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Tobacco taxes in China: impacts on
smokers’ health and finance
Dr. Rachel A. Nugent, Vice President, Global NCDs
1
Indonesia Health Economics Association July 29, 2016
Outline
Background
A new perspective on the economic evaluation of health policies: Extended Cost-Effectiveness Analysis (ECEA)
ECEA case study
Tobacco tax in China
Conclusions
Background
A new perspective on the economic evaluation of health policies: Extended
Disease Control Priorities History
• 1993 World Development
Report
DCP3 Volume Topics 1. Essential Surgery - 2015
2. Reproductive, Maternal, Newborn and Child Health -2016 3. Cancer - 2015
4. Mental, Neurological, and Substance Use Disorders - 2015 5. Cardiovascular, Respiratory, Renal and Endocrine Disorders - 2016
6. HIV/AIDS, STIs, Tuberculosis and Malaria - 2016 7. Injury Prevention and Environmental Health - 2016 8. Child and Adolescent Development - 2016
9. Disease Control Priorities: Improving Health & Reducing Poverty - 2016
5
Disease Control Priorities, 3
rdEdition
Motivation: from HTA to HPA?
From: Health Technology Assessment (HTA)
Cost-effectiveness of technical interventions targeting
specific diseases (e.g. ART for AIDS)
To: Health Policy Assessment (HPA)
Resources allocated across different delivery platforms:
e.g. routine immunization vs. mass immunization campaigns
Governments use distinct instruments of policy:
e.g. public finance, taxation, legislation
Multiple criteria involved in decision-making:
Objective
: Health Policy Assessment, with dimensions of
equity & medical impoverishment
Extended Cost-Effectiveness Analysis (ECEA)
(1)
Distributional consequences
across
distinct strata of populations
(e.g. socio-economic status, geographical setting, gender)
(2)
Financial risk protection
: quantify
household medical impoverishment
averted by policy
Extended Cost-effectiveness
Analysis (ECEA) Approach
Examine specific health policy
(e.g. public finance for rotavirus vaccine)
Examine specific health policy
(e.g. public finance for rotavirus vaccine)
Health gains (e.g. diarrhea-related deaths averted) Health gains (e.g. diarrhea-related deaths averted) Household expenditure averted
(e.g. private diarrhea treatment averted)
Household expenditure
averted
(e.g. private diarrhea treatment averted) Financial risk protection benefits (e.g. household impoverishment averted) Financial risk protection benefits (e.g. household impoverishment averted) Poorest
Poorest PoorPoor MiddleMiddle RichRich RichestRichest
ECEA Approach
Financial risk protection: prevention of medical
impoverishment
Medical impoverishment
When confronted with expensive medical expenditures, poor people can face high out-of-pocket (OOP) payments and fall
Measures of financial risk protection
Threshold-based measures
Number of cases of poverty averted
– Estimate number of individuals no longer crossing poverty line
because of medical expenses
Catastrophic expenditures averted
– Estimate number of individuals no longer crossing catastrophic
threshold (medical expenditures > 0.40 subsistence income)
Money-metric value of insurance
provided
Estimate a ‘risk premium’
ECEA case study – Tobacco
tax in China
Tax is the single most effective tobacco control policy
Tobacco tax is vastly underused
in LMICs
(e.g. China, India, Indonesia,
Russia)
13
One specific policy issue with tobacco tax: it is often
regarded as regressive
Most assessments to date assume individuals with different income to be responsive to tax increase in the same way!
