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Opioid Misuse, Labor Market Outcomes, and Means-Tested Public Expenditures: A Conceptual Framework

Joel E. Segel, PhD; Yunfeng Shi, PhD; John R. Moran, PhD; and Dennis P. Scanlon, PhD
As the opioid epidemic has drawn increased attention, many researchers are attempting to estimate the financial burden of opioid misuse. These estimates have become particularly relevant as state and local governments have begun to take legal action against pharmaceutical manufacturers, distributors, and others who are identified as being potentially responsible for the worsening epidemic. An important category of costs includes those related to the effect of opioid misuse on labor market outcomes and productivity. Most published estimates of opioid-attributable productivity losses estimate the financial burden borne by society, failing to distinguish between costs internalized by individuals and those that spill over to third parties, such as state and federal governments. This article provides an overview and a conceptual framework for 2 types of labor market–related costs borne by state and federal governments that typically have not been incorporated into existing estimates, which may represent important categories of expenditures. Because detailed estimates of lost tax revenue are available elsewhere, this article focuses largely on whether, and how, to incorporate opioid-related expenses incurred by means-tested government programs into more general estimates of the economic harm created by the opioid epidemic.
Am J Manag Care. 2019;25:-S0
Introduction

As the opioid epidemic continues to grow, with 45,000 opioid-related overdose deaths in 2017 alone in the United States,1 several studies have estimated the economic cost of the epidemic.2-9 One particular area of emphasis is the financial burden resulting from opioid-related reductions in employment and labor market productivity. To date, estimates have largely focused on the costs borne at the societal level. This article provides a conceptual framework for understanding how opioid-related effects on the labor market translate into increased costs to state and federal governments, both in terms of reduced tax revenue and increased spending on means-tested programs.

Background

An increasing number of studies have assessed how opioid misuse may impact labor market outcomes.10-13 In addition, several studies have estimated how the resulting lost productivity due to opioid misuse translates to costs, typically focusing on 5 main categories: unemployment/underemployment, absenteeism, presenteeism, incarceration, and premature mortality. One study3 also includes disability-related costs. The estimated opioid-related productivity losses range from $4.5 billion to $431.7 billion annually. Much of the large variability of estimates can be attributed to methodological differences across studies, including which categories of the aforementioned costs are included and how they are estimated.

In this section, we briefly summarize previous estimates, highlight key estimation issues, and provide an outline of important considerations for assessing the costs of increased public expenditures due to opioid misuse. Table 12-9 summarizes the cost estimates in the literature associated with lost productivity due to opioid misuse. Three studies2-4 estimate costs of unemployment/underemployment due to opioid misuse by extrapolating from a report by the Office of National Drug Control Policy.14 Each study2-4 analyzes the effect of all types of drug use on employment and wages, making adjustments specific to opioids. As the approach of the studies is essentially descriptive, each make assumptions about the fraction of overall addiction attributable to opioids and opioid-specific unemployment values to construct estimates of lost wages because of opioid misuse.

The next 2 types of cost—absenteeism and presenteeism—are conceptually similar. Absenteeism captures lost wages due to lost work time (eg, attending a doctor’s visit or a hospital admission), while presenteeism captures lower productivity at work (eg, not being able to work at the normal level of productivity due to the impact of addiction).15 Both are difficult to measure empirically, as reflected by the wide range of absenteeism estimates in the literature ($0.3 billion-$16.2 billion).3,5,7 There are 2 significant challenges to estimating these costs, both of which could lead to overestimation of the forgone tax revenue resulting from absenteeism or presenteeism. First, employees may be able to make up lost work hours in a way that is difficult to observe in standard data sets. Second, lost work time or reduced productivity may not reduce taxable income when workers are salaried. In both cases, either because time is made up or because of limited effects on income, the forgone tax revenue attributed to absenteeism and presenteeism may actually be lower than if one assumes that measured reductions in hours or productivity translate into lower tax payments in a 1-to-1 fashion.

The estimates in the next category, incarceration-related costs, also exhibit a wide range ($0.7 billion-$14.8 billion).2-4,7,8 These costs include lost productivity for those who are incarcerated and unable to work. Although several studies explicitly calculate incarceration costs, a number of studies that estimate the effect of opioid misuse on employment combine effects of incarceration into overall estimates of reduced employment or lost productivity by estimating the overall effect of opioid misuse on labor force exits regardless of cause.10-13

The category that typically contains the largest overall cost estimates is premature mortality. Losses from premature mortality are calculated either by using a human capital approach to estimate what an individual would have earned had they worked the typical number of additional years2-7 or by using a set value of a statistical life.9 The latter generally leads to larger estimates.

