Can You Pay Poor People To Quit Smoking?
Peter Orszag was President Obama’s first Director of the Office of Management and Budget. Like many high-ramking Democrats, he landed on his feet as Vice Chairman of Citibank. He also writes a very good column for Bloomberg View. His latest column discusses financial incentives to quit smoking. Unfortunately, it ignores an obvious challenge to the thesis he supports: That poor people can be paid to quit smoking. The income gap between smokers and nonsmokers has grown. And it’s something companies may need to address directly in their efforts to help employees kick the habit. Over the past several decades, smoking rates have fallen sharply among high-income, highly educated Americans and not as much for less educated, low-income people The good news is that
Peter Orszag was President Obama’s first Director of the Office of Management and Budget. Like many high-ramking Democrats, he landed on his feet as Vice Chairman of Citibank. He also writes a very good column for Bloomberg View.
His latest column discusses financial incentives to quit smoking. Unfortunately, it ignores an obvious challenge to the thesis he supports: That poor people can be paid to quit smoking.
The income gap between smokers and nonsmokers has grown. And it’s something companies may need to address directly in their efforts to help employees kick the habit.
Over the past several decades, smoking rates have fallen sharply among high-income, highly educated Americans and not as much for less educated, low-income people
The good news is that the financial incentives many companies are considering, and some are now using, to help people quit smoking can work, as a new study in the New England Journal of Medicine shows. The researchers randomly assigned employees of CVS Caremark and their relatives and friends to different groups, which were given various financial incentives to stop smoking.
The results were encouraging. People who were told they would receive an individual bonus of $800 for quitting stopped at almost three times the rate of those not offered any direct financial inventive. Behavioral theory generally suggests, though, that loss aversion would work even better. In other words, if subjects made an initial deposit that they would stand to lose if they failed to quit, that would provide an even stronger incentive.
Orszag is enchanted that the study was a randomized controlled trial (RCT) – the “gold standard” of research. However, RCTs often have limited real-world applicability. With respect to smoking, we have decades-long experience with financial incentives to reduce tobacco use: Excise taxes.
A 2009 NCPA study concluded that such excise taxes, often called “sin taxes,” disproportionately affect the poor. Just as Mr. Orszag points out: Higher earners are more likely than low earners to reduce consumption of the sinful product than low-income earners.
According to a naïve theory of economics, that makes no sense, because each dollar of excise tax cost a poor person more than a rich person. Even according to Mr. Orszag’s behavioral economics (a term I cannot stand because it is redundant, as there is no economics without behavior), it makes no sense because the sin taxes are a type of aversion.
The CVS experiment does not address this problem. Randomly assigning CVS employees and their families into different group cannot give us insight into why low-income earners smoke more than high-income earners, because the two CVS groups will have the same incomes.
SOURCE: Health Policy Blog – Read entire story here.
