17.5 Economic analysis, economic evaluation and economic modelling of tobacco control policies and interventions

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Economic analysis can provide evidence about the effectiveness, cost-effectiveness and the return on investment of various policies and interventions. For example economists have provided objective evidence of how taxation affects price and how price influences the demand for tobacco products. Such evidence has played an essential role in the formulation of fiscal aspects of tobacco control policy. Economic evaluation of smoking cessation interventions and policies provide evidence not only of the costs and benefits relative to other smoking cessation interventions, but relative to other health interventions as well. Economic evaluation relies heavily on modelling to extrapolate the effects of interventions from clinical trials and other data sources to population levels.

17.5.1 The cost-effectiveness of population-wide policies to reduce tobacco use

Econometric analysis of tobacco control policies uses statistical techniques to compare changes over time or differences between jurisdictions in measures such as total taxable sales of cigarettes following introduction, greater spending on or greater enforcement of various laws and programs. When a country such as Australia puts into place a range of population-wide measures aimed at reducing smoking, it is difficult to untangle the relative contribution of each measure. In the United States, however, good data in available at the state level, on smoking prevalence, cigarette prices and sales and spending on various programs. Further, timing of introduction of policies and programs has varied widely at county and state level. These two factors have allowed comprehensive evaluation of the relative impact of various policies and programs.

This section discusses the results of such research examining the impact on cigarette demand of policies such as increasing taxation on cigarettes, bans on advertising of tobacco products, anti-smoking mass media campaigns, restrictions on smoking in public places and limits on youth access to tobacco products.

17.5.1.1 Taxation

There is strong evidence linking increases in price to decreases in demand for tobacco products, the consensus being that price elasticity is inversely related to age.47 Increases in tobacco tax, therefore, are considered to be one of the most effective tools for decreasing smoking especially among children.48

While some commentators have expressed concern about economic hardship among smokers,49, 50 there is also evidence that poorer smokers reduce their consumption more in response to price increases.51-54 Thus the overall effects of tax increases may in fact be progressive. In a careful analysis of the distributional effects of reduced smoking prevalence in NSW, Junor et al. found that average weekly spending on tobacco products would fall in all income groups.41 Because tobacco spending represents a much higher percentage of total household income in lower income groups, the benefits of such reduced expenditure would be greatest among lower income groups.

In the United States, it is estimated that a US$1.50 increase in cigarette taxes and prices would reduce overall cigarette consumption by about 30% while cutting youth consumption by 50%.55 Several economists have taken evidence about demand elasticity and combined it with data on the health consequences of quitting smoking to project health gains that would be achieved with tax increases of various levels.56

In 1988 Californian voters overwhelmingly supported Proposition 99, the California Tobacco Tax and Health Promotion Act, which increased the state cigarette tax by 25 cents per pack and designated 20% of new tax revenues for health and education programs including a statewide media campaign to reduce smoking. Evaluation of the impact of the legislation indicated that the tax increase reduced consumption of cigarette sales by more than 27 packs per person while sales declined by just under eight packs per person as result of the media campaign.57

For detailed discussion of the taxation of cigarettes, see Chapter 13.

17.5.1.2 Restriction of tobacco advertising

Economic theory provides important insights on how best to conduct econometric studies of the impact of cigarette advertising.58

Advertising of a product can increase demand in several ways. Cigarette advertising conveys information about the physical characteristics of the product and information about the product's 'personality'. Such advertising is designed primarily to create various 'fantasies of sophistication, pleasure, social successes, independence or ruggedness. This process can induce individuals who are not smokers to try the product, for those who are smokers, to smoke more, for those might have quit, to continue and for those who have quit, to start again.' (Saffer and Chaloupka, 58).

At a more detailed level advertising can increase market size through its role in brand proliferation. The process of proliferation involves: 1) market segmentation; 2) the creation of a new branded product and 3) the creation of new advertising for the new brand, with content targeted at the intended market segment. New brands may attract new smokers into the market and thus advertising may increasing total consumption of tobacco products.

