also for several years prior to death. The disparity in. expenditures of decedents versus survivors increases as the time of death approaches and may be more than six times greater in the year death curs {Lubitz and Prihoda 1984; Riley and Lubitz 1986; Roos, Montgom- ery. and Roos 1987). This phenomenon is an important aspect of lifetime medical expenditures and is included in the model. 1990 Dollars Expenditures in this analysis are in estimated 1990 dollars, with dollar magnitudes adjusted to 1990 according to increases in the medical care component of the consumer price index (Social Secutit~ Bulletin 1991). Discounting Medical care use and expenditures are highly concentrated in the later years of life, esp~dally in the several years before death. Because never- smokers live longer, their medical care expenditures are deferred to the future compared with those of smokers. The very long time horizons in this analysis (65 yearn or more in some instances), and the different dis- TI31060732

triburions of expenditures over rime for smokers and neversmokers, re- quire ~at lifetime expenditures be discounted in order not to overstate the amount for neversmokers compared with smoken. This analysis em- ploys a relatively low, but reasonable, discount rate of 3 percent. Kc*y re- suits are also presented for a 5 percent discount rare to show the irhpart of discounting. Total expected lifetime expenditures discounted at 3 percent are about one-third of nondiscounted expenditures. Causality or Association? How much of the difference in medical care use ahd expenditures is due to smoking and how much to other factors that are not equally distrib- uted among smokers and neversmokers? Smokers differ f~om never- smokers in certain genetic, social, behavioral, and economic characteristics that may contribute to use of medical care. Positive correlations have been reported between smoking and drinking alcohol. The Behavioral Risk Factor Surveys. conducted from 1981 to 1983, found that more heavy smokers (more than one pack a day) had two or more drinks a day than nevemmoke~s (Bradsrock er al. 1985). In a study at the Group HeAth Cooperative of Puget Sound, current smokers were more likely to be problem drinkem (Pearson et al. 1987). Data from the National Health Interview Survey (NHIS) show that in 1985 smokers were more likely than neversmokers to drink heavily, not exercise actively, sleep six hours or less, and skip brealffast (Schoenbom and Ben.son 1988). How- ever, smokers, especially those who smoked fewer than 25 cigarettes daily, were less likely to be overweight and to snack daily. . If factors related to heAth stares and smoking habits are ~ot con- trolled, the impact of smoking on health and medical expenditures may. be overstated. There is evidence from several sources, however, that most of the observed difference between smokers and neversmokers in mortality, medical care use, and expenditures is the result of smoking and is not just comclatcd with it. Nevcrsmokcrs, especially males, have higher income and mozc education than smokers, but the difference in medical ca~e use cannot be attributed to health habits, practices, or li.fe- styles related to incom,e and education because smokers use mote medi- eA care at all levels of income and education according to data from NH/$ as computed by the Of/ice of Analysis and Epidemiology. bhtt- son, Pollack, and Cullen (1987) estimated death rates for males in the United States in 1982 for smoking-related dLseascs and for all causes of Tl31060733

death according to age and smoking stares. Applying these estimates to ch~ number of males in the civilian noninstia~tionalized popula~on in 1985 by smoking status, it can be calcu)ared that 74 percent of excess deaths among male smokers aged 35 to 84 was due to smoking-related diseases. An interesting s~aristicaJ construct, the nonsmoklng ~moker-rype, has been employed to assess medical care expenditures due to smoking tarher than just associated with smoking (Leu and Schaub I983; Man- ning et al. 198~). The nonsmok~ng smoker-~'pe does not smoke but is like a smoker in o~her respects that distinguish smokers from never- smokers and contribute zo mothidity, mortality, and medical care use. These include education, fu.mily income, race, health insurance cover- age, and lifestyle attributes inch as drinking habits, exercise, and seat belt use. Thus, the nonsmoking smoker-type experiences medical care use and mortality that lie between those of the smoker and never- smoker. Higher medical care use and higher morzality have opposke impacts on lifetime expenditures. Thus, the higher medical care use of the non- smoking smoker-type ~ill increase lifetime expenditures relative to nev- ersmokets and decrease the excess lifetime expenditures msociated with smoking. This will be pa.~tially offer, howeve¢, by the impact of the higher morr~li~ rates of the nonsmoking smoke~-type, which reduce life expectancy and thus lifetime expenditures telarive to nevetsmokets and increase excess-lifetime expenditures of smoking. Controlling for other differences bet'~een smokers and nevetsmokets besides smoking that af- fect medical costa has,a zather small impact on excess lifetime medical cxpendi~res according to research reported by Manning ctal. (1989). Manning and his colleagues estimated lifetime medical costs per pack of cigarettes znd found that excess lifedme costs of smoke~s compared with nonsmoking smoker-types were 87 pc~cen, of excess lifedme costs of smokers comp~cd with neversmokcm. Although the 10~efcuecl comparison for asccrmlning medlcaJ ca~¢ pcndimrcs duc to smoking is between the smokce and nonsmoking smoker-type, we a~e only able to compare cversmokers and nevetsmok- e~s in our study. Nevertheless, became Manning et al. also used data from the NHIS, ir is ~asonable to conclude from thei~ rcsalts that the findings we repor~ would be only slighdy different q~andta~ivcly and no different qualitatively if formulated in terms of ~mokcm remus non- smoking smokee-tTl~s. ~ 4 TI310~073

Lifetime Expenditures Mortality Smokers have higher death rates than neversmokers at all ages over 3~ years (figure 1). The analysis begins at age 17 because data on medical care use and expenditures by smoking status are available beginning at this age. However, we lack data on mortality by smoking stems for per- sons aged 17 to 34 and it is assumed that no deaths occur until age 35. This assumption should have a negligible impact on our results because less than 4 percent of persons die before age 35 (National Center for Health Statistics 1990) and smoking should not be a major determinant of mortality between the ages of 17 and 35. Excluding. deaths prior to age 35 has a slight impact on lifetime expenditures of both smokers and neversmokers and even less of an impact on the difference in their ex- penditures. Death tares ~e steadily with age, are higher for males than females, and higher for smokers than neversmoke~s in each sex. Probabilities of survival are derived from the death rates. Table 1 shows the probability of an individual 17 yea~s old surviving to the age Dealh rate 0.7 0.6 ""~(:-- Male ell emokere • ~]'" Female ~leveremoke~'e 17-34 35~4 4~ 66-64 e6-74 75-84 TI31060735

35 1.000 1.000 1.000 l.OO0 ! DO 1.00 45 0.986 0.')66 0.988 0.984 1.02 1.00 53 0.951 0.893 0.962 0.939 1.06 1,02 65 0.867 0.733 0.901 0.831 1.18 1.08 7'~ 0.689 0.466 0.760 0.630 1.48 1.20 85 0.336 0.159 0.453 0.289 2.11 1.57 Source: Derived from data in the American Cancer $odcty'$ Cancer Prevention Study II. ~ Probabillti~s arc ~hosc of a IT-year-old surdving ,o ~hc asc shown. shown by sex and smoking status. Probabilities of survival arc higher for females, but the same patterns are observed among smokers and never- smokers of both sexes. The benefit of lower death rates among never- smokers at all ages accumulates with age and creates a steadilF widening gap in survival rates. For example, whereas 87 percent of male never- smokers and 73 percent of smokers survive ro age 65, 34 percent of ncv- ersmokcm survive to age 85 compared with only 16 percent of smokers. In terms of relative survival, out of male ncversmokcu and smokers =live at age 35, 18 percent mo~e of the neversmokets survive to age 65, 48 percent more of the ncv~rsmokcrs survive to age 75, and more than ~vicc as many of the ncvcrsmokcrs live to age 85. Among females, the probability of surviving is 8 percent higher for ncvcrsmokers at age 65, 20 percent higher at age 75, and 57 percent higher at age 85. Smoking exac~ a much greater toll among males in terms of premature mortality. The disparity in mortality between male and female smokers reflects differences in cigarette smoke exposure (U.S. Department of HeAth and Human Services 1980). The mean age of onset of regular smoking among successive cohom of men has been less than 20 years since before 1900. It has declined slowly over time to between 15 and 16 years for cohorts born between 1951 and 1960. Among women born at the be- ginning of the century, however, the mean age at omct was 35 years. Although this declined steadily, it was not until the 1951-1960 birth TI310~07,..,9