Tobacco in China (1)
Tobacco prevalence (males)
50%; 300 million smokers
15 cigarettes per day; varies slightly by socioeconomic
status
Tobacco-related mortality
Risk of premature mortality from smoking = 50%
1M annual deaths (out of 6M globally)
Stroke (46%); heart disease (23%); neoplasm (20%);
COPD (11%)
Tobacco in China (2)
Out-of-pocket expenditures
Only 50% of inpatient healthcare costs (e.g. cancer,
stroke costs) reimbursed by insurance schemes
Stroke ($2,000), heart disease ($11,000), cancer
($14,000)
Price elasticity of cigarette
consumption
(assumed based on reviews) - 0.40 on average
Price hike scenario
17
Increase by 50% retail price of tobacco
Price of cigarette pack: $0.74 -> $1.11
Increase by 50% retail price of tobacco
Price of cigarette pack: $0.74 -> $1.11
Health benefits Health benefits Generation of excise tax revenues Generation of excise tax revenues Changes in household cigarette expenditure Changes in household cigarette expenditure Poorest < $1700 Poorest
< $1700 $1700 < < $3100Poor
Poor
$1700 < < $3100 $3100 < < $4900Middle
Middle
$3100 < < $4900 $4900 < < $7600Rich
Rich
$4900 < < $7600 Richest> $7600
Decrease in smokers & health benefits
Youth (15-24) Smokers Youth (15-24) SmokersAdult (> 25) Smokers Adult (> 25)
Smokers Future (< 15) Smokers Future (< 15) Smokers
Follow up over 50 years Follow up over 50 years
Future newborns Future newborns Future Premature dead Future Premature dead Poorest
Poorest PoorPoor MiddleMiddle RichRich RichestRichest
Price hike Price hike
Future (< 15) & Youth (15-24) quitters
Future (< 15) & Youth (15-24)
quitters Adult (> 25) quittersAdult (> 25) quitters
Health benefits estimated from quitting: Participation elasticity ~ ½ price elasticity
Excise tax revenues & changes in household cigarette
expenditures
19 Youth (15-24) Smokers Youth (15-24) SmokersAdult (> 25) Smokers Adult (> 25)
Smokers Future (< 15) Smokers Future (< 15) Smokers
Follow up over 50 years Follow up over 50 years
Future newborns Future newborns Future premature dead Future premature dead Poorest
Poorest PoorPoor MiddleMiddle RichRich RichestRichest
Price hike
Price hike Price elasticity of cigarette consumption
(future (< 15) & youth (15-24) smokers twice as responsive)
Price elasticity of cigarette consumption
(future (< 15) & youth (15-24) smokers twice as responsive)
Added excise tax revenues
Added excise tax
revenues Changes in household cigarette expenditures Changes in household cigarette expenditures
OOP expenditures averted & financial risk protection
Youth (15-24) Smokers Youth (15-24) SmokersAdult (> 25) Smokers Adult (> 25)
Smokers Future (< 15) Smokers Future (< 15) Smokers
Follow up over 50 years Follow up over 50 years
Future newborns Future newborns Future premature dead Future premature dead Poorest
Poorest PoorPoor MiddleMiddle RichRich RichestRichest
Price hike Price hike
Future (< 15) & Youth (15-24) quitters
• Twice as responsive
Future (< 15) & Youth (15-24) quitters
• Twice as responsive
Adult (> 25) quitters
• 85% (25-44) to 25% (> 65) risk reduction of
Adult (> 25) quitters
• 85% (25-44) to 25% (> 65) risk reduction of
FRP benefits estimated from quitting: Participation elasticity ~ ½ price elasticity
Results (1): premature deaths averted
21
Total: 13 million (95% UI: 11-15)
Total: 13 million (95% UI: 11-15)
Premature deaths averted
Income quintile
D
e
a
th
s
av
e
rt
ed
(
m
ill
io
n
)
I II III IV V
0
1
2
3
4
Results (2): additional excise tax revenues
Total: 700 $ billion (95% UI: 600-800)
Total: 700 $ billion (95% UI: 600-800)
Additional tax revenues
R ev en ue s (U S $ bi lli o n) 50 10 0 1 50 2 00 1 2 3 4 5 6 7
Additional tax revenues (% of income)
Results (3): changes in household tobacco expenditures
23
Total: 370 $ billion (95% UI: 230-500)
Total: 370 $ billion (95% UI: 230-500) Changes in cigarette expenditures
Income quintile E xp en di tu re s (U S $ bi lli on )
I II III IV V
0 50 10 0 1 50 -2 0 2 4 6
Changes in cigarette expenditures (% of income)
Income quintile
%
Financial risk protection In su ra nc e (U S $ b ill io n) 0 0. 5 1 1. 5
Tobacco-related disease treatment expenditures averted
E xp en di tu re s av e rt ed ( U S $ b ill io n) 2 4 6 8
Results (4): financial risk protection
Total: 23 $ billion (95% UI: 19-28)
Total: 23 $ billion (95% UI: 19-28)
Total: 1.5 $ billion (95% UI: 1.0-2.1)
Pro-poor angles of tobacco tax
25
0 1 2 3 4 5
0 50 0 10 00 15 00 20 00
Premature deaths averted (millions)
F in an ci al r is k pr ot ec tio n ($ m ill io n) I II III IV V 95% uncertainty contours
50% tobacco price increase, China
Conclusions
ECEA for:
priority setting
within
the
health sector
(1)
0 100 200 300 400
0 2 0 40 60 80 1 00
Financial risk protection afforded & health gains, per $100,000 spent
Number of deaths averted
N u m be r of p ov er ty c as es a ve rt ed
Rotavirus vaccine (1)
Pneumococcal conjugate vaccine (2) Measles vaccine (3)
Diarrhea treatment (4) Pneumonia treatment (5) Malaria treatment (6) Cesarean section (7) Tuberculosis treatment (8) Hypertension treatment (9)
($1 per dose) ($1 per dose)
($3.5 per dose) ($2.5 per dose)
2 1 2 1 3 4 5 6 7 8 9
Priority setting
beyond
the health sector
Estimate efficient purchase of poverty reduction benefits by health policies i.e. poverty cases averted per health policy $ invested
More Information
Rachel A. Nugent
Vice President of Global Non-communicable Diseases [email protected]