According to the economic concept of diminishing marginal product, consumption of tobacco products should increase in response to increases in advertising of tobacco products but only up to a certain point. After a certain point, consumption should flatten out and become less and less responsive. Since different forms of media (TV, radio, billboards, cinema) are not perfect substitutes for each other, a large advertising campaign that uses multiple forms of media will be more effective than one that uses only a single form. (The same principles would apply, in reverse, to anti-smoking campaigns.)

These economic theories explain why studies examining national levels of expenditure on tobacco advertising have not generally detected very large changes in consumption of tobacco products. Where advertising expenditure is already very large tobacco consumption is unlikely to increase much further in response to any increase in expenditure, and similarly it is unlikely to fall much in response to any decreases. Such theories also explain why partial bans on advertising do not lead to significant reductions in tobacco consumption: tobacco companies simply shift advertising budgets to the forms of media that have not been banned.

A comprehensive econometric study prepared for the World Bank59 compared changes in tobacco consumption in countries that had introduced various levels of advertising bans, and controlling for price and income and other factors affecting demand found that limited bans are minimally effective in reducing tobacco consumption. Comprehensive bans, however, do quite clearly reduce tobacco use.

17.5.1.3 Mass media campaigns

Econometric analyses of mass media advertising to discourage smoking have generally, but not universally concluded that campaigns of this kind have significantly reduced the use of tobacco products.47, 60, 61

In Australia, one economic study of cigarette prices and other anti-smoking policies from 1962 to 1996 found that levels of spending on anti-smoking mass media campaigns had no detectable direct effect on aggregate consumption, although it could be argued that they may have had an indirect effect by creating a climate in which the government has been able to raise taxes to unprecedented levels.62 The authors found that price, including tobacco taxes, real income and demographic effects explained most of the variation in consumption. This study has been criticised, however, because it used spending as a measure of consumption rather than quantities of tobacco. It would hardly be surprising if increased tobacco taxes were closely related to shifts to cheaper forms and sources of tobacco products.63 Further, it failed to take into account the impact of very high levels of unpaid advertising provided as community service time and the extensive coverage about the health effects of smoking in (unpaid for) media stories. A more recent Australian econometric study of tobacco control policies and their impact on smoking prevalence does include consideration of the impact of unpaid advertising and media coverage. Preliminary analysis of the results of this study by Wakefield et al. indicated that in addition to the powerful effects of real price increases and reductions in affordability of tobacco products, anti-smoking advertising also has a measurable impact.64

Analysis of aggregate tobacco use in the United States after increases in spending on anti-smoking advertising financed by proceeds of the 1998 Master Settlement Agreement between the tobacco industry and states shows a clear relationship between the level of expenditure and the extent of declines in tobacco use.65 For each 10% increase in mass media advertising, aggregate tobacco use fell by about 0.07%, and about 0.25% for each 10% increase in cumulative expenditure. Results suggest that tobacco control programs are more effective, dollar for dollar, when implemented for a longer period and on a larger scale.

17.5.1.4 Smoking restrictions

Econometric studies generally have found that restrictions on smoking in public places reduce average daily tobacco consumption and contribute to a downturn in smoking prevalence.66, 67 Restrictions on smoking in public places can also lead to reductions in smoking by limiting the opportunity to smoke, and influencing the perceived social acceptability of smoking.68

It has been concluded that strong restrictions significantly reduce both smoking prevalence and average daily cigarette consumption for youth and young adults respectively.69, 70

Restrictions on smoking in public and work settings also influence the health and wellbeing of people who do not smoke.