| cohort, now 30 ~o 40 year~ of age. that it became heady ' ~ of men. ~ Exposure also depends on ~e likelih~d of qukting smoking{ : Among cig~c~e smoke~, quit ratios (~e pro~ion of ~cmmoker~ who ~e former smokem) have been inc~eming for ~th sex~ a?~imil~ rates since 1965 (U.S, Dep~ent of He~ and ~uman'Semice~ 1990). ~l~ough highe~ for m~ ~ fem~es, ~e gender difference only a couple of percentage poinu when quit ratios count for use of o~er'tobacco pr~ucm besid~ cig~et~es. In addition ~o age at Mifiafion ~d likel~ of quitting, smoke ex-: pomre depen~ on vmious d~emiom of the style of smo~ng, indud. ing type of cig~ette, depth of i~a~on, ~d fiaction of cigarette smoked. Wi~ ea~ n~ genera~on. ~e surgeon gener~ hm condud~d,~ men ~d women have become more ~i~m in ~eir smo~ng habiu. ~d ferule e~o~e closer to ~a~ of men. In ~e ye~s we c~ expect m~e ~d femfle mo~i~ from smo~ng ~so to become more ~ilm. Mo~fli~ rat~ ~d pmbab~fi~ of ~u~iv~ demonstrate ~a¢ n~er- ~mokets live longer ~ ~mokem. ~d .m~ more neve~smokets tea& those ye~ of ~e &~e~zed by high me'eft e~e expen~tur~. D~- ..... ference~ in d~ ~tes of smoke~ ~d n~u~e~s imp~t on medic~ cme cosu M ~o way,. On ~e one ~d. ~ere h a high cost ~ociated wi~ dyMg ~at is M~red ~er in ~e ~e sp~ for ~mokers ~d hm a pre~ent v~ue ~ed 1~ by d~couu~g, wher~ ~ose who live J longer in~r ad~don~ ~endimr~ in hter y~s bo~ ~o~ ~d d~edenu (fi~ze 2). ~e d~p~i~ in medi~ c~e spen~ng for older ~d younge~ per- sore, coupled wi~ ~e longer life ~pec~ of nevemmok~, r~ ' ~e of whe~er n~enmoke~ have higher lifetime medic~ e~endi- : rares ~ smokers, wi~ smo~g holding down medic~ cosu. In order to dete~e whe~e, smokem ox nevemmoke~ have ~gher lffec~e ex- penditure, it ~ n~ to ~e ~to account ~erences not only in ~e ~ect~. but ~o ~ me~ ~e ~d ~d e~en~ in.red during ~e y~ lived. :1! A g e.~p ~¢ifi¢ Expenditures In figure 2 we have age-spedfi¢ medical expendimre~ for male smokers and neversmoke~ a¢¢oxeling to whether one survives to the end of the T131060737

T131060738

Although expenditures for females toad to exceed those for mzles, th r~latio~hlps ob,cr~cd for m~s. in terms of s~,~rvivors vergus smokers versus ncvcrsmokcrs, generally hold for females also (figure 31 Expected Exl~enditures Applying probabilities of surviving and dying to mrvivor and deceder~ expenditures yields age-specific expected medical expenditures (figure These are the di~:ounted expenditures we expect the average individu~" aged 17 ro incur during each age interval for the temalntier of his or he life, according to whether the person is a smoker or neversmoker. A year-old deemed to be a smoker is one who is or will become a smoke; probably within five years. Females generally have higher medical penditure~ than males, but the relationship of expenditures to smokin is the same for both. Through age 74, smokers have higher expenditure at each age, but after age 75 neversmokers have higher expenditure: Here we see the impact of lower mortality rates a~d longer life expe~ Amount (thousands) 8100 Nev~¢~moker ~urv|vor "~ AI| smoker eurvlv~r II + &li tmo~r ~ecJdint $40 " TI310~073g

$15 $0~ I I , I t I I I 17-34 35°44 45-54 55-64 §5-74 75-1~4 ~5-o~lr FIG. 4. Expected medical expenditures of a 17-year-old during age intervab according to sex and smoking seams, discounted at 3 percent ....................... ~- tancy of neversmokers. Smokers who do survive to older ages have higher medical ~are cos~ (figures 2 and 3). However, because of lower probabilities of survival, so many fewer smokers compared with never- smokers live to age T5 or beyond that the gverage, or expected, expendi- ture that will bc incurred is less per smoker than per neversmoker. Expected expenditure is the proper conceptual m~asure for estimating average lifetime expenditures and is the basis for the analysis in the re- mzinder of this article. The influence of discounting on monetary values far in the future apparent. Ahhough discounting decreases the present value of all penditures, the impact is greatest on more highly discounted expendi- tures in later years. Because future ~pendimres l~:orac les~ important relative to more current expenditures, the impact of high expenditures by neversmokers relative to smokers in the later years of/fie on the gap between smokers and neve~nokers before age 75 is diminished. The net effe~x on smoker versus neversmoker lifetime expenditures of higher expenditures for smokers up to age 75 and lower expenditures T[31050740

$12 $10 $8 $S $4 35 45 55 65 75 95 Age FtG. ~. Cumulative e~t~ed exee~ medi~ ex~endirarea for a ~noker from age 17 to s~ltcttcl age~ ~c¢otcLing to ~, d~:ountetl at ~ percent. after age 75 is shown in figure ~. Figure 5 plots the cumulative excess (,moker minus nevers~oker) expenditures that smokers incur from age 17 to the age shown. The cumulative differeme reaches a peak at age and declines thereafter. The total of medical expenditures inoarted by male a~d female smokers remains higher than for neversmokers through- out their lives; the gap n~rrow$ after age 75 bur remains positive. The net Lifetime exce.~ expenditures for smokers ¢omparecl with neversmok- ers is shown at age 9% Over their lifetimes male smokers average more than nevermaokers and female smokers average $10,119 more. Total Ia'f~time Expenditure Total expected lifetime medical expcndimre~ from age 17 are higher for smoke~ than neversmokers and increase with the amount ~rnoked (ta- ble 2). Lifetime expenditures for male mmtetate smoken (fewer than 2~ cigarettes a da~,) for hospital care. ph~iciam' services, and nursing-home care average $52,891 in 1990 dollars, wkith i~. $~,61~ and 21 percent higher than the $27,2~6 for neversmokers. Heavy smoke~ (25 or more TI31060741

DLu:~am~d at 3 Fer~erit~ All SexN~e~oktl~ smokers smokers Males Lifetirn~ expenditures $27,276 $35,914 $32,891 $4o,187 Excem expenditures $0 $8,638 $5,615 $12,911 Ratio to nevcr~rnoker~ I.OO 1.32 1.21 1.47 Females Lifet Line expenditures $42083 $52.902 $48.918 $60.347 Excess cxpendkurcs $0 $10.119 $6,135 $17,564 Ratio to nevetsmokers 1.00 1.24 1.14 1.41 • VaJues are io 199o dollars. cigarettes a day) udlizc medical care costing $40,187, $12,911 and 47 percent higher than neversmokers. The average for all male smokers is $35,914, exceeding expenditures for neversmokers-by $8,638 and-32 percent. To the extent that self-reported dgazette consumption is under- reported (Hatziandteu et al. 1989; Wa~ner 1978), some moderate smok- ers may cor~ume more than 25 dgazet~es a day mad the least amount consumed by heavy smokers may be more than 25 cigarettes a. day. Females use mote medical car, at most ages and llve longer than males, and therefore have higher lifetime expenditures. The amount of smoker excess expehditutes is higher for females than males, but the ra- do of smoker to ncversmoker expenditure, is smaller for females. Excess lifetime expenditures are $6,135 for moderate smokers, $17,564. for heavy smokers, and average $10,119 for all female smokers. Lifetime pendimres are 14 percent h~gher for female moderate smokers thaa nev- ersmokers and 41 percent higher for heaw smokers, with average expenditures 24 petcent higher for all female smokers. To show the sensitivity of our results to the discount rate, we have also estimated lifetime expenditures discounted at 5 percent. At higher discount rates dollar amounts zre lem. but the disparity between smok- ers and neversmokers inctemes. At 5 percent, a,¢etag¢ smoker lifetime expenditure* are 37 percent higher for males a~d 31 percent higher for females. Tl310~07 2

The relatively smaller impa~ of ~moking on fem~.le expendimrr.~ co~tcn~ ~i~ lo~cr ¢~ ~kc ~rc ~ong fcm~l~ p~t. Lower exposure ~ulu in lower He~ and Humm S:~ic~ 1989) ~nd lower medi¢al et ~. 1986) relative to neversmokers ~ong femur. ~wer relative mot t~ity ~d medi¢~ ~¢ use in rush produce a smiler pro~a~oaate in creme in lifedme medlc~ expen~tures of ~mokers ¢ompited wit] neversmoke= for femur. ~ f~m~e ~posur¢ approaches ~at of tomes we ¢~ ¢~ect lffe~¢ =pen~mr~ of ferule ~okers to interne rela dye to neve=moker~. Excess Medical Care Versus Excesx Mortality Thus far we know smokers use more medical cite at all ages when ate alive than neve~mokers, whereas neversmokers live longer and us~ medical ¢uze over a greater number of yea~s. The impact of highe~ medi- cal care use while alive out-weighs shorter life expectancy and, on balance. male and female smokers have higher lifetime medical expenditure: ............. ihat~ ne'vdrsrnokers. The iati6 of smoker expendltures to neversmoke: expe,~dkuses in table 3 shows how smoker expenditures exceed n~er- smoker expenditures during each age interval up to age 75, where'a: neversmokers incur higher expenditures a£ter age 75. The separate contributiom of excess medical ¢ate and excess moruJiq can be appredated by comparing lifetime expenditures of smokers wirk lifetime expenditures of two hypothetical groups: (a) smoke= with meal. jtml care use of neversmokers (smoker expert, dirures.adjusted for medica. cite) and (b) smokers with mortality rates of nevetsmoke= (smoker penditures adjusted for mo~tallty). Comparing smoker lifetime expeadi- tures with expenditures adjusted for medical care, we "Observe the • cuntribution of higher medical r.ate use'to smoker expenditures. FoJ males and females, excess expenditures due to higher medical care me are highem in the middle Feats of the life span and falJ off rapidly dur- ing the later yeats. Excess medical ¢uze use of smokers in=eases thei: lifetime medical expenditmes by 43 perceive for mules and by 29 pereent for females. The impact of higher mortality rates on lifetime medical is obsen~ed from the comparison of smoker expenditures with expendi. tures adjusted for mortality. Up to age 6~ for males and age ~5 for re- T13106074.3

