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The Business Case


Employer Case Studies
Surveys
News and Events
Updated: November 10, 2011
Overview
Direct Costs of Tobacco Use
Indirect Costs of Tobacco Use
Societal Costs of Tobacco Use
Workplace Costs of Tobacco Use
Screening, Program, and Treatment Costs
Resources
Citations

Overview

Tobacco use is the leading cause of preventable death in the United States and causes serious health problems.1 Roughly 10% of smokers are living with a smoking-related illness.2 Poor health, injuries, and deaths related to tobacco use have direct and indirect costs for employers. Fortunately, employers have the ability to offer tobacco cessation benefits and programs to reduce the costs of employee tobacco use. The terms cost-saving, cost-effective, high-value and return on investment describe the economic costs and overall value of an intervention or healthcare benefit.

Cost-saving: An action is considered cost-saving when the reduction in healthcare costs resulting from the intervention or program exceeds the money required to develop, implement, and maintain the respective intervention or program.3

Cost-effective: An intervention or benefit is considered cost-effective when the net cost per unit of health generated is favorable relative to other health services.3

High-value: An intervention or benefit that prevents a substantial amount of morbidity and/or mortality and is cost-effective.3

Return on investment (ROI): A comparison of the money earned (or lost) on an investment to the amount of money invested. ROI is not a proxy for cost-effectiveness or vice versa. Interventions that are cost-effective or even cost-saving at the societal level do not necessarily yield a positive ROI from a business perspective, although they may provide a better value than other services.3


Direct Costs of Tobacco Use

Direct costs are those dollars spent on health services. Direct costs include payments made out-of-pocket on healthcare benefits, disability, and workers' compensation.
  • In the United States, the direct medical costs associated with smoking totaled approximately $75.5 billion (average 1997-2001), according to the Centers for Disease Control and Prevention.4
  • Businesses pay an average of $2,189 in workers' compensation costs for smokers, compared with $176 for nonsmokers.5
  • Nonsmoking employees can receive workers' compensation, unemployment compensation, disability benefits, and other settlements based upon their exposure to secondhand smoke in the workplace.6


Indirect Costs of Tobacco Use

Indirect costs are expenses not immediately related to treatment of disease. These non-medical expenditures include lost wages, lost workdays, costs related to using replacement workers, overtime premiums, productivity losses related to unscheduled absences, and productivity losses of workers on the job.
  • A national study based on American Productivity Audit data of the U.S. workforce found that tobacco use was one of the greatest causes of lost worker production time (LPT) — greater than alcohol consumption, family emergencies, age, or education. Additionally, LPT increased in relation to the amount smoked. LPT estimates for workers who reported smoking one pack of cigarettes per day or more was 75% higher than that observed for nonsmoking employees or employees who had previously quit smoking.7
  • In 2005, the Centers for Disease Control and Prevention concluded that each employee who smokes costs employers $1,897 in lost productivity each year.4
  • Approximately $92 billion (average 1997-2001) is linked with lost productivity resulting from smoking attributable diseases according to the Centers for Disease Control and Prevention.4
  • On average, smokers miss 6.16 days of work per year due to sickness (including smoking related acute and chronic conditions), compared to nonsmokers, who miss 3.86 days of work per year.8
  • Employees who take four 10-minute smoking breaks a day actually work one month less per year than workers who don't take smoking breaks.9
  • The Organization for Economic Cooperation and Development calculates that construction and maintenance costs are 7% higher in buildings that allow smoking than in buildings that are smoke-free.9
  • Employers in the United States could save $4 to $8 billion in building operations and maintenance costs if they implemented comprehensive smoke-free indoor air policies according to the U.S. Environmental Protection Agency (EPA).10
  • The U.S. Environmental Protection Agency (EPA) estimates that smoke-free restaurants can expect to save about $190 per 1,000 square feet each year in lower cleaning and maintenance costs.9

Workplace Costs of Tobacco Use
Employer Direct Costs Employer Indirect Costs
  • Greater health insurance costs and claims.

  • Greater life insurance premium costs and increased claims.

  • Greater disability costs.

  • Greater worker's compensation payments and occupational health awards.
  • Recruitment and retraining costs resulting from loss of employees to tobacco-related death and disability.

  • Lost productivity.

  • Greater amount of work time used on tobacco-use habits and routines.

  • Greater number of disciplinary actions.

  • Smoke pollution (increased cleaning and maintenance costs).

  • Air cooling, heating, and ventilation costs.

  • Accidents and fires (plus related insurance costs).

  • Property damage (plus related insurance costs).

  • Greater risk of industrial accidents and occupational injuries.

  • Liability and litigation costs associated with exposure to environmental tobacco smoke.

  • Illness and discomfort among nonsmokers exposed to secondhand smoke.