Policies that ban smoking in public places are associated with significant reductions in the prevalence of exposure to SHS, which can be expected to lead to a reduction in smoking-related diseases and therefore in health care costs. A US study analysed the effect of a smokefree policy in workplaces and public places on the number of hospital admissions for smoking-related diseases.71 The city of Bowling Green, Ohio, implemented a clean indoor air ordinance in March 2002. Smoking was prohibited in all public places within the city, except for bars and restaurants with bars, provided that the bar area was isolated within a separate smoking room. Following introduction of the ordinance, researchers found significant reductions in admissions to the local hospital. Admissions for coronary heart disease decreased by 39% after one year and by 47% after three years, resulting in significant reductions in costs across the entire community.

Another US study examined the effect of making all workplaces smokefree and concluded that the combined impact of increased numbers quitting, reduced smoking by remaining smokers and reduced exposure to secondhand smoke would result in substantial savings in medical costs in the first year.72

17.5.1.5 Restriction of access to tobacco products by young people

Policies limiting youth access to tobacco products involve the establishment of a minimum legal purchase age for cigarettes and restricting the distribution of free samples. Studies in the public health literature examining the impact in individual communities find that, when they are properly enforced and complied with, prohibitions on sales of tobacco products to youth have a significant impact on reducing youth smoking prevalence.73 Poorly enforced, these restrictions generally appear to be quite ineffective.69, 74 Econometric studies analysing large numbers of records and factoring in compliance activities at both state and local levels find that aggressively enforced policies do reduce the prevalence of smoking among youth, and the number of cigarettes consumed, 75 though the impact of this measure is not as strong as that of tax increases or restrictions on smoking in public places.75, 76

17.5.2 Models to assess the impact of anti-smoking interventions

Several economic models developed in recent years allow researchers to estimate the mortality, morbidity and treatment costs of tobacco-related disease in a population and to convert quitting rates to benefits such as life-years that could be saved by the intervention.

Such models have been developed in the United States, the United Kingdom and Australia.

Simsmoke is an American system-based simulation model developed by Dr David Levy based at the Pacific Institute for Research and Evaluation, one of America's pre-eminent independent, non-profit organisations focusing on individual and social problems associated with the use of alcohol and other drugs. Simsmoke allows researchers to assess the impact of past tobacco control policies and to generate predictions about the future effect of policies on smoking prevalence and premature mortality attributable to smoking.77 The basic model utilises a population component, a smoking component, and a number of tobacco control policy components in moving the population forward through time. The original purpose for developing Simsmoke was to provide justification for tobacco control to policy-makers. The model can also be used for planning purposes, such as refining existing policies, assessing the need for additional policies or deciding on particular demographic groups to target.

The Health and Economic Consequences of Smoking (HECOS) model was developed by the Lewin Group of consultants in conjunction with the Centre for Health Economics at the University of York in the United Kingdom. It was commissioned by Glaxo Wellcome and offered for use in the late 1990s to the World Health Organization (WHO) 'European partnership project to reduce tobacco dependence'.78 It models smoking behaviour and associated mortality, morbidity and health care costs and was designed as a tool for use by health care payers, government policy-makers and other health care organisations in a variety of countries. A key purpose of the model is to show the health and economic burden that smoking-related diseases place on health care systems, in addition to showing the potential disease cases averted and the reduction in smoking-related costs resulting from successful smoking cessation programs.

The Quit Benefits Model (QBM) designed by Associate Professor Susan Hurley for Quit Victoria, assesses the health benefits and health care cost savings in Australia that could be realised by people quitting smoking.79 The QBM takes account of features included in the earlier UK and US models but is tailored specifically to Australia. It assesses the effect of quitting in terms of cases avoided of the four most common smoking-related diseases: acute myocardial infarction (AMI), stroke, lung cancer and chronic obstructive pulmonary disease (COPD). The model also assesses deaths avoided, quality-adjusted life years (QALYs) and health care costs saved. Quitting outcomes can be assessed for males and females in 14 five-year age groups from 15–19 to 80–84 years. The model can be used to evaluate tobacco control programs and uses 2001 as the reference year. Using the model, Hurley and Matthews found that the average saving per 1000 random quitters in the first 10 years following quitting would be $373,000 in health care costs associated with AMI, COPD, lung cancer and stroke.79 Overall 40 of these quitters would avoid a diagnosis of the four diseases in the first 10 years following quitting, with an estimated saving of 47 life-years and 75 QALYs.