Smokers Adjured f~t ~¢~ M~di=I ~t~ Us:, ~d Smeke~ Adjmtcd for ~ce~ Mothy, by Age and S=x Age Ncve~moker Smoker Smoker mrdieal ~a:c monalhy Males Lifetime 1.32 1.43 0.95 17-34 1.27 1.27 1.00 35-44 1.65 1.64 1.01 45-54 1.55 1.5I 1.04 55-(~ 2.27 2.21 1.06 65-74 1.32 1.33 0.98 75-84 0.74 1.02 0.73 85 and over 0.48 1.01 0.47 Females Lifetime 1.24 1.29 0.97 17-34 1.31 1.31 l.O0 35-44 1.67 1.66 1.00 45-54 1.56 1.54 1.02 55"-~ 1.20 1.15 1.04 65-74 1.12 1.08 l.O,l 75-84 0.92 1.01 0.90 85 and over 0.69 1.08 0.64 • Smoker expenditures adjusted for excess raedf~M ~r~ ate expenditures of smokers assuming neversmoker, medicaJ care use. Smoker expenditures adjusted for excess raortdit? ate expenditures of smokcn a.muning nevenmoker mortality rates. Dixount rate is 3 percent. , males, smokers have as high or higher expenditures as the hypothesized smoker with ncvcrsmokcr mortality rates. This can be attributed to the high cost of dying, which, for this period of the life cycle, outweighs the smoker's lower probability of surviving to each age and incurring expert. ditures. At older ages, however, the cumulative effect of higher smoker mortality rates has so reduced the probability that a smoker will survive to these ages that expected expenditures arc much lower for smokers. Smoker expenditures decline rapidly with advancing age ~cladve to cx- TI31060744

smoker mortify,, given by ~: result for ~L[ smoker l~e~e ~endimt~ by ~ p~r ~d f~ smoker l~e~e ~endimt~ h~" ~ permit. Up to age 75, smoker ~en~mr~ exceed n~enm~ker ~most ~lely became of ~gher ~oker me~ ~e ~e; ~c~ mo~ ~d ~e high co~ of dy~g m~e a smdl coa~budoa. petted smoker ~n~mr~ ~e mu~ 1~ ~m tut~. At ~e older ag~ ~c~ smoker medi~ ~e ~ m~ a positive but gready reduced con~budoa to ~oker ~ndimr~, md ou~eighed by ~e redu~on ~ ~ndimr~ r~dng horn ~e ~pact at ~ese ages of ~e ~uladve effe= of ~c~ ~oker mo~i~ ~ prior ye~s. ~e net effe= ~ higher ~e~e e~eadimrm for me~ c~e for smokem Population Expenditures In the preceding sections I cx~nined individuals'.medical ca~e expendi- tures. These results enable us m ~.ssess the aggregate burden imposed by - dga~cttc smoking~ Each ycar~ mo~c than one million young pc~om in. the United States start smoking (Pierce ctal. 1989). And each yc~, ap- plying the results in table 2, decisions by young people to take up smoking commit the health care system to extra medical cazc expcndi- t'ures totaling $9~4 billion (discounted at 3 percent), spread out over the lifetimes of each new aop o£ smokcm Medical cxpcnditmc~ expected over ~c remaining lifetime have been csr.imatcd by smoking stares and sex for each age g~oup, from yca~ of age to 8~ yca~ and older. Applying these profiles ~f remaining lifetime expenditures per pe~oa to the civilian noninstitutionalizcd population 25 yeats of age and older residing in the United States in 198~ gives future expenditures attributed to the baseline population. The baseline population will generate medical expcndit'~rcs for 6~ years, at which time the last surviving members will bc at Ic'~t 90 yca~ old and the process is trunca¢cd. In addition to fut't~c expenditures attrib- uted to the baseline cohort of smokct~, we ~ calculate excess smoker cxpcnditurc~ or the amount by which ~nokc~ eapcndimres cxcccd pcndimtcs that would bc incun'cd if smokers had the medical catc use and morraliW of ncvctsmokcts. Emm these ~Iculations wc dc~vc the re- sults that follow. TI31060745

lars, gcn:ratcd b? ~c b~elinc Fopulation of sm~kcrs~ In the fi~st five )'~s, cxce~ ~=ndirur~ attributed to m~ smokers ~¢ $113.~ billi~n, equ~ to $2,525 p:r smokes. Female smokes a~c estimated ~o have $73.1 billion of excess medical expenditures, averaging $2,069 per smokes. Me~ expenditures for hospit~ c~e, phFid~' se~i~, ~d nursing.home c~e for ~e total b~=line population (smoke~ ~d n~er- smokess) during ~ese five ye~s ~ ~ated at $1,026.~ billion. $420.~ billion t~r m~ ~d I605.9 b~lion for kmfles. ~us, exam e~endi- tuees ~iated wi~ cigarette smo~ng account for $188.6 billion, 18 percent of medkfl expenditures required by ~1 persons (~okers ~d neve~smokers) aged 25 ~d over in ~e first five yeas from b~line. ~¢ corresponding figures =e 27 percent for m~es and 12 percent for re- Discounting at 5 percent instead of 3 percent decre~es aggregate ex- cess expenditures by about 6 percent ~ong miles ~d fem~es, but ~e i "Amount (billions) $600 ~ Melt III Imokere ~ Mill ©umvlllhm ~500 "~" Female Ill Imok~re "~}" Female ©umulltive $400 $300 $200 ................ $1oo $o I I, l I 1-5 6-1S 10-25 26-35 30-4& 48-5& 56-~5 . Years from be~eline FIG. 6. Aggrcgxxe excess medical e~endimres for the population ofsmokc~ 2~ :rod older during successive time intcnrils lad cumul=tivcly according to sex..discoun~cd at ~ percent. T131060746

~ ~cn~io wiIl continue, m~rc or Ic~ unint~pted, at I~t ~ sh~ term. in ~: ab~cn:c cf signhqc~t chmges in important cte~. ~at ~. a~out one ~f~ of med£~ c~en~itures for persons aged 25 ~d over will go to pay for addidon~ medlc~ ~e required ~ smok- ¢~. Gmdud ch~gcs in im~n~t p~eters over a peri~ ofae~s can have a ~mulative, ~d ul~ately signific~t, impa~ ~ well, and ~mges ~e being z¢co~ded. In addition to geaerM demographic ~ang~ in ~e population. ~moking habiu have changed: fewer mN~ t~e up smo~ng, M~ough ~e proportion of neversmokc= mong females essentially un~anged be~een 1976 ~d 1987 (National Center for Hcd~ Statisti~ 1989). And l~ger pro~nio~ of smokers have been quit~ng; in ~t 20 y~s from 1965 to 1985 ~ere were stead~ incre~e, in ~¢ ptopo~om of ~ md~ and femMes who were former smokers, d~ough ~h trend slightly reversed iuelf b¢~een 1985 and 1987 dond Center for Hed~ Stat~d~ 1988, 1989). ~ere have d~ been ~ges in ~e amber of dg~ettes smoked per day: ~e percent of rent ~oke~ ~oNng 25 or mo,e dg~ettes per day incr~ed gr~dy be- ~een 1965 ~d 1980, but ~en declined in 1985 and 1987, ~ough ........................ a~l above ~e level~ rea~ed in 1976 (NadonN Center for H~ Sta~- d~ 1988; S~n~rn ~d Boyd 1989). In ad~don to &rages M ~e mr= at whi~ young people ~e up smo~g md smoker~ quit, ~e number of cig~e~ ~moked md ~e namr£ of cigmett~, a host of o~er fa~om could ~uence ~e heM~ ef- fern of ~mo~ng md attendmt me~e~ e~en~mre~. ~e ~e ve~. d~lt to predi~ md have ~e poten~ eider to in~e or de~e e~endimr~. Progrem in e~dng eompe~g d~eme and 1~ e~ectm~ would increme ~e reladve ~k of*moNng-related mor- bidity ~d mo~. Chug= in pe~n~ h~ practice, m~ ~ md ~ere~e md e~re to ~emieNs in ~, ~ter, ma food, may ter r~ ~ated wi~ ~o~ng to ~e ~ent ~at ~ere ~e ~nerg~d teladom ~ong rh~ for ~em~ i~e racer, eoron~ hm d~c, pu~on~ ~eme. Adv~c~ ~ medi~ ~e~py may ~pmve ~t~ or l~en ~e s~efiw of ~¢ ~ondi~on ~d ~e~ m~ ~e ptn~. Me~ u~ent hm ~ged ~#mdy over ~e y~ ~d ~g~ will ¢on~nue into ~¢ ~tute. For ~me coat,ore comider- able ~ge in me~ ~e u~zadon ~m M a sho~ pefi~ of ~e (H~gson 1988). ~e cou of ~ng ~ HM~ may ~ or ~ ~e me~ of =m~ent ~g~ (~to~ 1967, 1985; ~tovsky "2 TI31060747

