May 23, 2011

Required Warnings for Cigarette Packages and Advertisements

Proposed Rule
Summary

Score: 36 / 60

Additional details
Agency
Department of Health and Human Services
Regulatory Identification Number
0910-AG41
Agency Name
Department of Health and Human Services
Rule Publication Date
11/12/2010
Comment Closing Date
01/11/2011

RULE SUMMARY

The Food and Drug Administration (FDA) is proposing to amend its regulations to add a new requirement for the display of health warnings on cigarette packages and in cigarette advertisements. The proposed rule would implement a provision of the Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act) that requires the FDA to issue regulations requiring color graphics depicting the negative health consequences of smoking to accompany the nine new textual warning statements that will be required under the Tobacco Control Act. The Tobacco Control Act amends the Federal Cigarette Labeling and Advertising Act (FCLAA) to require each cigarette package and advertisement to bear one of nine new textual warning statements. This proposed rule, once finalized, would specify the color graphics that must accompany each of the nine new textual warning statements.

METHODOLOGY

There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.

Criterion Score

Openness

1. How easily were the RIA , the proposed rule, and any supplementary materials found online?
The Federal Register notice can be found with a RIN or keyword search on regulations.gov. The RIA is in the Federal Register notice. The regulation is also easy to find from the FDA's web site.
5/5
2. How verifiable are the data used in the analysis?
Data are almost always sourced to standard government data sources. Data are clearly defined and usually linked. Studies have citations showing where they are located/published.
5/5
3. How verifiable are the models and assumptions used in the analysis?
Models and assumptions are usually sourced to studies that appear to be peer reviewed. Full citations are given, but they are often not linked. In a small number of cases (e.g., number of FDA employees required to administer the law), seemingly ad hoc assumptions with no citations are used. A few sources for models (e.g., labeling costs) are from unpublished contract research.
4/5
4. Was the analysis comprehensible to an informed layperson?
The analysis is generally readable, with little specialized jargon and few acronyms. Results and conclusions are clear to an informed professional economist trained in benefit-cost and cost-effectiveness analysis. The analysis seems to be written to hide the lost consumer surplus due to reduced smoking; a figure is never provided, and the topic is mentioned only where absolutely necessary. The anlaysis is probably too technical for an interested layperson.
3/5