Source: Smoke-free work sites top ten financial benefits to employers. Western CAPT/CASAT. University of Nevada, Reno.

Center for Health Promotion Publications. The Dollar (and sense) Benefits of Having a Smoke-Free Workplace. Lansing, Michigan Tobacco Control Program; 2000.

Centers for Disease Control and Prevention. Making your Workplace Smoke-Free: A Decision Makers Guide. Available at: http://www.cdc.gov/tobacco/secondhand_smoke/00_pdfs/fullguide.pdf. Accessed: September 10, 2007.


Societal Costs of Tobacco Use

Tobacco use does not only raise direct and indirect costs for employers, tobacco-use related poor health, injuries, and deaths are a burden to society as a whole. Societal costs of smoking include poor health related to secondhand smoke exposure, increased Medicaid expenditures, fire-related property damage, and injuries and deaths connected to smoking in non-residential facilities.
  • Annual public and private healthcare expenditures caused by smoking-related disease and disability total at least $75 billion.11
  • An estimated 371 billion cigarettes were consumed in the United States in 2006.12
  • Total United States expenditures on tobacco were estimated to be $88.8 billion in 2005, of which $82 billion were spent on cigarettes.13
  • Each pack of cigarettes costs the nation an estimated $10.47 in medical care costs and lost productivity.13
  • The Society of Actuaries calculates that secondhand smoke costs the U.S. economy about $10 billion a year: $5 billion in estimated medical costs associated with secondhand smoke exposure and $4.6 billion in lost wages. This estimate does not include youth exposure to secondhand smoke.14
  • If all workplaces were to implement 100% smoke-free policies, the reduction in heart attack rates due to exposure to secondhand smoke would save the United States $49 million in direct medical costs within the first year alone. Savings would increase over time.15
  • The National Fire Protection Association found that lit tobacco products caused an average of 9,400 fires in U.S. non-residential structures in 2005, resulting in $97 million in direct property damage.16
  • Smoking in non-residential facilities accounted for 28% of fire-related deaths in 2001, a ninefold increase over 1998.17


Screening, Program, and Treatment Costs

According to the Centers for Disease Control and Prevention, a 1% drop in smoking prevalence among pregnant women could prevent 1,300 low birth weight live births, saving $21 million in direct medical costs in the first year.18 Smokers who successfully stop smoking reduce potential medical costs associated with cardiovascular disease by about $47 during the first year and by about $853 during the following 7 years.19
Tobacco Screening Costs
In 2004, the private-sector cost of screening for tobacco use averaged $39; approximately 95% of all paid claims cost between $0 and $129.3

Tobacco Program Costs
Tobacco cessation programs are not expensive. They often save money:
  • Cost analyses have shown that tobacco cessation benefits, from an employer's perspective, are cost-saving.3
  • A comprehensive and effective smoking cessation program will usually cost less than $0.50 per member per month (PMPM).20
  • Each employee or dependent who quits smoking reduces annual medical and life insurance costs by at least $210 almost immediately.21

Below are calculations of smoking cessation annual medical savings for conditions associated with smoking:

Short-Term Consequences of Smoking on Selected Conditions Annual Medical Savings per Smoker Who Quits
Coronary Heart Disease and Stroke $153
Adult Pneumonia $3
Low-Birthweight Babies $9
Childhood Asthma $14
Other Childhood Respiratory Conditions $8
Childhood Otitis Media (Ear infections) $5
Annual Total $192
Source: Fitch K, Iwasaki K, Pyenson B. Covering Smoking Cessation as a Health Benefit: A Case for Employers. Milliman, Inc. December 2006.

Tobacco Treatment Costs
Many employers cover preventive services such as mammography, Pap tests, childhood immunizations, and pharmacological treatment for mild to moderate hypertension and high cholesterol. Employers should also provide coverage for tobacco screening, cessation counseling, and medications.
  • Studies have shown that tobacco treatment is one of the most cost-effective preventive services.3 If brief counseling and therapy (including over-the-counter cessation aids) were offered to all smokers, it could save $3 billion in medical care costs annually in the United States.22
  • Smoking cessation treatment for pregnant women is considered one of the most cost-saving preventive services. Clinical trials have shown that $7 is saved in healthcare costs for every $1 invested.23
  • The cost of pharmacological interventions varies depending on type and dosage. The average wholesale price of a 1-month supply of bupropion ranges from $86.50 to $196.07, depending on the brand and type chosen; a 1-month supply of varenicline (ChantixTM) is $89.60.3
  • In 2004, the private-sector cost of counseling averaged $39 per session; approximately 95% of all paid claims cost between $0 and $134 per session.3


Resources

There are several online tools available to help employers understand the financial costs associated with smoking. Employers can tailor estimates of expected healthcare savings, improved productivity, and total return on investment (ROI) related to tobacco cessation programs based on the characteristics of their own employee population.