and ~,~CaIl 1977). AI~hou~h merhD:Is of change. ~e cff~rt of ths= chgng~, coup1~d ~chan~ms tha~ ~ impac~ ~n m~dicat car~ u~tizafion ~e ~zurc m~dlc~ costs of th~ health many div~s= factors including smoSng behavior, ~ in~id~nce or prcv- ~scc of smoking-induced di:~, ~d m~thods mont. P~o)ecting ~ divergence of th~ patterers from ~rr~nfly observed v~ues. ~d the net ~ff~ of changes in scvcr~ f~ctor~, would be speculative. However, rcs~ k pl~ncd ~at will t~ account of ~c changing prev~encc of smoking in ing cxpcndkures. ~d will aim ~es thc impact of dcc~io~ to quit smoking on indi~idu~ ~d aggregate m~dic~ expenditure. The remainder of figure 6 shows, in ten-year intervals and cumulatively. projected aggregate excess medical expenditures attributed to the cur- rent cohort of smokers 25 years of age and older over the remainder of their lifetimes. 1:or the first 25 years for females and 35 years for males, the average smoker in the cohort is expected ro incur medical expendi- tures exceeding what he or she would incur as neversmokers. As a remlt. the cumulative total rises steadily, especially for males. In subsequent years, as the cohort ages, the shorter life expectancy of smokers relar3ve to ~eversrnokc~ exerts a domlnant influence, excess expenditures turn negative, and the cumulative excess declines. 1:or the civilian noninsfimtionalized population of cigarerte smokers in 1985, expected excess expenditures over the/x ~:emaining lifetimes for hospital care, physicians' services, and nursing-home care total $501 bil- lion in 1990 dollzts, :$355 billion for males and $146 billion for females. This is an average of $7,888 per male smoker and I~1,143 per female smoker. These are averages for smokers of all ages; the remaining life- dine excess is higher for the younger smokers. Discounting at 5 percent instead of 3 percent reduces total expected excess expenditures by 5.6 percent, from $500.9 billion to $47L0 billion. Source of Funds for Health Care Health care expenditures in the United States a~e funded by a variety of sources. Annually, private funding accounts for 60 percent of total per. T1310B0748

son~l he~/r.h c~re ¢~pendimr¢s, consL~ing mosdy vate heal~ imu~ce pl~ ~d directly from pa~ents, wi~ a sm~l ~ount from phihn~ropy lnd ind~i~. Public pa)'menu ~rough Mcdic~¢, Medi~d, ~d other govemmen~ prog~s, including ~hc Veccr~' Admin~rafion, Dcp~em of vice, wo~kcVs comp¢~don, ~d mizemfl ~d ~d h¢flfi, Ffiinc¢ ~0 pcrcen~ of p¢~ h~ ~c (~, d~ibutio~ of hc~ ~endime~ ~ong ~ndi~g ~urc~ v~i~ m~k- edly by pati~t age. Prince he~ imu~ce ~d direct paymenu by co~mers of hc~ ~e account for ~mo~ ~ree.fou~ of expendi- ~res for peno~ under 6~ y~s of age. where= public ~n~. ~pecially Medic~e, conuibuce ~ost ~ir& of elderly (W~do ~ ~. 1989). Given ~e ge~er me of h~ c~e ~d higher ~e~e medlc~ c~e e~endimr~ by ~oken, ~bek sho~er l~e expec~cy, how does burden af tin, ring smoke~' ~ce~ medi~ c~e f~l upon ~e v~ious ~nding source? ~ ~e burden every ~ibuted ~ong source, or do one or more ~urc~ b~ ~or~te sh~? D~ ~e burden f~l more heavily on ei~er ~e public or pilate sector? In addre~ing ~ ~ue, paymenu fzom_ co~me~ direly out of p~et, o~er private ~urces (~mo~ en~ely feom pr~ate h~ inm~ce). Me~e, ~d Medic~d ~e ~yzed. ~e ~urcu account for 90 percent of ~ pe~ h~ c~e exp~mres (~ e~ ~. 1988). ~e zem~ng 10 percent of pendlmr~ ~ p~d by a ~fie~ of sourc~ for he~ condifiom noc gen- er~ly related to smo~ng. ~e ~dude workers' compe~fion medk~ pa~enu fur work-related injufi~ ~d ~ln~es: Ve~er~ A~-" tion me~c~ ~en~mres, w~ ~e heavily weighted by me~c~ c~e for men~ con~dom: Dep~ent of Defeme me~c~ expen~tures. over 90 percen~ of whi~ ~e for younger pe~: macer~ ~d ~ild h~ ~d s~l h~ progr~. Expenditures over the Smoker's Idfetime Table 4 shows male smokeas' lifetime mcdicsd expenditures according to smoking status and sources of funds. As expected because of their shorter life expectant, a larger share of smokers' medical ~are is pa/d for by private health insurance (50 percent vemus 44 percent), the predomi- nant payer for pe~som under 65 yeas of age, wherea~ 25 percent of nev- ersmokers' medical care compared with 21 percent for smokers is funded TI31060749

Od~cr Neversmokers $27,276 $5.815 $11,910 $6,8`52 $2.67,5 (]00.0) (21.3) (43.7) (25.1) (9.8) A]] smoEc~s $:15,914 $6,920 $17,964 $7,417 $.~.`597 (zoo.o) (19.3) (50.0) (20.7) (to.o) Modczat¢ smokers $32,891 $6,516 $16,174 $6,904 $3,279 (100.0) (19.8) (49.2) (21.0) (10.0) Heavy smokers $40,187 $7.627 $20,27B $8,311 $3,9`56 (100.0) (19.0) (50.5) (20.7) (9.8) Patio of smoker to n~versmoker All smokers 1.32 1.19 1.51 1.08 1.34 btoderate smokc~ 1.21 1.12 1.36 1.01 1.23 Heavy smokers 1.47 1.31 1,70 1.21 1.48 Excess ~noker eapendimrcs and percent of total "" A~smokers $8.638 $1,105 $6,054 $565 $922 (l.O0) (0.13) (0.70) (0.07) (0.11) Moderate smokc~ $`5,61`5 $701 $4,264 $`52 $604 (1.00) (0.12) (0.76) (O.Ol) (0.11) Hcavy smoke~ $12,911 $1,812 $8,368 $1,459 $1,281 (1.oo) (o.14) (o.65) (O.lD (o.~o) • Values arc in 1990 dolhra. Numbers and percents may ,~o¢ add zo toxzls be- cause of munaing. Discount rate is ~ l~ZCeat. ~ Per~enu ate in parear.he~s. by Medicare, the most importzat source of funds for the tidily. Out- of-pocket payments are a slightly lasger proportion of nevenmoke~s' medical expenditures, a~couatiag for 21 percent of the total, aad bled- icaid pays 10 percent of cx~nditurcs for both smoke~s aad ncvetsmok- ets. The distribution of ex-pcadimres by source of funds varies hastily at all between heavy smokers and moderate smokers. Smokc~' cxccss medical care is largclg financed by prlvarc health in- mrance; 70 percent of excess payraen~s is by pzNatc immanct. On aver- j T131060750

age, lifetime m~di~a/paymenu l:er permn 5~ private in~uta~e ~e f~r moderate ~d 70 percent higher for hea~ ~mokem). H=~ ~m~k=rs ~o requke l~ge~ life~e medi~ paymenm from Mediate ~d ~d and pay more out of ~=ket th~ n=ve~moker~. Moderate also benefit sub~t=ti~ly more from Medi=aid and pay more o~ of p~ket ~ n~-eumokem, but ~eceive only ~ligh~y more from ~edi- c~e. Shomer life expeetan~ ~ong ~mokem d~s not ~ave ~e Medi=re progr~ money. Although neveumoke~ live ~onger. moderate and heavy smoker~ require substanti~ly greater expenditure~ for medi=~ e~e ~ n~emmoke= at ag~ 65 to 74, l~gel~ ~nded by Medicare. Medi~e e~endimr~ ~e 21 percent ~ber for hea~ smokeu ~d 1 percent higher for moderate smoke= ~ for n~eumokem, ~d on av- erage 8 percent higher for smoke~. (Of cou,~e, ~e average for ~1 smok- ers depen~ on ~e rela~ve numbers of moderate and henW smokers in ~e population.) Fem~ use more m~dic~ ~e, incur high¢~ ~tndim~. ~d gen- e~ly receive more fin& from ea~ source ~ mfl~ (table 5). d~tribufion of femfle me~cfl ~dimres by ~urce of finds ~ much ~e ~at of miles wi& respect to out-of-p~ket ~d private pay- menu, wher~ Medic~e pa~ relatively lem for femfl~ ~d Medi~d pays relatively more. Femfle smokem' ~c~ medi~ ~e ~ ~o l~gely fin~eed by private hefl~ imur~ce (72 percent of ~e ~cem, on aver- age); ~d private hefl~ insur~ce paymeau r~ge from 23 percent ~ghet for m~emte smokem to ~ percent ~gher for hea~ smokem ~ n~e~okers. Ferule smokem ~o pay more out of p~et md teive more from Meditfid, but Me~e pays a li~e leu for femfle smokem ~ n~emmokem. If ~endimr~ ~e d~counted at 5 percent i~ead of 3 perc~t, shoe of ~e~e expen~tut~ pfid by private ~r~ce h~ ~d ~at pfid by Me~c~e de~. Became ~e ~g~ ~e mm~hat l~ger for n~emmokem, ~ere ~ a teml~g de¢t~e in ~e propo~on of exeem smoker e~en~mr~ pfid by private ~ce. from 70 to 65 percent ~ong mfl~ ~d 72 to 67 percent ~ong femfl~. ~¢ conui- bufiom of out-of-p~et pa~en~ ~d Medi~e to ~¢em smoker cfl e~en~mrm h~eme modmdy m ~e d~ount rate Wright (1986) hvmfigmed ~e nut effe~ on Medi~e's ho~i~ m~ce ~nd of ~e de.ion to quit ~o~g at ~e 45 by a mile hght ~oker. ~ough ~e ~m ~at Wright ~d I ad~ ~e quite TI31 060751