Each of the aforementioned studies estimate costs using the full dollar value of lost productivity. However, when analyzing the financial burden borne by state and federal governments, we must consider which specific components of lost productivity actually translate into costs to federal and state governments. This narrower focus may lead to lower estimates compared with studies that consider costs related to lost productivity more expansively. For example, an earlier report,8 with limited detail on the analytical approach, finds $2.8 billion in lost state tax revenue, $2.2 billion in lost local tax revenue, and $10.6 billion in lost federal tax revenue, which are in line with estimates of lost income and sales tax revenue in a recent study.16

Conceptual Framework

The effect of opioid misuse on labor market outcomes can negatively impact state and federal budgets through 2 main channels (Figure). First, adverse labor market outcomes can lead to lower income, therefore lowering state and federal income tax, as well as state sales tax revenues. Second, reductions in household income due to opioid misuse could lead users or their families to become eligible for a wide range of means-tested state and federal programs. Below, we provide a more detailed, conceptual description of these 2 avenues by which opioid misuse may impose costs on state and federal governments.

Lost Tax Revenue

In our previous work,16 we separately estimate tax revenue losses due to opioid-related labor force exits and opioid-related premature mortality. Building upon earlier work by Krueger,10 we combine plausibly causal estimates of the effect of opioid misuse on prime-age (aged 25-54 years) labor force exits with data on median wages and family structure taken from the National Survey of Drug Use and Health. We then use the National Bureau of Economic Research TAXSIM calculator to estimate state and federal income tax losses. For premature mortality, we use a similar approach to estimate forgone taxes for those who died during prime working years using CDC’s WONDER mortality data.

Means-Tested Social Programs

To the extent that opioid misuse leads to a greater likelihood of leaving the labor force or suffering reduced income, this may lead a number of means-tested social programs to increase their expenditures on those who were previously employed or those who remain employed but whose incomes have dropped below eligibility thresholds. These types of programs include cash assistance, unemployment insurance, disability coverage, workers’ compensation, publicly funded health insurance, nutrition programs, and employment training programs, all of which have funding mechanisms that differ in the extent to which they are predominantly federally funded, state funded, or some combination of each. To date, most studies have not examined these costs. Table 217-37 highlights specific programs and the degree of federal–state cost sharing.

Cash Assistance

Individuals and families facing adverse labor market outcomes and lower incomes due to opioid misuse may become eligible for federal and/or state income assistance programs. The federal government provides the greatest share of funding for cash assistance programs,17 with the Earned Income Tax Credit17,38,39 for lower-income families being the largest program. Depending on household size, families below a specific income threshold are eligible to receive a credit between $519 to $6431 for tax year 2018.40 In addition, low-income families may qualify for the Temporary Assistance for Needy Families (TANF) Program.41-43 Under TANF, the federal government provides states with block grants to assist needy families for up to 60 months, while recipients are required to engage in work activities. However, states have flexibility in terms of both how they spend the federal block grant and, within the general requirements, whom they deem eligible for benefits.42 Spending can include basic assistance, supporting work activities and job training, and child care. Furthermore, states are required to provide supplemental funding in the form of Maintenance of Effort (MOE). For example, Pennsylvania spent $455 million on MOE in 2016.43 A large range of cash assistance programs exist, but to date there is little empirical evidence on how opioid misuse increases the use of such programs. Although a report from Express Scripts suggests that TANF recipients may have higher rates of opioid use, it does not provide evidence for higher rates of opioid misuse among them.44

Unemployment Benefits

Adverse labor market outcomes may also lead to eligibility for unemployment benefits. However, for 2 reasons, the total opioid-attributable cost of unemployment benefits borne by state and federal governments is likely to be low. First, unemployment is funded by experience-rated taxes imposed on employers, meaning that if opioid misuse increases the rate of unemployment claims, the increase would largely be recouped through higher taxes on employers.18,19 The exception would be if the state or federal government is the employer. Second, unemployment benefits are typically available only to workers who lose their jobs without cause.19,20 However, opioid-related job separations may be more likely to result from employees being fired for cause or due to voluntary separations initiated by workers, in which case expenditures would likely be lower. Overall, if firing for cause is difficult and opioid misuse leads to increased claims, then governments might bear substantial, increased costs in their capacity as employers.

Disability Benefits

The disabled population is eligible for additional assistance programs. Because opioids are often prescribed for the types of injuries or illnesses that lead individuals to become disabled,21,45 and given that opioid use is significantly higher in the disabled population,21,46,47 this category of costs may be important. To date, the only estimates that include disability-related costs is a 2011 study by Birnbaum et al,3 which focuses on lost productivity following disability rather than on the cost of the disability benefits themselves.

 
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