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Alcohol Alert

National Institute on Alcohol Abuse and Alcoholism No. 11 PH 293 January 1991

Estimating the Economic Cost of Alcohol Abuse

Alcohol abuse and its related problems cost society many billions of dollars each year (1,2,3,4). Estimates of the economic costs of alcohol abuse attempt to assess in monetary terms the damage that results from the misuse of alcohol. These costs include expenditures on alcohol-related problems and opportunities that are lost because of alcohol. This Alcohol Alert addresses issues pertaining to estimates of the costs of alcohol abuse, focusing on the types of costs considered and on the various problems associated with their estimation.

While many difficulties in cost estimation are common to cost-of-illness studies in other health fields (5,6,7,8), two problems are particularly relevant to the case of alcohol abuse. First, researchers attempt to identify costs that are caused by, and not merely associated with, alcohol abuse, yet it is often hard to establish causation (9). Second, many costs resulting from alcohol abuse cannot be measured directly. This is especially true of costs that involve placing a dollar value on lost productivity. Researchers use mathematical and statistical methods to estimate such costs, yet recognize that this is imprecise. Moreover, costs of pain and suffering of both people who abuse alcohol and people affected by them cannot be estimated in any reliable way, and are therefore not considered in most cost studies. These difficulties underscore the fact that although the economic cost of alcohol abuse can be estimated, it cannot be measured precisely. Nevertheless, estimates of the cost give us an idea of the dimensions of the problem, and the breakdown of costs suggests to us which categories are most costly.

In the most recent cost study, Rice and co-workers estimated that the cost to society of alcohol abuse was $70.3 billion in 1985 (4); a previous study by Harwood and colleagues estimated that the cost for 1980 was $89 billion (3). By adjusting cost estimates for the effects of inflation and the growth of the population over time, Rice projected that the total cost of alcohol abuse in 1988 was $85.9 billion, and Harwood projected that the cost in 1983 was $116 billion (3).

The differences among the estimates produced by these and earlier studies (1,2) largely are the result of changes in methodology and sources of data. Because of these key changes, one cannot conclude firmly that the differences in the estimates reflect changes in actual costs. Although an improvement over earlier efforts, the Rice study underestimates some costs, such as the high costs of injury related to alcohol abuse. The differences among the results of the studies underscore the lack of precision that might be expected in such a large and complex estimation (10).

To estimate costs of illness, researchers have developed standard categories of costs (5,7). Most of the costs of alcohol abuse result from the adverse effects of alcohol consumption on health. The principal categories of health-related costs of alcohol abuse are (1) expenditures on medical treatment (a large proportion of which is for the many medical consequences of alcohol consumption; the remainder is for treatment of alcohol abuse and dependence themselves), (2) the lost productivity that results from workers' abuse of alcohol, and (3) the losses to society from premature deaths that are due to alcohol problems.

The first category of costs is that of treating the medical consequences of alcohol abuse and treating alcohol abuse and dependence themselves. To estimate these costs, Rice and colleagues developed a new procedure. They estimated treatment costs in short-stay hospitals using hospital discharge records, and estimated cos ts incurred in other settings using a variety of procedures. Rice and co-workers calculated a cost of $6.3 billion for treatment of the medical consequences of alcohol abuse and treatment of alcohol dependence in all settings in 1985, and in addition, nearly $500 million for support costs, such as the costs of training medical staffs (4). In the prior study, Harwood and co-workers estimated that in 1980, such treatment costs were more than $9 billion, and support costs were nearly $1 billion (3).

Rice and colleagues estimated treatment costs in short-stay hospitals using the average cost per patient--about $460 per day in 1985--and applied this average daily cost to the approximately 5 million days of care for discharges for alcohol dependence, alcohol abuse, and a set of medical disorders linked to alcohol use. This yielded a cost of $2.3 billion for 1985.