IO7 ~,m~kir~g S~ams and S~rce cf Fund~' Neversmoker~ $42,783 $9,302 $19.766 $7A8~ $6,232 (lOO.O) (21.7) (46.2) (17.5) (14.6) All smoket~ $52.902 $10,958 $27,029 $7,163 $7.7~1 (IQO.O) (20.7) (51.1) (1,LS) (14.7) Moderate smoke~ $4lL918 $10,21/6 $24,393 $7.01~ $7.226 (100.0) (21,0) (49.9) (14.3) (14.8) Heavy smokers $60,347 $12,20~ $32.4~8 $6.989 $8,717 (I00.0) (20.2) (53.8) (II.6) (14.4) Ratio of smoker ~o neversmoker All smoke~s 1.24 1.18 1.37 0.96 1.24 Moderate smokers 1.14 1.11 1.23 0.94 1.16 Heavy smokers 1.41 1.31 1.6~ 0.93 1.40 Excess smoker expenditures ~nd percent of to~l All smokers $10.I19 " $1.556 " $7,263 --$320 $1,519 (1.oo) (o.16) (o.7~) (-o.o3) (o.i~) Moderate smokers $6,135 $984 $4,627 -$470 $994 (1.oo) (o.16) (o.7~) (-o.os) (o.16) Heavy smokers $17.~64 $2,90~ $12,672 -:$494 $2.435 (1.oo) (o.s7) (0.72) (-o.o3) (o.14) • Values a~c in 1990 dollars. Numbers and cause of roundJn&. Discount rate/s :~ p~rcent. b Perccnu ~c in p~renthescs. percents may not add to totals be- eric, it is important to comment on Wright's study lest the conclusions of the two analyses appear to be contradictory. Wright asks the following question: for quitters, who llve longer, how do additional contributions into the hospital insurance fund compare with additional reimburse- meats for Medicarc-covcrcd medical services? On the other .hand, our study considers only Mcdiczrc reimbursements and compares paFrncnts to smokers with payments co nevetsmokczs. Within Wrighr's frame- work, an analysis more closely related to ours would be to ascertain TI31060752

~eimbursemenu to nonqui~ers. Wright finds ~r for m~ ligh~ smok~ ~-ho quit ~ bu~emenu from ~e ho~i~ i~ur~e~ ~nd during ~didon~ ~ of ~e ~d paymcn~ into ~e ~nd by $934 to $1,495 (in 1980 doll~s ~ounted at 3 ~cmt) depending on ~emative ~umpuo~ about ~ h~es~ent xemrn on con~bufio~. H~wevet, ~ added ~edi~e re~bu~emenu for quiaers ~e ove~t~tcd for ~o re~om. Fi~t, ~e b~ed u~n ~ver~ge ~u~ reimbursement per enrollee. weighted ~vemge of ~e~b~emenu ~o smoke~ md hoboken. ~ed ~t average ~u~ te~bunem~n~ would be lower for non- smoken, who not o~y live longer he.me ~ey ~e more h~y, but ~o me 1~ me~ c~e per ye~. Second, qui~e~ cm be enjo~ be~er h~ md toque 1~ medic~ c~e not only in y~ added to ~eir ~e ~m, but ~o in ~e ye~s ~een quitting • ge 45 md ~e ~pe~ed ~ge of dez~ for smokers. Wright do~ not ~to ~ccount ~e reduced Medic~e p~ymen~ in ~ese ye~ ~d credit ~em ~t p~ymen¢ du~hg ~e exua y~ of ~e. Cone~g for ~e ~o sousces of ovem~tement in Wright's e~te of ~d~fion~ ~edi- ~e se~bu~eau to q~ers.wo~d subs~gteduce ~e ~o~t by wHch addi~on~ re~bu~emenu exceed conuibufio~ to race ~nd ~d quire ~ibly mm• net ~eme hto ~ net Population Expenditures In the first five ye~_,s from bmeline, excess use of medical c~c by smok- e~ 25 yc-as of age ~nd older in 1985 costs $186.6 billion in 19~ do~ (~zc 6 md mblc 6). More ~m h~of ~, $100.9 briton, ~ pdd by pilate ~cc, while Me~c~e pays 16 percent ($29.9 briton), Mcd- i~d pays 12 pcrc~t ($21.7 b~on), ~d smokcm con~ibutc 18 percent ($~4.1 b~on) ~tc~y ouc of ~kct. M~c smokc~ wc~c ~atcd g~czatc ~c~ mc~ ~n~mr~ of $113.5 b~on ~ ~¢ ~ five y~ flora b~el~c. F~e smokc~ have cxc~ me~ tong ~73.1 b~on, wi~ mm~hat Imgc~ propo~iom ~ m~ p~d out of ~ct. by pilate ~cc. ~d by Mc~d, ~d ,cladvcly I~ by Mcdi~e. ~e fivc.y~ pm~e sho~ ~e sho~-mn ~cncc of long ~ a ~dy ot n~ m~dy ~tc obt~. ~ ~c~ of ~n~, pubic ~d pilate, ~e ~ ~e buMcn of ~g ~ok~' ~c~ mc~ ~c, but ~e p~cdomin~t p~ycr ~ p~atc h~ ~cc. T131060753

TABLE Ol~Ict h~ Yc~'s flora $:x ~nd Te'.a~ Other All smokers 1-5 years 6~> ycar~ 65 years "65 years ...... $186.6 $34.1 $100.9 $29.9 $21.7 (1oo.0 (IS.~) 04,1] (16.o] (11.6] $~00.9 $26.7 $3~5.1 $54.4 $25.3 Ooo.o) (s.~] G~.9) (1o.9) $11~.5 $20.4 $~8.6 $22°7 $11.8 0oo.o) (18.o) 01.6) (~o.o) 00.4) $354.6 $33.4 $2~3.7 $42.0 $26.1 0oo.o) (~.4) (71.~) (Zl.S) (7.4) $73.1 $13.7 $42.3 $7.2 $I0.0 (100.0) (18.7) .... (57.8) .... (9.9)_ (15.6) $146.~ --$6.7 $141.4 $12.4 --$0.8 (loo.o) (-4.6) (~.6) (s.~) (-o.~) • Value~ ~re in 1990 dollaa~..Number~ and pereenu may not add to total~ becau~ of rounding. Discoun¢ rate is ~ percent. t, Petcenr.s ~c in l~CnChcscs. The current population has certain smoking habits, including, for ex- ample, amount smoked and rates of quitting at v~ious ages. If ~ese patterns were to continue into the future, the ne~ financial impact on medical case expenditures by the baseline cohort of smoke~ would be the excess expenditures after 65 years shown in table 6. Total excess cx- penditures over the remaining lifetime of the baseline cohort of smokers are $500.9 billion, including $354.6 billion for males. For females the long-run excess is much less, $146.3 billion, one reason being that the~e a~e many fewer female smokers. As dur~g the rum five ye'axs, all payment sources ¢onu4bu.te to the excem medical rose ~equked by smoker~ in the long ran, although the share paid by private inmra~ce is higher while the proportions paid by other sources are lower. Of the total excess medical expenditures of $~01 T|31060754.