America's Health Insurance Plans (AHIP) and Center for Health Research
Kaiser Permanente
Tobacco ROI calculator
This cost calculator was developed by AHIP with funding from CDC. It provides both sides of the equation, what it costs to not treat tobacco as well as the cost of implementing a benefit.

Centers for Disease Control and Prevention
Save Lives, Save Money: Make your Business Smoke-Free



Citations

1 U.S. Department of Health and Human Services. The health benefits of smoking cessation: a report of the Surgeon General. Washington, DC: Office of the Surgeon General, 1990. Available at: http://www.surgeongeneral.gov/library/reports.htm. Accessed April 21, 2008.
2 Centers for Disease Control and Prevention. Cigarette smoking-attributable mortality — United States 2000. MMWR. 2003;52(35): 842-44.
3 Campbell KP, Lanza A, Dixon R, Chattopadhyay S, Molinari N, Finch RA, editors. A purchaser's guide to clinical preventive services: moving science into coverage. Washington, DC: National Business Group on Health; 2006.
4 Centers for Disease Control and Prevention. Annual smoking-attributable mortality, years of potential life lost, and productivity losses — United States, 1997-2001. MMWR. 2005;54(25):625-628.
5 Musich S, Napier D, Edington D. The association of health risks with workers' compensation costs. JOEM. 2001;43(6):534-541.
6 Missouri Department of Health and Senior Services. Smoke and money. Available at: http://www.dhss.mo.gov/SmokingAndTobacco/EmployersToolkit.pdf. Accessed October 23, 2007.
7 Stewart W, Ricci J, Chee E, Morganstein D. Lost productivity work time costs from health conditions in the United States: results from the American productivity audit. JOEM. 2003;45(12):1234-1246.
8 Halpern M, Shikiar R, Rentz A, Khan Z. Impact of smoking status on workplace absenteeism and productivity. Tob Control. 2001;10(3):233-238.
9 Americans for NonSmokers' Rights. Business costs in smoke-filled environments. Available at: http://no-smoke.org/document.php?id=209. Accessed November 15, 2007.
10 U.S. Department of Health and Human Services. Reducing tobacco use: a Report of the Surgeon General.. Washington, DC: Office of the Surgeon General; 2000. Available at: http://www.surgeongeneral.gov/library/reports.htm. Accessed April 18, 2008.
11 Parish T. Financing smoking related illness and smoking cessation in the United States. Can it be done? The Internet Journal of Allied Health Sciences and Practice. 2004;2(1).
12 Centers for Disease Control and Prevention. Economic facts about U.S. tobacco use and tobacco production. Available at: http://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/econ_facts/. Accessed November 10, 2011
13 Centers for Disease Control and Prevention. Sustaining state programs for tobacco control. Available at: http://www.tobaccofreekids.org/research/factsheets/pdf/0072.pdf. . Accessed November 8, 2011.
14 Behan D, Eriksen M, Lin Y. Economic effects of environmental tobacco smoke. Society of Actuaries. 2005. Available at: http://www.soa.org/files/pdf/ETSReportFinalDraft(Final%203).pdf. Accessed April 18, 2008.
15 Ong M, Glantz S. Cardiovascular health and economic effects of smoke-free workplaces, American Journal of Medicine. 2004;117:32-38.
16 Hall J. The smoking-material fire problem. National Fire Protection Association. Available at: http://www.nfpa.org/assets/files/PDF/OS.SmokingMaterials.pdf. Accessed December 11, 2007.
17 U.S. Fire Administration. Fire in the United States: 1992-2001. Available at: http://www.usfa.dhs.gov/downloads/pdf/publications/fius13/ch4.pdf. Accessed November 15, 2007.
18 Lightwood J, Phibbs C, Glantz S. Short-term health and economic benefits of smoking cessation: low birth weight. Pediatrics. 1999;104:1312-1320.
19 Lightwood J, Glantz S. Short-term economic and health benefits of smoking cessation. Circulation. 1997;96(4):1089-1096.
20 Curry S, Grothaus M, McAfee T, et al. Use and cost effectiveness of smoking-cessation services under four insurance plans in a health maintenance organization. NEJM. 1998;339(10):673-679.
21 Fitch K, Iwasaki K, Pyenson B. Covering smoking cessation as a health benefit:a case for employers. Available at: http://www.dfwbgh.org/events07/9-27-2007.pdf. Accessed November 15, 2007.
22 Partnership for Prevention. Priorities for America's health: capitalizing on life-saving, cost-effective preventive services, 2006. Available at: http://www.prevent.org/images/stories/clinicalprevention/background%20for%20media.pdf. Accessed April 17, 2008.
23 Marks J, Kaplan J, Hogue C. A cost-benefit/cost-effectiveness analysis of smoking cessation for pregnant women. Am J Prev Med. 1990;6:282-291.

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