November 23, 2011 – 11:39AM
A leading actuary has lampooned health lobby figures on the costs of smoking and obesity as being extravagantly inflated and based on suspect methodology.
â€œThe numbers are all over the place,â€ writes Geoff Dunsford in the September edition of Actuary Australia. And they are â€œbig numbersâ€ â€“ the implication being that they are too big.
â€œObesity costs $58.2 billion,â€ he exclaims, â€œthatâ€™s around twice the cost of age pensions!â€
The sheer size of the numbers, argues the Sydney actuary, perverts government policy. It can lead to poor spending decisions. The credibility of the numbers from the health lobby is therefore critical to government policy.
The press and the public have been led to believe that the costs to the system are higher than they really are so the government can â€œjustify use of taxpayersâ€™ money on measures to reduce its prevalence and preventionâ€.
Dunsford looks at three public health issues: obesity, smoking and depression.
1. â€œ….obesity …. drains the national budget each year by $58.2 billionâ€, (Sun Herald report, March 13, 2011).
2. â€œ…smoking … costs our society $31.5 billion each yearâ€, (Nicola Roxon, media release, April 7, 2011).
3. â€œDepression-associated disability costs the Australian economy $14.9 billion annuallyâ€, (beyondblue website)
In the first case, the newspaper story was based on an Access Economics report for Diabetes Australia titled, â€œThe growing cost of obesity in 2008: three years onâ€.
Access Economics estimated the cost of obesity to Australia at $58.2 billion. And sure enough, this enormous headline number promptly bobbed in the press.
On Dunsfordâ€™s analysis, however, the figures are flawed, skewed by the â€œnon-financialâ€ estimates to make obesity seem a lot more costly to the taxpayer than it really is.
The costs break down as $3.9 billion for the health care system, $4.4 billion in â€œotherâ€ costs relating to lost work days, taxes forgone and other productivity losses.
Then there is the big one: $49.9 billion in â€œnon-financial costsâ€. This relates to â€œburden of diseaseâ€ or the personal cost of obesity. Dunsford asks, â€œhow come this is included in a total in an announcement which appears â€“ at least superficially â€“ to represent real money costs?â€
The â€œburden of diseaseâ€ numbers are calculated by working out â€œyears of life lost through disability and premature deathâ€ and Access came up with $6.35 million for the value of a statistical life (VSL) and $266,843 for the value of a statistical life year (VSLY).
Dunsford argues that it is taxpayers and consumers who will end up paying for all this statistical life.
â€œThe elaborate details on labels of packaged food products in supermarkets are testimony to the current massive regulations supporting such details, but more are planned by Food Standards Australia NZ and the National Preventative Health Taskforce,â€™â€™ he says.
From there it would only be â€œa short stepâ€ to include take away food and restaurant meals and, already, in certain states of the US, it is a requirement for restaurants to display the calorific value of their meals in the same size print â€“ â€œincluding on billboards!â€
â€˜â€˜The cost of administering the regulations (to the government and the food industry, all of which will ultimately be paid by consumers) will be mind-boggling, but with a focus on the desire to reduce the $58.2 billion cost of obesity, such actions can readily be justified.â€
Tobacco figures are smokin’
Geoff Dunsford is similarly wary of the costs estimates for smoking.
Assessing the anti-smoking lobbyâ€™s $31.5 billion cost figure â€“ found in â€œThe costs of tobacco, alcohol and illicit drugs abuse to Australian society 2004-05â€ by David J Collins and Helen M Lapsley â€“ Dunsford once again shines the torch on the â€œnon-financialâ€ costs and â€œintangible costsâ€.
Of the $31.5 billion, some $19.5 billion are “intangible costs” â€“ that is psychological costs of premature death borne by the smoker and others. Then there are $9.4 billion in â€œother financial costsâ€ for productivity losses (smoko breaks perhaps?) and $2.2 billion in â€œnon financial costsâ€ such as unpaid labour costs.
In the Collins and Lapsley report there is a discount for savings to the health system from premature deaths. But this is only $700 million on the $1 billion in actual costs to the health system.
On the more nebulous costs, estimated by a “demographic approach”, the focus is on the additional number of persons who would have been alive today had there been no smoking deaths over the past 40 years.
â€œAn estimate of 369,161 was provided to the authors by John Pollard (he had no other involvement with the report).â€
To get to this $19.5 billion, the authors multiply the reduction in the population (369,161) by the value of the loss of one yearâ€™s life ($53,267), after adjustments.
As Dunford points out, this report puts a different value on life than does Access Economics. Whether Access prices obese people more highly than skinny smokers – or Collins and Lapsley believe smokers are worth less than one-third of the value of fat people – we canâ€™t be sure from â€œthe literatureâ€.
Indeed each report mentions â€œthe literatureâ€ and the large variation in assumptions included in â€œthe literatureâ€, although they also fail to explain, he says, why the numbers they adopted were relevant to their particular health problem.
In addition, the “value(s) of a statistical life” and the “value(s) of a statistical life year” adopted were significantly different ($6.35 million and $266,843 for obese people, and $2 million and $53,267 for smokers).
Presumably â€“ and these are our words not Dunsfordâ€™s – the pricing of a statistical life would also become more complicated when calculating the demographic of people who are both obese and smokers. Do we just average out the $6.35 million and the $2 million?
Dunsford however does point out the gross hypocrisy in the governmentâ€™s position on smoking and revenue. Governments reap very fat profits from smokers.
Subtracting the financial costs of smoking to the health system at $300 million, plus taxes forgone (from statistical smokers) at $2.9 billion, from the $6.7 billion in taxes levied by state and federal governments on tobacco products, leaves $3.5 billion in profit.
Dunford says the higher welfare payments to smokers could be offset by the pension savings from higher smoker mortality. Still, a $3.5 billion profit from smokers is a tidy amount for the budget.
When it came to the publicity for the â€œplain packagingâ€ initiative, it would have been helpful, says Dunstan, to cite the $31.5 billion in â€œcosts to societyâ€ rather than a more realistic figure.
â€œIndeed, assuming the media releaseâ€™s (Roxonâ€™s office) expected reduction in adult smoking from the current 16 per cent of the population to 10 per cent is achieved, the reader could be forgiven for estimating the â€˜costâ€™ to fall by â€¦ $11.8 billion,â€ says Dunstan.
But such an assumption would be wrong as the methodology is flawed.
â€œThe problem with the â€¦ definition of costs is the way in which past drug abuse is incorporated into the costs for a given year,â€ says Dunsford. â€˜â€˜Indeed, if all smoking stopped, (this) methodology would still generate a large cost of smoking in the next year by virtue of the effect of the past deaths.
â€œThis is rather counter intuitive! Arguably it renders the methodology meaningless for the purpose of addressing cost reduction initiativesâ€.
‘Burden of disease’ missing
Finally, Dunsford points out that in the case of the beyondblue calculations, the $14.9 billion of annual costs to society from depression did not include a â€˜’burden of disease’â€™ number.
â€œDoes this reflect the often suggested lack of interest by the government in mental health problems? Not so. Burden of disease numbers are available which show DALYs (disability adjusted life years) due to depression are significant â€“ particularly when associated causes of death, like suicide, are included.â€ he says.
He estimates that about $33 billion of non-financial costs could be added to the annual cost numbers for the personal impact on the loss of wellbeing from the burden of depression.
Dunsfordâ€™s work is further proof we canâ€™t place much store in lobby group costs claims. Itâ€™s more a case of plucking out a big number and working out some methodology to justify it.