billion required hy .all im~kem over ~.- lifetime of ~e cohort. 79 per- cent is paid by private in~uran:e, 11 l~ercent by Medieae. and 5 percent each by sm~kem out ofpo:ket and Medicaid. The shift in the burden of funding excem medical expenditute~ to private insuran:e i~ greater for femalea, with the additional fun~ paid by private insurance beir~ 97 percent of the net excem required. Medicare provides a small hut signKi- cant portion while out-of-pocket and Medicaid expendittues a~e less for female smoker~ than n~vemmokem. Inr~eming the d~ount rate from 3 percent to 5 percent de:teases population excem medical expenditures by 6.5 pe[¢en~ to $174.5 billion afre~ five yea~s from baseline and by 5.6 percent to $4Y3.0 billion after 65 yearn from baseline. The distribution of exeea expenditures by source of f~nd~ does not change with the discount ra~e in the 6i~-t tire yeas. Became of the greater impact o{ di~oundng on expenditures for never- smokers who live longer, however, after 65 yea~ there i~ a ~hifr in pay- ment for smokem' excea medical care from private insurance to the other sources, o{ ~nds. Private insurance paymen~ decrease frown 79 percent of the total to 6"/ percent, while our-of-pocket payment~.in- crea~e to 11 percent, Medica~e's sha~e increme~ to 14 percent, and Meal- .............. .[.caid..pay-~...8.pe.r.~.ent. The change is gteates~ among females whose expenditur~ a~e mo~t affected by discounting b~dame of their longer life expectancy. At a 5 percent discount rate, the dimibudon of excess expenditures for females is 75 percent private insurance, 8 percent out- of-pocket, 11 percent blediczte, and 7 percent Medicaid.. Summary and Conclusion The cumulative impact of excess medical ca~e required by smokea at all ages while alive outweigh~ shorter life expectancy,, and smokem incur higher expenditures for medical ca~e over thek lifddmes than never- smokers. Thi~ accord~ with the findings by Manning et al. (1989) of pos-" idve lifedme medical ¢a~e cost~ pe~ pack of dga~ettes, but disagrees with the result~ found by Leu and Schaub (1983, 1985) for Swk~ males. The conuadictory condmiom of the analyses a~e undoubtedly due to a large difference in the amount of medical ca~e reed by ~anokers ~ehdve to nevci~nokers in the United States and Swim data. Excess expenditures increase with the amount smoked among males and females so that life- time medical costs of male heavy smokem a~e 47 percent higher than for T131060755

million ~ng pe~lc ~mt io ~m~k¢ and add an c~r~ $9 ~o $10 billion (in 1590 d~llas dizcoun~cd at 3 p:r~cm) to the nation's h~ahh care bill o~¢r their lifetime. Given the smo~ng behavior, medical cart milizati~n and co~s of c~e. and population size embedded in ~e data u~ed in this analysis, I have concluded ~at in the first five y~s from b=eline the population of smokers aged 25 ~d over in¢u~ excess mcdic~ expenditures totaling $187 billion, whkh is $2,324 per ~moker. ~e excem cost of medk~ cae ~odated wi~ dgaette ~mo~ng is 18 percent of ¢xpcnditur~ for hospk~ care, physid~' se~ic=. ~d nursing-home cae required by ~1 pcrsom (smokers ~d nevetsmokers) aged 25 ~d over. In ~e absence of large ~d mpid changes in ~e v~ues of the underlying parameters. $187 bRlion, 18 ~rcent of medical expenditures, c~ be token ~ ~e premium currently being p~d eve~ five years to provide medkal care for ~e excem diseme suffered by smokers. Even without ~e addition of any new smokers, C~e present v~ue of the bill ~at will be incurred for exce~ medical care requked by ~e ~r- rent population of smokers over ~eir remaining l~cdmcs £ high. ~e civili~ noninstimfion~ized population of cigarette smokers in 1985 who ae age 25 ~d older R expected to incu, over its rem~ning l~ctime ex- cem medic~ e~endimres of $501 billion, or $6,239 per smoker. It ~ po~ible ~at ~ture ~ges beyond tecent historical uen& in ~e habiu of ~ose who ~rrenfly smoke, su~ a reductiom in ~e ~ount smoked, higher rates of quitfing~ whether o=curdng fortuitously or brought about by design, may remit in lower corm of smo~g than est~ated. Such an an~ysis is beyond ~e scope of ~is study. A smoke£s lif~e ~xcem medic~ cae ~ lagdy ~anced by private he~ insurance, wi~ more ~ 70 percent of the excem p~d by this source. But ea~ ~nding source helps pay for ~e e~a medic~ care for smokers, except for Medicare's contribution to ferule ~penditures. Medicae pays about 4 percent lem for ferule smokc~ ~ hero,smok- ers when e~endimres ~e discounted at 3 percent. For the population of smokers in 1985, more ~ b~f of ~e $187 billion in excess e~enditures in ~c ncxt fiw yeats ($101 billion) g paid by private i~t~cc. All ~urces of~n& shae in ~e burden, however. In addition to private imurane¢, 18 percent ($34 b~on) is p~d out of pocket, 16 percent ($30 billion) by Medieae, ~d 12 pc:tent ($12 bil- lion) by Medk~d. In ~e long ran, over ~e rem~g l~etime of ~ T131060756

p=rccnt or $2~ b~llion), ~d out of ~kc~ (slighdy m~tc ~ 5 percent or $27 b~lllon). Our ~ys~ ~ploys a 3 percent discount ~te, mpplemente~ brief d~rip~om of ~e ~pact on ke~ ~lts of di~oun6ng at. ~ per- cent. A ~ percent rate ~ at ~e low end of ~t~ obse~ed in ~e ~tem- rare ~d rotes above 5 percent give t~ li~e weight to ~enditure~ f~ in ~= ~mre. ~e pr~ent v~ue of ~en~mr~ de=e~ ~ ~e d~- count rate inc~es. More ~po~t, howler. ~ ~e ~pact on ~e lafomhips be~een smoker and neve~moker medi~ e~endimres. D~counting at 3 pe~ent i~ come,dye in ~at ~e ra6o of smoke~ to neve~moker l~et~e e~endim~e~ inc~ wi~ ~e ~o~t rate. Ag- gregate ~ce~ e~endimres for ~e popula~on of smoke~ ~e 1~ at ~e ~gher di~co~n~ rate, but ~e decree i~ o~y ~ound 6 peseta. Most sensitive to ~e d~ount ~ate ~ ~e co~bufon of v~iom sources of payment to exce~ smoker medi~ e~endimt~. At higher d~count mt~ 1~ of ~e exce~ ~ p~d by p6vate i~ce ~d more by sources of ~nds. Yet even ~ ~crencc ~ qu~dmgvc ra~er ~ Me~c~d, ~d out-of-~= paymenu proving sm~ee but ~t conuibudom. .~ ~dy h~ not conuoHed for ce~ fi=o= m~ ~ ~cohol con- ~mpdon, o~er ~le a~butes, ~come, ~d eduction. To ~e ~- tent ~at ~ere ~ a coneladon ~een ~e ~d smo~g r~l~g in~ed medi~ ~e ~e ~ong ~oke=, not ~ of ~e obse~ed ~- ferenc~ in lffe~e e~endimr~ be~een smoke= ~d n~e~oken ~ due to smo~ng. Neve~cl~, ~e a~ by M~g.et ~. (1989) di~t~ ~at ~7 percent of ~e ~eeences would rem~ ~er conuo~ng for ~n~t co~oun~g ~iabl~. Adi~g ~e key r~ulu to refle~ o~y 87 p~rcent of ~e obse~ed ~erences be~een smoker ~d n~e~oker ~e~e me~ ~en~- mr~ produc~ ~e follow~g for a 3 percent ~o~t rote. ~ed ~e- ~e me~ expcndi~ of ~e avezage smoker ~ceed ~ose of ~e average neve~moke~ by 2B pe~c~t (17,~1~) for ~ md 21 percent ($8,8~) fo~ fem~es. ~ y~; dec~iom by more ~ one m~on young people to ~e up ~o~g co~t ~e h~ ~e ~em to bHHon ~ ~ua me~ e~en~mr~ over ~eir ~e~. At T131060757

T131060758

earlier, f~'er deleteri~u~ hr-Ar.h effects reyult from pri~r tobacco expo- rate impacm on lifetime e~enditur~ ~f lower ~nu~ quimng and added ye~ of exFendkur~ due to a longer ~fefime. aggregate reduttion in ~pendimtes for ~e ~pulation will d~pend on how many smoken quit, at ~has ages. ~d in what effect of quitting on l~e~e medk~ e~eadtmt= of smoken m a com- plex i~ue to whi~ we hope to con~ibute ~ome ~ysh in a ~ture pub- lication. ~C~'CfClICC$ Bradsto~k. M.K., J.S. Masks, ,M.R. Forman. E.M. Gent,y, G.C. Hogc- lin, and F.I.. Trowbridgc. 1985. The Behavioral Risk Factor Surveys: lIl. Chronic Heavy Alcohol Use in the United States. American Journal of Preventive l~ledi~ine 1 (6): 15-20. Cohen, M.A., E.J. Tell. and S.S. Wallack. 1986. The Lifetime Risks and Costs of Nursing Home Use Among the Elderly. #~edical Care 2,1(12): 1161-72. Graham, D. 1988. Detailed Diagnoses and Procedures for Patients Dis- chasged from Short-stay Hospitals: United States, 1986. Vital ann Health Statistics, series 13, no. 95.-DHH$ pub; no. (PHS) 88-1756. Hyatts'ville, Md.: National Center for Health Statistics. Graves, E.J. 1987. F..-'pec~cd Prindpal Source of Payment for Hospital Disdaasges: United States. 1985. Advance Data. no. 144. DHHS pub, no. (PHS) 88-1250. Hyatt.wille. bid.: National Cente~ for Health Statistics. Hatziandrcu, EJ.,J.P. Pierce, M.C. Fiore, V. Grist, T.E. Novomy, and R.M. Davis. 1989. The Reliability of Self-reported Cigarette Con- sumpdon in the United States. Araeff~an Journal of Public Healt~ 79(8):1020-3. Hing, E. 1989. Nursing Home Utilization by Current Residenm: United States, 1985. Vital andHealtb Statistics, series 13o no. 102. DHHS pu!~. no. (PHS) 89-1763. Hyattsville, bid.:-National Center Health Statistics. Hing, E., E. Scksccnski, and G. Sttahan, 1989, "i'he National Nursing Home Sur~ey: 1985 Summary for the United States. Vital ann Health Statistics, series 13, no. 97. DHI-IS pub. no. (PHS) 89-1758. Hyattsville, Md.: National Center for Health Statistics. Hodgson. T.A. 1988. Annual Costs of Illness Versus I.R'etimc Costs oi Illness and Implications of Stmcraral Change. Drug Information Journal 22(3):323-41. TI31060759