Analysis

5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?
4/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life?
Ultimate outcomes are to improve public health by reducing smoking by current smokers and lowering rates of new inititation. Benefits include smokers' lives saved, reductions in emphysema, fire loss reduction, and medical expenditure reduction.
5/5
Does the analysis identify how these outcomes are to be measured?
Life-years saved, emphysema cases avoided, medical expenses avoided, and fire losses avoided. All are estimates over 20 years and monetized. The analysis notes that may of the benefits occur after year 20, so it may underestimate the benefits. Some additional possible benefits are mentioned but not calculated.
5/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
The general chain of causation is that nine new textual warning statements--along with color graphics and greatly expanded exposure of health warnings on cigarette packs, advertising, and other signage--will significantly deter smokers from smoking and also lead to fewer initiations. Reduced smoking reduces smoking-related illnesses, deaths, and expenditures.
4/5
Does the analysis present credible empirical support for the theory?
Analysis assumes the U.S. experience will follow the experience with similar requirements in Canada. But there may be no effect at all. The RIA states, "Our effectiveness estimates are in general not statistically distinguishable from zero; we therefore cannot reject the possibility that the proposed rule would not change the U.S. smoking rate. In this case, the proposed rule would not generate any quantifiable benefits." Other research is cited showing that smokers live shorter lives, and have more emphysema and other health problems.
3/5
Does the analysis adequately assess uncertainty about the outcomes?
Acknowledges confounding factors that make an estimate of effectivness based on Canadian experience highly uncertain; estimates "may be producing results that are off by one or more orders of magnitude." An uncertainty analysis calculates a very wide range of potential benefits. Analysis also uses a range of values for a statistical life-year. The RIA admits that the FDA must research which colors to use in its graphic warnings as well as how to alter textual messages to produce the desired reduction in smoking. The effects of variables or benefits that might alter the results but were not included are noted.
3/5
6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?
3/5
Does the analysis identify a market failure or other systemic problem?
The analysis takes the need to reduce smoking as a given because smoking is the leading cause of premature death in the United States. One source of the problem is apparently inadequate communication via warning labels. Extensive discussion of research on warning labels suggests that labeling affects choices and that graphic labeling would be more effective than text labeling. Studies conclude that more graphic and visible warnings that also frequently change are more effective in deterring smoking.
4/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal?
The analysis provides a plausable theory that present warning labels are ineffective because current regulations are long-standing and thus have become "invisible" to most people. The Federal Register notice makes several references to the facts that most smokers start when they are under 18 years old, smoking is addictive by nature, and people with less education are more likely to smoke. These could perhaps have been developed further to explain why people start this self-destructive behavior and how graphic labeling influences choices more effectively than text labels. There is no discussion of whether smokers correctly perceive the risks of smoking, if the problem is externality-driven, or if the government has simply decided that too many people smoke even if they do correctly perceive the relevant benefits and costs.
3/5
Does the analysis present credible empirical support for the theory?
The Federal Register notice cites evidence that smoking is widespread and harmful. It also cites evidence that current health warnings are usually ignored, expecially by people with less education. Finally, it discusses evidence that graphic warning labels are more likely to be noticed, read, and understood, and thus have an effect on behavior. The analysis clearly states that the fact that the Canadian experience differs from the U.S. experience and that there are other confounding factors (e.g., tax hikes, social norms, smoking bans) influencing past smoking reduction "make our estimate of the effect of proposed warning labels highly uncertain." The RIA admits that it takes a "rudimentary approach to estimating the smoking reduction that would be affected by the proposed warning labels and may be producing results that are off by one or more order of magnitude."
3/5
Does the analysis adequately assess uncertainty about the existence or size of the problem?
There is some acknowledgment that the informational problem may be less severe for people with more education. Most aspects of the problem are presented as certainties with no acknowledgment of possible uncertainty or contravening evidence. The analysis implicitly presupposes that the major reason why people smoke is that they do not understand that it is bad for their health. The possibility that smokers understand the true extent that it damages health is not entertained. This issue should be discussed, as it clearly bears on the extent to which stronger health warnings can be expected to deter smoking.
1/5
7. How well does the analysis assess the effectiveness of alternative approaches?
3/5
Does the analysis enumerate other alternatives to address the problem?
Analysis considered two alternative compliance periods: 6 months and 24 months. A few other exemptions are mentioned but not analyzed: longer compliance periods for small manufacturers, exempting small manufacturers from new labeling change requirements, and exempting small cigarette retailers from the point-of-sale advertising requirements.
4/5
Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)?
These are very narrow alternatives. No other options are suggested, and the RIA also states that the two other options are not viable regulatory options because they are inconsistent with the FDA's statutory mandate. Other alternatives--higher taxes, more restrictive smoking bans, more spending on cessation programs, etc.--are not considered. There is no discussion of alternatives to the 50% requirement for the size of health warnings.
1/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
The two alternatives alter the benefit figures by altering the time at which benefits begin to accrue.
3/5
Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future?
The analysis does not explicitly lay out baseline figures for cigarette consumption or smoking in the absence of the warning labels. The calculation of the regulation's effects is based on the differential rates of smoking reduction in the United States and Canada after Canada implemented graphic warning labels. This implicitly assumes that the baseline reduction in the U.S. smoking rate would be the same as what has occurred in recent years.
3/5
8. How well does the analysis assess costs and benefits?
3/5
Does the analysis identify and quantify incremental costs of all alternatives considered?
Incremental cost of all three alternatives is calculated. The main difference is slight changes in labeling costs. The analysis identifies and quantitifies annualized costs under two discount rate options and with low, medium, and high scenarios.
5/5
Does the analysis identify all expenditures likely to arise as a result of the regulation?
Expenditures calculated are private costs of labeling, testing, and advertising, plus government costs of administration. Forgone tobacco tax revenues are also calculated.
4/5
Does the analysis identify how the regulation would likely affect the prices of goods and services?
While cost increases are estimated for businesses and government, the rise in cigarette prices for smokers is not directly estimated. The RIA does state, "Consumers are likely to ultimately bear a share of these costs in the form of increased prices."
1/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
Lost consumer surplus from smoking is not included in the cost tables. Text suggests this omission may overstate the benefits by 100% and requests comments on this topic. Later, the cost-effectiveness analysis includes lost consumer surplus as a cost but does not provide a separate figure for it. While it is briefly stated that businesses either directly or indirectly connected with tobacco will experience lost sales and employment, the RIA asserts any such losses will be met by increases in other economic sectors. Tax increases to fund government administration and enforcement costs are not considered as a cost to taxpayers but, of course, will decrease their disposable income.
2/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
Low, medium, and high estimates of one-time costs are presented, but not really explained. It also mentions governments could increase their excise taxes to offset lost revenues from lower consumption.
3/5
Does the analysis identify the alternative that maximizes net benefits?
The analysis does not calculate net benefits. However, a table presents the total costs and benefits for all three alternatives; it would have been easy to calculate net benefits.
3/5
Does the analysis identify the cost-effectiveness of each alternative considered?
Analysis calculates and compares cost per smoking prevention and cost per life-year saved for the three alternatives.
5/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
Analysis identifies manufacturers, sellers, and the FDA as parties bearing costs. The analysis acknowledges that smokers will pay higher prices, some businesses will lose profits, and some workers will lose jobs. Lost excise tax revenue for governments is also mentioned, but the RIA suggests that some governments may recoup lost revenues by raising excise taxes further (which will also raise prices for smokers and lead to less profit and fewer jobs). Lost consumer surplus is mentioned but never explicitly broken out as a cost. Revenue losses to industry are noted as transfers. Regulatory Flexibility Analysis calculates labeling costs as a percentage of small firms' revenues and finds these to be large (17-84%) for firms with fewer than 100 employees. Costs are also calculated for small retailers.
3/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
The analysis identifies the following gainers: smokers who quit or smoke less; individuals who will not become smokers; indivduals and governments who will experience lower health care costs; businesses that will provide new signage, packaging, and advertising stemming from the proposed rule; and businesses that absorb losses imposed on those who deal with tobacco manufacture or sales. Benefits would mostly accrue to the individuals who do not smoke as a result of the warning labels. Reduction in cost of medical services is divided up between smokers and non-smokers.
3/5