Added to this was an assessment of the additional costs of treating other medical conditions when they are accompanied by a secondary diagnosis indicating alcohol involvement. Rice and colleagues assessed, for such cases, the costs for extra days of care beyond the average hospital stay when alcohol is not involved in the diagnosis (11). Finally, the researchers added the costs of treatment in a variety of other settings, including alcohol treatment facilities, nursing homes, Veterans Administration hospitals, military hospitals, Indian Health Service facilities, and physicians' offices (4,11).

This new approach may underestimate treatment costs because alcohol involvement often is undiagnosed or unreported in hospital discharge records (12), and because medical conditions that researchers use as indicators of alcohol abuse in an individual (e.g., alcoholic cirrhosis of the liver) represent only a portion of those conditions that might be caused by alcohol abuse. An example of relevant information often not reflected in hospital discharge records is the role of alcohol in the occurrence of many injuries.

The second category of health-related costs includes losses in productivity by workers who abuse alcohol. These costs are difficult to measure, in part because of the lack of records on goods and services that are not produced. To approximate the value of goods and services that are lost because of alcohol abuse, economists use a substitute measure--the reductions in income suffered by workers who abuse alcohol. This technique is subject to various problems, however, including the possible lack of representativeness in data, and difficulties in specifying the complex causal linkages between alcohol abuse and impaired productivity (9,10,13,14). Further, some productivity losses, such as declines in product quality and disruption of workplace processes by absences, cannot be captured using the lost-income approach. Rice and co-workers estimated that the costs of reduced productivity because of alcohol abuse were more than $27 billion in 1985 (4), and Harwood estimated that they were $54 billion in 1980 (3).

The third category of health-related costs is the loss to society because of premature deaths due to alcohol abuse. It is controversial to assign a monetary value to human life, yet such an accounting is an essential part of any cost-of-illness estimate (5,7,15,16,17). One technique is to approximate the loss associated with a premature death as the value of future earnings lost. This "human capital" approach is standard in cost-of-illness studies, including the studies by Rice and Harwood. Critics of this approach contend that it understates the value of human life, especially for women and retired people (8,15,17). Using the "human capital" approach, Rice estimated that the costs of premature deaths due to alcohol abuse were $24 billion in 1985 (4), and Harwood estimated that they were $14.5 billion in 1980 (3).

There is a special cost of alcohol abuse that is considered separately from the costs already mentioned here. This is the cost o f fetal alcohol syndrome (18,19). Costs associated with this disease include the costs of residential care, neonatal care, and treatment for hearing loss, mental impairment, and anatomical abnormalities. Rice and co-workers estimated that the costs of fetal alcohol syndrome were $1.6 billion in 1985 (4).

In addition to the health-related costs of alcohol abuse are costs involving the criminal justice system, social welfare administration, property losses from alcohol-related motor vehicle crashes and fires, and lost productivity of the victims of alcohol-related crime and individuals imprisoned as a consequence of alcohol-related crime. Rice and co-workers estimated these costs to be $10.5 billion for 1985 (4).

Estimating the Economic Cost of Alcohol Abuse--A Commentary by
NIAAA Director Enoch Gordis, M.D.

Measuring the economic cost of an illness is one way to assess the overall impact of that illness on society. Although there are problems in estimating such costs, the fact that two major studies of the cost of alcohol abuse and alcoholism, using different methodologies, arrived at similar results, confirms the enormous magnitude of the damage done to society by alcohol-related problems.

I wish to emphasize that the costs of treating alcoholism are only a minority of total alcohol-related health costs; medical consequences of alcohol use--trauma, cirrhosis, pancreatitis, and so forth--account for the majority. Perhaps if patients at risk for alcohol-related problems were identified before repeated traumas or health problems occur, these costs might be reduced. Although some progress has been made to improve early identification and referral of alcohol abusers by physicians and other health care personnel, we still have not reached the point where attention to a patient's alcohol use pattern is a routine part of medical care.

Finally, a caveat. Studies of the economic cost of illness do not provide guidance as to what remedies are likely to be effective or what the costs of possible remedies might be. Therefore, although they provide important information on the magnitude of an illness, these studies, alone, should not be used as the basis for public policy decisions.