17.5.3 The cost-effectiveness of smoking cessation interventions

Economic evaluation is a useful means of considering the fundamental problem facing the health care sector: how to allocate scarce resources.80

In situations where demand exceeds the number of health services that can be provided, some form of priority-setting must occur; that is, choices need to be made about what to fund, what not to fund and how much to allocate to each program and service.81 Economic evaluation provides a framework for decision-making that can aid in priority-setting. The advantage of a technical framework for priority-setting is that it not only makes decisions explicit but also the objectives on which these decisions are based. Using an economic approach implies that benefits will be maximised with the available resources. Both costs and benefits are considered and two or more treatments can be directly compared against each other.81 When such studies are of an adequate standard and performed in a uniform way, they can greatly assist decision-making.

Cost-effectiveness (CE) studies provide information about the cost of each intervention per unit of health gain (e.g. year of life saved (YOLS)). The cost-effectiveness of pharmaceutical and other health care interventions are often expressed as an incremental cost-effectiveness ratio (ICER): the ratio of changes in costs of a therapeutic intervention (compared to the alternative, such as doing nothing or using the best available alternative treatment) to the change in effects of the intervention. Resources could be judged as being used most cost-effectively when there is no other allocation of spending for a given budget that would result in greater improvements in outcomes.80

17.5.3.1Cost-effectiveness of smoking cessation compared to other strategies for reducing costs associated with treating chronic disease

Smoking cessation has been considered the gold standard of cost-effectiveness in the health sector, providing additional years of life at costs well below those for a wide range of health care interventions.82

Among various interventions to prevent or treat cardiovascular disease for instance, smoking cessation therapies appear highly cost-effective.83, 84

In a study evaluating the cost-effectiveness in primary prevention of cardiovascular disease, the most cost-effective was smoking cessation therapy. The league table opposite (Table 17.11) compares the cost of treatment and the cost per year of life saved for four risk-lowering interventions: smoking cessation, aspirin, hypertensives and fat-lowering drugs (statins). Each were tested among populations at moderate and high risks, aged 50 and 60 years old.84 Smoking cessation was found to be the least costly and the most cost-effective intervention. Aspirin was the second most cost-effective ($4270 to $31,960 per year of life saved) followed by anti-hypertensives ($53,150 to $150,550). Statins were the least cost-effective ($139,480 to $358,780 per year of life saved.84 Smoking cessation with GP advice is dominated by smoking cessation with bupropion, meaning that GP advice has higher costs and lower effects.84 [7][8][9][10]

17.5.3.2 Comparative cost-effectiveness of various pharmaco-therapies to treat tobacco dependence

Reviews of the cost-effectiveness of bupropion and nicotine replacement therapy (NRT) suggest that smoking cessation interventions which include use of these aids are consistently more cost-effective than many other medical interventions in terms of the cost per life-year saved.85, 86

Recent Australian research has found bupropion to be more cost-effective than NRT. Bupropion had an ICER of $7700 per disability-adjusted life year (DALY) averted while NRT had an ICER of $28,000 per DALY averted.87 In a combined scenario, researchers considered bupropion as first-line treatment and NRT as second-line treatment for those who fail to quit using bupropion. This combined scenario is estimated to cost an additional $30,000 per additional DALY averted compared to using bupropion alone. All three therapies—NRT, bupropion and bupropion plus NRT— have ICERs well under $42,000 per QALY, the threshold below which the Pharmaceutical Benefits Advisory Committee is unlikely to reject a drug for public funding under Australia's Pharmaceutical Benefits Scheme.88

In a study analysing the incremental cost-effectiveness of the first-line pharmacotherapies (nicotine gum, patch, spray, inhaler and bupropion) for smoking cessation across six Western countries—Canada, France, Spain, Switzerland, the United States, and the United Kingdom—the authors found that the cost-effectiveness varied widely across countries but in each country the results for smoking cessation medicines would be considered favourable in comparison to other common preventive pharmacotherapies.89 In each case bupropion was the most cost-effective, followed by nicotine patches.