Use

9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
The agency acknowledges that the RIA exists, but there is no clear discussion of how the RIA had any bearing on designing an effective rule. The RIA basically presents evidence that the proposed rule would be beneficial, but the RIA itself simply provides evidence of this result rather than of it being used to design a cost-effective regulation. The nine health warning statements, color graphics, and timing are mandated by law. The regulatory impact analysis appears to have had no effect on the agency's decisions.
1/5
10. Did the agency maximize net benefits or explain why it chose another alternative?
The RIA did not explicitly calculate net benefits of the alternatives, although this would have been easy to infer from the results of the analysis. It did calculate cost-effectiveness. The agency presented an incremental cost-effectiveness analysis of regulatory altenatives: 6-month, 15-month, and 24-month compliance alternatives. The FDA declined to adopt either alternative because both were outside the scope of the law. Thus, the FDA might have been cognizant of net benefits, but its decision was clearly determined by the law, and it made this clear.
4/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future?
No goals or measures are established. The FDA projected the effectiveness of the regulation by comparing rates of smoking in the United States and in Canada after Canada required graphic warning labels, even though the exact appearance of the labels has not been worked out. The FDA has not yet chosen the appropriate color graphics and textual warnings. It is unclear how the FDA can predict the expected reduction in smokers by 2013 without having made these decisions yet. The RIA also acknowledged that it is problematic to estimate the impact of its proposed rule since there are other confounding factors that influence smoking rates. Thus, it would take more work to turn the RIA into a framework for setting goals.
0/5
12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so?
There is no explicit commitment to retrospective analysis. Data on the number of smokers are obviously available and could be used to track the regulation's effects on the main intended outcome.
1/5
 
Total 36 / 60