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Smoking, selection, and medical care expenditures

Abstract

The contribution of cigarette smoking to national health expenditures is thought to be large, but our current understanding of the effect of smoking on annual medical expenditures is limited to studies that use cross-sectional data to make comparisons of medical care expenditures between smokers and never smokers at a particular age. We develop a dynamic economic model of smoking and medical care use that highlights two forms of selection: selective mortality and non-random cessation. To test predictions from our model, we construct novel longitudinal profiles of medical expenditures of smokers and never smokers from merged National Health Interview Survey and Medicare claims information. Consistent with our theory, we find that, from a given age, smokers generate higher expenditures prospectively, because of a higher incidence in inpatient usage, and lower expenditures retrospectively, because of lower outpatient usage. Between ages 65 and 84, we find that the expected value of the discounted sum of total expenditures is lower for smokers, mainly because of excess mortality. We find no evidence that cigarette smoking is a burden on Medicare.

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Notes

  1. Economists have provided much of the evidence that health shocks can cause smokers to quit (Khwaja et al., 2006; Arcidiacono et al., 2007; Darden, 2017).

  2. Decker et al. (2012), who study medical care utilization among the previously uninsured, is the only other paper of which we are aware to exploit the Medicare claims/NHIS linkage.

  3. See https://www.fda.gov/news-events/fda-voices/fda-track-take-actions-address-tobacco-related-health-disparities

  4. https://www.cdc.gov/tobacco/data_statistics/tables/trends/cig_smoking/index.htm

  5. Another study that simulated “longitudinal profiles” is Ahmad and Franz (2008), who used data from the Behavioral Risk Factor Surveillance Survey (BRFSS) to estimate the effect of an increase in cigarette taxes on health outcomes, tax revenue, and medical care expenditures. Importantly, they calibrated their model with health projections from Hodgson (1992), and, thus, this study has the same limitations just described. They found that raising cigarette taxes by 40\(\%\) in 2004 would reduce smoking prevalence to 15.2\(\%\) in 2025, increase tax revenue by \({\$}\)365 billion over that span and reduce total smoking-related medical costs by \({\$}\)317 billion.

  6. See Scharff and Viscusi (2011) for evidence that smokers have higher implied rates of time preference.

  7. The marginal cost of smoking may be larger for those with lower income because the marginal utility of consumption is higher.

  8. Most individuals start Medicare at age 65. We drop individuals for whom Medicare claims appear prior to age 65. Ages in NHIS are topcoded at 86.

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Funding

This manuscript was prepared with linked Medicare claims/National Health Interview Survey data from the National Center for Health Statistics. The findings and conclusions in this paper are those of the authors and do not necessarily represent the views of the Research Data Center, the National Center for Health Statistics, or the Centers for Disease Control and Prevention. Dr. Darden acknowledges funding from a Johns Hopkins University Catalyst Award.

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Correspondence to Michael E. Darden or Robert Kaestner.

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Neither Dr. Darden nor Dr. Kaestner have any conflicts of interest or competing interests related to this manuscript.

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Darden, M.E., Kaestner, R. Smoking, selection, and medical care expenditures. J Risk Uncertain 64, 251–285 (2022). https://doi.org/10.1007/s11166-022-09378-9

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Keywords

  • Health care expenditures
  • Medicare
  • Smoking

JEL

  • I1
  • I12
  • I18