L:ts~h. S.'~{".. K.K Lea;it. =n:l D.R. Waldo. 1985. National H=hh ~:ndn~rcs. 19S7. Health Care fina~¢ing Review 10(2):IO9-22. Lcu. ~.E.. and T. 5~haub. t9S3. Does $m~kAng In,r~e Expz~dkure? 3~¢~=1 S~en~e and,~edluine 17(23):1907-14. ~ 1985. More on the Impact ~f Smoking on Medi~l pendi~ures. So~mt Science ....and Mea~tne 21(~):825-7. ~ppiatt. B.C. 1990. Mcmuring Medkal Cos, ~d Life ~pe~ Im- pacts of Changes in Cigarette Sales. Preventive ~edidne 515-32. ~u. K.. and K.G. Man,on. 19~3. ~e Leng~-ofistay Pattern of Nu,s- ing Home Admissions. Medical Care 21(12):1211-22. Lubi,z, J.. and R. Prihoda. 1984. ~,e Us~ ~d Cos~ vkes in ~hc ~t 2 Ye~s of L;£c. Health Care Finan~ing Re~iew 5(3):1 ~7-3 ~. Manning, W.G.. E.B. Keeler, J.p. Newhouse, E.M. Sloss, ~d J. Wm- serman. 1989. The T~es of Sh~: Do Smokcm and Drinkers Ply ~eit Way? Joumd of the Am¢ffean 3fedied Assos~Hon 261(11): 1604-9. Matuon. M.E., E.S. Pollack, and J.W. Cullen. 1987.~at Are the Odds That Smo~ng Will ~11 You? American Journal of Publi~ Health National Center for Health Statistics. 1988. Health, United States, 1987. DHHS pub. no. (PHS) 8~:123Z H9at~ill~ Md. - • 1989. Health, Vnitei$tates, 198~. D~$ pub. no. (PHS) 89- 1232. Hyat~ille, Md. . 1990. Vit~ Stut~ri~ of ~e UMted States, 1987 ~e Tabl~. DHH5 pub. no. (PHS) 90-11M. Hya~le, Md. Novomy, T.E.. K.E. W~ner, J.S. Kendti&, md P.L. RemM~on. 1988. Smoking by Blacks and Whites: S~ioeeonomic md Demograp~c D~erences. Amedcan JoumM of Publi~ Health 78(9):1187-9. Oster, G., G.A. ~olditz, and N.L. Kelly. 1984i. ~e ~onomi¢ ~s~ of Stooling l~d Benefi~ of Qukdng for In~vidu~ Smokem. Preven- tive ~feli~ine 13(4):377-89. ~. 1984b. ~¢ Economic Co~ ofSmoMng md Bcnefi= of Quit- ting. Le~ngton-, Mms.: L¢~ngton B~. Pearson, D.C., L.C. Gtothius, R.~. ~ompson, and ~.H. Wagner. 1987. Smokers md Drinkers in a He~ M~ntenmce Org~izadon Population: Lifestyles and Health Seams. Preventive Medicine 16(6):783-95. Pierce, J.P., M.C. Hone, T.~. Novomy, ~.J. Hi~ian~reu, a~ R,M. Daub. 1989. Tren~ in Cig~e~e Smo~ng i~ ~e United Stit~- Projeaiom to ~c Year 2000. Jou~ of the A,edun ~ediM ~- soe~tion 261(1):61-5. T1310B0760

T131060761

Vkeme, L., J.A. Wile/,, and R.A. Carrington. 1979. The Risk of Imd- W~d~. D.R.. and H.C. hzenby. 1984. Dcmographi¢ and He~ ~re U=e ~d Expendimr~ by ~e Aged in ~e United States, 1977-1984. Hgaltb Care Financing Rtvlt~ 6(1):1-~9. Waldo. D.R.. S.T. Sonnefeld, D.R. McKud&, ~d R.H. Arnet~ III. 1989. Heath Expenditures by Age Group, 1977 ~d 1987. Health Cam Fi~andng R~ri~w 10(4): 111-20. Warier, K.E. 1978. Possible Incre~es in ~e Underrepoaing of Ciga- rette Co~umpdon. Journal of the Am~an Statia~al Ano~tion 73(362):314-18. ~. 1987. H~ ~d Etonomi¢ lmplieatiom of a Tobacco-free So- cie~. #umal of Me A meH~n Medical ~soe~tion 2 ~ 8( 15 ):2080-6. Wright, V.B. 1986. Will Quitting $mokin$ Help Me~¢~e Solve nan¢i~ Problems? Inqui~ 23(1):76-82. Aaknowledgmentt: Appredation ~d ~a~ ate due Eugene ~wit. Doro~y Rice. Kenneth Warner, ~d anonymo~ t~i~em foe t~i~ing d~ of th~ tide ~d m~ng m~y ~gg¢~ions ~at ~proved ~e ¢ontent ~d of ~e ~e au~or g~te~llF ac~owledg~ ~e ~t~e M ~renee ~nk¢l ~d the American C~eer SocietF for unpubl~hed data from Cancer Stud~ II; RoMn Wright of ~e Nationfl Center for H~ Sta~ (NCHS) ~d M~in Di~e/, fo~trl~ of N~$ ~d ~ow wi~ ~e Nadon~ l~6mte on Drag Abm¢, foe ptovidlng tabulado~ of dan from ~¢ Nadon~ M¢~c~ Ot~ization ~d ~ptndi~te Su~; ~nt ~x, Dawn ~ott, ~d lldy non of N~S for tibula~om, t~p~vel~, ~om ~t Nagon~ Ht~ ~d Nutri- tion Exminatioa Su~ey Epidemiologi¢ Follo~p Stud~, linked NCHS monfli~ ~d H~ C~, Fining Adm~tion Medi~, fd~, ~d Nation~ Hc~ ]ntc~i~ Su~ey. ~c views cxpr~d in ~ paper ac ~o~ of ~c au~or ~d no o~c~ dorscmcnt by ~c Nafion~ Center for Hc~ $m~d= ~ intended or ~ouid J~ctrcd. Addmst go~#aponden~e to: ~om~ A. H~on, Ph.D., ~id ~ono~t, rice of AnMys~ ~d Epidcmiolo~, Na~on~ Comet for Hc~ Sm~, Bclcrc~ Road, Room I0~, H~t~fllc, MD 20782. Methodology and Data Appendix In this appendix the variables and data for estimating lifetime medical exgendimres are explained in detail. The model defines medical care ex- penditures during age inter~al t as: T13106076:

--/ Lifedm~ expenditures from age 17 are given where E,: = expendimr,~ during age interval t if the individual'survives through t '" probability of surviving through age interv-A t expenditures during age interval t if the individual dies in t probability of dying during age interval t age 17-34.35-44, 45-54. 55-64. 65-74, 75-84, 85 znd ore discount rate The componenr~ of E, are described below. Survivor Expenditures F.,,, = H, CmN, ÷ D~CmN¢ ÷ NH,, Hospital Care Expendltures--HtCn, N~. H, = number of days i the hospital per year by age, sex, and amount smoked derived from if, National Center for Health Statistics' (hIGHS) Nadonal Health Inte: view Sur~ey (NHIS) in the three years from 1978 to 1980. Combinin three successive year~ of data incre-.ues the saraplc size, reduces the star dasd errors, and improves the stability of the estimates. Comparing dat from NHIS in 1974 and 1985 shows that during the decade age adjusted rdadve rLsks of hospital case and physiol.., services for smoke; increased except for a very small decrease among females in the relad~ rksk of hospital use. The data used in this st.~. dy thus somewhat undere: dmate more ~ecent use of medical care by smokers *elative to nonsmbl ers and, consequendy, conservatively estimate the amount by whic lifetime rnedieal expenditures of smokers exceed those of pe~ons wh never smoked. " NHIS hospital days and physichn visits per capita in a year are blase measures of use by survivors in our model; that is, persons who live t the end of an age interval. The bias derives from the infhenee of deer dents in subsequent yeats on per capita use observed in NHI$ in a has TI31060763