17.5.3.3 Cost-effectiveness of population versus clinical approaches to smoking cessation

While pharmaceutical treatments may be the most effective means of increasing abstinence in smoking cessation, they may not be the most cost-effective. This is because more resource-intensive treatments such as NRT and bupropion increase both costs and effectiveness, but increase costs more rapidly.82

Anti-smoking mass media campaigns have been shown to be highly cost-effective. In an economic evaluation of Australia's anti-smoking media campaign, the National Tobacco Campaign, commencing in 1997, the authors examined the benefits likely to result from the 190,000 people who quit during the first six months of the Campaign. Using the Quit Benefits Model described in Section 17.5.2, it was estimated that benefits would include the avoidance of over 32,000 cases of COPD, 11,000 cases of acute myocardial infaction, 10,000 cases of lung cancer and 2,400 cases of stroke. A total of about 55,000 deaths will be prevented, and 407,000 QALYs gained. With total savings in health care costs of $740.6M (assuming a 3% discount rate), these results suggest that the National Tobacco Campaign was excellent value for money.

An Australian cost-effectiveness study analysing a range of smoking cessation interventions and polices with differing resource intensities found that the Australian National Tobacco Campaign and the comprehensive Massachusetts Tobacco Control Program (which included policy initiatives and smoking cessation programs in addition to extensive mass media advertising) were more cost-effective in reducing smoking-attributable health care costs than clinician advice, bupropion and NRT—see Table 17.12.91

A recent review of all CE studies in smoking cessation revealed considerable differences in methodology and the way effects and costs were measured.92 The differences in the methodology make it virtually impossible to use the results of such studies in decision-making.92, 93 In their study Ronckers et al. aimed to increase the comparability of CE analyses of smoking cessation programs to improve their value for decision-making.93 They recalculated the CE ratios reported by using a societal perspective and eliminated cost differences, differences in effect size and in terms of quitters and differences in extrapolating the incremental cessation rate to YOLS. They concluded that in general the less intensive interventions were more cost-effective than more intensive interventions.

The general trend for the less intensive interventions to be evaluated as more cost-effective does not mean that more intensive interventions should never be adopted. The CE ratios for pharmaceutical and other treatments for tobacco dependence are still lower than those for many curative interventions. Also, it could be that more intensive interventions induce specific groups of smokers to quit where less intensive interventions have failed.93

17.5.4 How much have comprehensive tobacco control policies to reduce tobacco use reduced health care and other social costs in Australia?

Reducing tobacco use is among the few strategies that can improve health outcomes while producing net gains in government fiscal positions.94

Analyses of the impact on health care spending of tobacco control programs have reported significant savings for governments, with savings on health care costs of $3 for every $1 spent in California,95 and $2 in state health care spending for every $1 spent on tobacco control in Massachusetts.96

A study commissioned by the Department of Health and Aged Care and published in 2003 estimates the total cumulative benefit of health improvement for Australia between 1971 and 2010 due to declining tobacco consumption.97

The study compared the number of deaths that occurred in each year since 1971 with the number of deaths that would have occurred had smoking prevalence remained at the rate in was in the early 1970s. Estimated averted lung cancer deaths in the year 1998 were 56% of actual all-age deaths due to lung cancer; estimated averted deaths were 58% of actual deaths due to COPD and 25% of deaths due to coronary health disease. Rounding down these estimates, researchers estimated that reductions of 50% of lung cancer and COPD healthcare costs would represent savings of $58 million and $162 million for lung cancer and COPD respectively ($1998). A 25% reduction in costs associated with treatment of coronary heart disease costs would represent a saving of $242 million (in 1998 dollars). Including the much smaller health care savings in relation to strokes and cancers other than lung cancer, total health care savings due to reductions in smoking since 1970 were conservatively estimated at about $500 million for the year 1998 alone. In addition to health care savings of $0.5 billion, the study identified longevity gains valued at $9.6 billion and improved health status valued at $2.2 billion resulting in total benefits of $12.3 billion.