(1) BERRY, R.E.; Boland, J.P.; Smart, C.; and Kanak, J. The Economic Cost of Alcohol Abuse: 1975. Brookline, MA: Policy Analysis, Inc., 1977. (2) CRUZE, A.M.; Harwood, H.J.; Kristiansen, P.L.; Collins, J.J.; and Jones, D.C. Economic Costs to Society of Alcohol and Drug Abuse and Mental Illness: 1977. Research Triangle Park, NC: Research Triangle Institute, 1981. (3) HARWOOD, H.J.; Napolitano, D.M.; Kristiansen, P.L.; and Collins, J.J. Economic Costs to Society of Alcohol and Drug Abuse and Mental Illness: 1980. Research Triangle Park, NC: Research Triangle Institute, 1984. (4) RICE, D.P.; Kelman, S.; Miller, L.S.; and Dunmeyer, S. The Economic Costs of Alcohol and Drug Abuse and Mental Illness: 1985. Rockville, MD: National Institute on Drug Abuse, 1990. (5) RICE, D.P. Estimating the Cost of Illness. Health Economics Series, No. 6. DHEW Pub. No. (PHS)947-6. Rockville, MD: U.S. Department of Health, Education and Welfare, 1966. (6) COOPER, B.S., & Rice, D.P. The economic cost of illness revisited. Social Security Bulletin 39(2):21-36, 1976. (7) HODGSON, T.A., & Meiners, M.R. Cost-of-illness methodology: A guide to current practices and procedures. Milbank Memorial Fund Quarterly 60:429-462, 1982. (8) COHODES, D.R. Problems in measuring the cost of illness. Evaluation and the Health Professions 5:381-392, 1982. (9) COOK, P.J. "The Social Costs of Drinking." Paper presented at the Expert Meeting on the Negative Social Consequences of Alcohol Use, Oslo, Norway, 1990. (10) HEIEN, D.M., & Pittman, D.J. The economic costs of alcohol abuse: An assessment of current methods and estimates. Journal of Studies on Alcohol 50(6):567-579, 1989. (11) RICE, D.P., & Kelman, S. Measuring comorbidity and overlap in the hospitalization cost for alcohol and drug abuse and mental illness. Inquiry 26:249-260, 1989. (12) MOORE, R.D.; Bone, L.R.; Geller, G.; Marmon, J.A.; Stokes, E.J.; and Levine, D.M. Prevalence, detection, and treatment of alcoholism in hospitalized patients. Journal of the American Medical Association 261(3):403-407, 1989. (13) MULLAHY, J., & Sindelar, J. Life-cycle effects of alcoholism on education, earnings, and occupation. Inquiry 26:272-282, 1989. (14) MULLAHY, J., & Sindelar, J. An ounce of prevention: Productive remedies for alcoholism. Journal of Policy Analysis and Management 9(2):249-253, 1990. (15) LANDEFELD, J.S., & Seskin, E.P. The economic value of life: Linking theory to practice. American Journal of Public Health 72(6):555-566, 1982. (16) SCHELLING, T.C. The life you save may be your own. In: Chase, S.B., ed. Problems in Public Expenditure Analysis. Washington, DC: The Brookings Institution, 1968. pp.127-162. (17) MISHAN, E.J. Evaluation of life and limb: A theoretical approach. Journal of Political Economy 79(4):687-705, 1971. (18) HARWOOD, H.J., & Napolitano, D.M. Economic implications of the fetal alcohol syndrome. Alcohol Health & Research World 10(1):38-43;74-75, 1985. (19) ABEL, E.L., & Sokol, R.J. Incidence of fetal alcohol syndrome and economic impact of FAS-related anomalies. Drug and Alcohol Dependence 19(1):51-70, 1987.

All material contained in the Alcohol Alert is in the public domain and may be used or reproduced without permission from NIAAA. Citation of the source is appreciated.

Copies of the Alcohol Alert are available free of charge from the Scientific Communications Branch, Office of Scientific Affairs, NIAAA, Willco Building, Suite 409, 6000 Executive Boulevard, Bethesda, MD 20892-7003.Telephone: 301-443-3860.

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Updated: October 2000