Actuary turns the spotlight on rubbery numbers behind public health burdens

by | Nov 24, 2011 | Business

“Smokers are just doing their bit to save us from a worsening ageing population problem. Good on you smokers. We need more people willing to die young.”

As silly as it sounds, this statement probably tracks reality more closely than the orthodoxy that smokers are a burden on society.

This was one of the responses to an online story yesterday questioning the high costs to society from obesity and smoking.

Actuary Geoff Dunsford has provided a much-needed reality check on experts and their numbers by lampooning the $58.2 billion price-tag put on obesity.

The sheer size of the numbers, argues Dunsford in the September edition of Actuary Australia, perverted government policy. It led to poor spending decisions. Credible numbers were critical to good policy.

Dunsford looks at three public health issues: obesity, smoking and depression. For obesity, he picked apart the calculations of an Access Economics report for Diabetes Australia titled, “The growing cost of obesity in 2008: three years on”.

Access estimated the cost of obesity to Australia at $58.2 billion.

And sure enough, this enormous number promptly made headlines.

On Dunsford’s analysis the figures are flawed, skewed by the “non-financial” estimates to make obesity seem more costly to the taxpayer – in particular, the $49.9 billion in “non-financial costs”.

These comprised “burden of disease” numbers, calculated by working out “years of life lost through disability and premature death” 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 is similarly wary of cost estimates for smoking. Evaluating the anti-smoking lobby’s $31.5 billion figure – found in “The costs of tobacco, alcohol and illicit drugs abuse to Australian society 2004/05” by David Collins and Helen Lapsley – Dunsford once again shines the torch on the “non-financial” costs and “intangible costs”.

Of the $31.5 billion, $19.5 billion are ”intangible costs”, that is psychological costs of premature death borne by the smoker and others. Then there are $9.4 billion in “other financial costs” for productivity losses (smoko breaks?) and $2.2 billion in “non financial costs” such as unpaid labour costs.

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 year’s life ($53,267), after adjustments.

As Dunford points out, this report puts a different value on life than does Access Economics. “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).”

Dunsford’s critique reflects the hypocrisy in the government’s position on smoking and revenue.

Governments reap very fat profits from smokers. Subtracting the 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 “plain packaging” initiative, it would have been helpful, says Dunstan, to cite the $31.5 billion in “costs to society” rather than a more realistic figure.

“Indeed, assuming the media release’s [from Nicola Roxon’s office] expected reduction in adult smoking from the current 16 per of the population to 10 per cent is achieved, the reader could be forgiven for estimating the ‘cost’ to fall by … $11.8 billion,” he says.

But such an assumption would be wrong as the methodology is flawed.

“The problem with the … definition of costs is the way in which past drug abuse is incorporated into the costs for a given year,” Dunsford says.

“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.

”This is rather counter intuitive! Arguably it renders the methodology meaningless for the purpose of addressing cost reduction initiatives”.

He said beyondblue’s calculation of the $14.9 billion annual cost to society from depression didn’t have a ”burden of disease”number.

“Does 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 – particularly when associated causes of death, like suicide, are included,” he says.

Dunsford estimates that about $33 billion of non-financial costs could be added to the annual numbers for the personal impact on the loss of wellbeing from the burden of depression.


Michael West

Michael West

Michael West established to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences. You can follow Michael on Twitter @MichaelWestBiz.


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