The study went on to compare the current value of total savings and gains in longevity and health status for the entire 40-year period, with the current value of total spending on public health programs to discourage smoking. The estimated present value of the costs of the public health programs in year 2000 dollars discounted back to 1971 was $176 million. Even on the study's conservative assumption that only 10% of the reductions in smoking were due to such programs[11], the estimated present value of the total benefits of anti-smoking programs over that 40-year period was $8602 million. The estimated net benefit (net present value) of anti-smoking programs over the 40 years to 2010 is therefore $8427 million. Looking just at the impact on public finances, the estimated present value of the total expenditure savings for government was $344 million. Compared to the $176 million spent on public health programs to reduce tobacco use, this provides a saving of $2 for every $1 of expenditure on public health programs to reduce tobacco consumption.

17.5.5 How much and how quickly can reducing smoking reduce deaths, disease and health care costs?

Reducing smoking would result in substantial reductions in future health care spending both in the long and in the short term.

Australian researchers estimated the potential effect of a smoking cessation intervention on Pharmaceutical Benefits Scheme (PBS) expenditure on subsidies for drugs to treat smoking-related cardiovascular disease over the long term.98 The authors projected smoking-related CVD costs assuming that an intervention to reduce smoking started in 2004, ran for three years and produced a (one-off) 5% absolute reduction in smoking prevalence that was sustained until 2041–42.98 They estimated that, under these conditions, PBS subsidies would decrease by 17% with a $4.5 billion reduction in costs for smoking-related CVD over the period, a fall from $25.9 billion to $21.4 billion. When future costs are discounted at 5% per year, savings in cumulative PBS subsidies over the period would total $1.14 billion, a 15.4% reduction. Annual PBS costs in 2041–42 would be $40 million lower.

In another study, Hurley has estimated the short-term benefits for Australia of a reduction in smoking on acute myocardial infarction (AMI) and stroke hospitalisation.99 The numbers of AMI and stroke hospitalisations in 35–64 year olds and the associated health care costs that would have been avoided over a seven-year period in Australia from the 2001–02 financial year under two smoking prevalence reduction scenarios were calculated.99 Scenario 1 was a 1% absolute reduction in 2001–02 and scenario 2 was a 5% absolute reduction achieved through 1% per annum reductions in five consecutive years. Under scenario 1 almost 1000 hospitalisations for AMI and about 350 for stroke would have been avoided over seven years, saving about $20.4 million in health care costs. Under scenario 2 more than 3000 AMI hospitalisations and more than 1000 stroke hospitalisations would be avoided and health care costs would be reduced by $61.6 million. This study, like a similar one conducted in California some years earlier,100 demonstrates that even in the short term, modest reductions in smoking rates can substantially improve health outcomes and reduce health care costs.

Savings in neonatal health care costs related to smoking during pregnancy are also possible in a very short time-frame. Such costs are highly preventable since the adverse effects of maternal smoking occur in the short-term and can be avoided by even a temporary cessation of maternal smoking.101 Researchers in the United States estimated that mothers who smoke added a mean excess cost of approximately US$511 direct medical cost per live birth in 1995.101, 102 They estimated that an annual drop of one percentage point in smoking prevalence among pregnant smokers in the US would prevent 1300 cases of low birth-weight and save $21 million in direct medical costs in the first year of the program. Over seven years it would prevent 57,200 cases of low birth-weight and save US$572 million in direct medical costs.