~x9 ~v.c~ y~ars pn~r ~o their d~zh~. ~na~quend;. NHI5 is ~h~ over~l p~r capita u~e ~f ~o groups: (1) long-term ~rs-~ho~e who will he ~ive at lc~t sevcr~ years ffter ~c b~e period. ~d (2) shoa-te:m su~ivors--~ose who will die wi~in a f~ ye~ fol- lowing • e b~e period. ~us, in ~e b~e ye~, obsen'ed pet ~pita in ~IS is likely to be higher th~ ~r capita use of long-term and lower than ~at of ~hoa-tctm ~ivots. Per capita use b~ long-te~ ~,ivon is ~e appropriate me~te of use by su~ivo~ in our analysis. Even if the factor by which b~e period utilization ~cee~ long-term su~ivor urillzation is ~e ~e for smoken and n~enmoke~, ~e d~- ference in use be~ecn long-term su~iving smoke~ and over~tated if mc~u~ed by b~e period per capita ~tes. Fu~e~o~e, cause smokers have higher mo~Mi~ rat~ than neve~okers, a l~ger proportion of ~mokers in ~e b~e ye~ are sho~-te~ m~ivo= ~d a smiler proportion ~e iong-te~ ~u~ivors ~ ~ong n~e~mokers. ~e impact of shoe-term ~wivon on per capita medic~ b~c period is greater ~ong smoke= ~an neve~moken. ~ r~lu in additional overstatement of long-term sumivor smoker ~e compared- wi~ neversmoker me m~red by b~e period per ove=tatement incre~ wi~ age, ~ do mo=Mi~ tats, ~d ~oa-tc~ su~ivors become a l~ger p~opoaion of ~e b~e ye~ population. To estimate more ac~rately e~endimr~ for ~mivo=, deeedenn, smokcn, ~d nevenmokets over ~ek ~edm~, long.te~ su~or hos- pit~ ~d physici~ ~e h e~ated from NHIS b~e period u~afion. ~is is accomplished ~ follows: I. Moa~i~ rates for smokem ~d neversmoken from Cancer Society's ~cer Prevention Study II NHIS b~e period popu~fion to ~t~ate ~e num~t of shod- and long-te~ m~ivors by smo~g aa~. Shoa-te~ m~ivo~ die within three ~ears ~d long-term m~ivors live fou~ ye~ following ~e b~e 2. ~own ~elatiomhips be~een p~ capita medi~ ~ ~gm (for hosplt~ c~e ~d ph~si~' se~ic~, t~peefively) of population of Medi~e benefici~i~, ~o=- rots, a~e used to estate ~e ~elafio~ips be~een ~t ~pita medi- c~ c~e use of ~e N~S b~e y~ ~pula~oa, sho~- ~d T131060764

For decedents 65 yelrs of age lnd older. /x'¢~, is derived dtely from ~pe~dimr~ ofd~cedcms relative to ~mivo~ in ~ ~opulation of Medic bcn~fid~ics. ~c M~c dam ~ described in Luhi~ ~d Prihoda (198~) and ~1~ ~d Luhkz (1986). " the mul6ple by which physki~ e~ndlmt~ for de{ed~nu m • c ~tiod l ~cc¢d iv~gc annu~ physidan expenflitu~ for ~ivors. Ko, ~ derived from ~e s~e data soutc~ ~d Nursing-home expenditures, ff the individual dies at age t, are etti- mated by NH~¢, = 1.5(.25La + .75 L~t,)CNn, IP'~, L~t = ~verage length of stay for live discharges, as described above. L~t = average length of stay for dead discharges, also from the NNHS and imqated by 30 percent. The average length of stay for decedents is a weighted average of the lengths of stay of live and dead discharges, with the weights reflecting the a~sumption that 75 percent of those with a long-term stay die in the institution (Vicente. Wiley, and Carrington 1979). Curt, = average daily charge to nursing-home residenu in 1990 d01- lars by age and sex from the NNH$. I~a, = percent of the population dying in age t who had a nursing- home malt in the period by age, sex, and smoking statm from NHEFS. Probabilities of Surviving and Dying Pa = II (1 -p.) for a 17-34-year.old. ~-- 17-34 P.', ---P, I][ (1 --p,,) for a 17-34-year-old. t = age 17-34, 35-44, 45-54, 55-64, 65-74, 75-84, 85 and over. T131060765

the probability of dying in the nth age interval for alive ar ~he beginning of the a~,:. interval by sex and amount smoked. The p,,s a~e deri,ed from death rates in the American CaJaCer Society's (ACS) Cancer Prevention Study I! (CP$ If). The p,s are sealed to 1985 U.S. va/ues for all males and ~'em~es following the methodologT era. ployed by Matron, Pollack, and Cullen (1987). CP$ II is a long-term prospective study. In 1982, more than 77,000 ACS volunteers enrolled 509,000 men and 677,000 women, who p~o- vided iaformation on their lifestyles, exposure to certain environmental conditions, and hi~rory of diseme. In 1984, 1986, and 1988, it was de- termined -uhich enrollees had died in ~e two preceding yearn and death certificates were obtained. Although subject~ come from all 50 states, the District of Columbia, and Puerto Rico, the sample is not a probabil- ity sample.of the. U.S.- population. Minority groups "are underrepre- sented, institutionalized persons zre excluded, and sample persons are more highly edu~ted ($tellman and Gadinkel 1986). CPS IT is more representative of middle-class white' Americans and the enrollees' mormlky metes are lower than those of the ~or~l U.S. pop- ulation CO.$. Department of Health and Human Services 1989). Longer li~'e expectancy among CP$1I enroJ/ees would produce some overstate- ment of li~'¢tlme medical expenditures for the U.S. population. The im- pact on excess smoker expenditures is not elea~. It depends on whether, and by how much, under~epreseatation of minorities diffem among smoke~s and neversmokers, and on cemain other characteristics that p~o- duce different-smoker ,¢ersus neversmoker" mortality among minority and nonminority populations. For example, higher proportions o£ black~ currently smoke, but a higher proportion of whites are former smokeu, ~he~em Hispanics have the highest proportion of neversmokers and the lowest propow,.ion of current smokers ($r.hoenbom and Boyd 1989). Whites smoke more cigarettes per day (National C.¢nter for HeAth Statistics 1988), whereas black smokem prefer cigarette brands that are high in tar and nicotine and are memtholated (Novomy et al. Tt31060766

pa~ to underrepr~n~tion of~notiUe~. A line or" r~oaing ~il~ to • at ~ ~e preceding p~gmph applim to whe~er edu~tiond ~ffer- ~c~ be~n ~= CPS H ~ple and ~e U.$. p~pulado~ not ~med by m~ori~ ~deuepr~enmdon ~e ~endd for U.S. population ~ shown by S~e~m ~d ~el (1986). ~=y find • at adjmdng CPS H dam fo~ ~e educadon~ d~budon of ~e United Sm~ by ten-y~ age groups p;oduc~ only sm~ ~mges in ~e age- specie d~dbudom of smo~g habiu ~ong men md women. Fur- • et encouragement for ~e use of CPS II ~ given by ~e surgeon geneS, who ~e~m ~m ~med ~eladve ~h for 6g~e~e-~ela~ed ~ do not ~ge mu~ =o~oun~g ~d ~a~g ~able~ (U.S. Dep~ent of H~ md Hum~ Semices 1989). Even ~ im l~kadons. CPS II ~ ~e best a~able data murce for ~ m~B. Population Expenditures Ex'peaed medical expenditures per iiadividu'al over the remaining life- time are estimated for each smoking mar'us, sex, and age group. Each profile of expected expenditures ;¢ then multiplied by the corresponding number of persons in the group as estimated by the NHIS for 1985. This produces aggregate expected expenditures for each cohort by age and years from baseline. Source of Funds The Health Ca~e Truanting Adminlsuadon (HCFA) annually estimates national health expenditures by source of funds for each type of medical care (Letsch, Levit, and Waldo 1988). From dine to time,' national health expendimtes.~e disaggrega~ed by age (Waldo and Lazcnby 1984; Waldo et al. 1989), umally into th*ee age groups: under 19 yea~, 19 to 64 years, 2nd 65 yeas of age or over. The following steps were ~aken to allocate lifetime medical expenditures of each smoking stanm group (male nev~mmokem, for example) a~cording to payment sources. T131060767

~gc ~nd ~o~c of p~Fmenr g~oup rcp~d b~" ~ Na~ion~ H~pi- ~al D~charge Suv,=~ (Grav~ 1987). Exp=ndkur=~ for nursing home care reposed b~ HCFA were d~tfib~ted b~ m according to ~e propo~ion of m~ ~,d ferule numing-home r~idenm in ~ age ~d source of payment group (Hing 19~9). 2. ~e rsmhing expendimr~ by source of payment for ~ ~ of medicfl care (hospices. physld~, and nu~ing hom~), sex. ~d age were conve~ed to percentage d~ibugom. ~e appropriate distributions were applied to corr~ponding componenu of ~fi- mated lifetime medic~ e~endimr~ to derive pa~enu by age ~d source for hospit~ c~e. physici~" se~i:~. ~d nurs~g-home ~e for ea~ smoking status group. ~pendimr~ were ~gre~ted over types ofmedic~ c~e to obt~n lffe~e medic~ e~endimrm by age ~d source of ~n~ for each smoking sta~ group. This mer.hodolog), accounu for variation in the source of payment for medical care by type of case, sex. and age of the recipient, but wi~ spect to age only d~tinguishes whether paymenm axe made at ages un- der 63 yeass or 63 yeass or older. The source of funds for medical-case .............. for male smokers, for example, differs from that for male never~mokers because of differences in type and amount of medical case u~ed and age at which expenditures are incurred. T131060768