Jump to full article: Congressional Budget Office (CBO), 2009-06-01
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Intro: S. 982 contains intergovernmental mandates as defined in the Unfunded Mandates Reform Act (UMRA) because it would preempt certain state laws governing tobacco products and it would require tribal governments that manufacture or distribute tobacco products to comply with new federal regulations. CBO estimates that the costs to state, local, and tribal governments to comply with the mandates in the bill would be small and would not exceed the threshold established in UMRA ($69 million in 2009, adjusted annually for inflation).
CBO also expects that the federal regulations authorized by this bill would result in lower consumption of tobacco products and thus would reduce the amount of tax revenues and settlement funds collected by state and local governments. However, those declines in revenues, estimated to total over $1 billion during the 2010-2014 period, would not result from intergovernmental mandates.
S. 982 would impose a number of mandates on private-sector entities. Among other things, the bill would assess a fee on companies that manufacture or import tobacco products, impose new restrictions on the sale, distribution and marketing of tobacco products, mandate disclosure of product information and grant FDA authority to regulate tobacco products. CBO estimates that the aggregate direct cost of complying with those mandates would exceed the threshold established by UMRA for private-sector mandates ($139 million in 2009, adjusted annually for inflation) in each year, beginning with 2010. . . .
Based on information from academic and other researchers, CBO estimates that S. 982 would result in a further reduction in the number of underage tobacco users of about 11 percent by 2019. CBO also estimates that implementing S. 982 would lead to a further decline in smoking by adults by about 2 percent after 10 years. CBO has incorporated these projected changes in U.S. tobacco consumption into its estimates of the impact of the bill on Medicaid spending and on receipts from excise taxes on tobacco products. . . .
Impact of FDA Regulation of Tobacco on Medicaid. CBO anticipates that FDA’s regulation of tobacco products will lead to a decline in smoking among pregnant women. That decline will reduce health care spending on pregnancies because women who refrain from smoking during pregnancy are less likely to give birth to children with low birth weights—such children have relatively high costs both at birth and afterwards—or experience other complications during pregnancy. Part of the savings from reduced complications is offset by costs associated with the additional live births resulting from a decline in miscarriages. CBO estimates federal spending for Medicaid would decrease by $93 million over the 2010-2019 period. (That savings is an estimated increment above savings previously estimated and credited to Public Law 111-3, which contains an increase in federal excise taxes on tobacco products.)
Estimating the Effect of Lower Use of Tobacco on Health Costs and Federal Spending.
A decline in smoking could affect health care spending for certain medical conditions. For example, an individual who stops smoking is less likely to suffer a heart attack or stroke over a given period of time compared to one who continues to smoke, so a potential reduction in utilization of acute care services for those or other conditions could lead to cost savings. The magnitude and timing of such savings are uncertain, however. Also, a reduction in smoking may add to costs in many cases by increasing the lifespan of persons who would incur health care costs over longer periods. In those cases, government spending for other benefits such as Social Security and Medicare would also increase.
Many of those who would be affected by the legislation are under age 25, however, so the full effect on Social Security expenditures from individuals living longer and claiming more benefits would not be realized for many years. The effect on Medicare outlays is less clear. CBO expects that S. 982 would eventually raise Medicare spending by increasing longevity; that is, people who otherwise would die early due to smoking- related illnesses could end up receiving Medicare benefits for more years than in the absence of this legislation. However, as noted above, the legislation would also have cost-reducing effects. A decline in smoking attributable to the bill would improve individuals’ health, reducing annual costs for some beneficiaries.
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