Predictive validation and forecasts of short-term changes in healthcare expenditure associated with changes in...

Out-of-sample forecasts are used to evaluate the predictive adequacy of a previously published national model of the relationship between smoking behavior and real per capita health care expenditure using state level aggregate data. In the previously published analysis, the elasticities between changes in state adult current smoking prevalence and mean cigarette consumption per adult current smoker and healthcare expenditures were 0.118 and 0.108 This new analysis provides evidence that the model forecasts out-of-sample well.

Out-of-sample predictive performance was used to find the best specification of trend variables and the best model to bridge a break in survey data used in the analysis. Monte-Carlo simulation was used to calculate forecast intervals for the effect of changes in smoking behavior on expected real per capita healthcare expenditures.

The model specification produced good-out-of-sample forecasts and stable recursive regression parameter estimates spanning the break in survey methodology. In 2014, a 1% relative reduction in adult current smoking prevalence and mean cigarette consumption per adult current smoker decreased real per capita healthcare expenditure by 0.104% and 0.113% the following year, respectively (elasticity). A permanent relative reduction of 5% reduces expected real per capita healthcare expenditures $99 (95% CI $44, $154) in the next year and $31.5 billion for the entire US (in 2014 dollars), holding other factors constant. The reductions accumulate linearly for at least five years following annual permanent decreases of 5% each year. Given the limitations of time series modelling in a relatively short time series, the effect of changes in smoking behavior may occur over several years, even though the model contains only one lag for the explanatory variables.

Reductions in smoking produce substantial savings in real per capita healthcare expenditure in short to medium term. A 5% relative drop in smoking prevalence (about a 0.87% reduction in absolute prevalence) combined with a 5% drop in consumption per remaining smoker (about 16 packs/year) would be followed by a $31.5 billion reduction in healthcare expenditure (in 2014 dollars).