The severe economic costs of the US opioid crisis

The severe economic costs of the US opioid crisis
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The opioid crisis that continues to ravage the United States affects every state in the country and has left almost no community untouched. 

In 2016 alone, the United States witnessed an average of 115 deaths per day due to opioid overdoses — a number that surpasses the number of road traffic deaths and is contributing to the stalling gains in life expectancy in the United States.

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While the United States is far from the only country dealing with the consequences of opioid abuse, the American experience stands out compared to other advanced economies due to the significantly higher economic and human cost.

 

This has prompted the Organization for Economic Cooperation and Development (OECD) to highlight the issue in its latest "Economic Survey of United States," presented last week in Washington, D.C. by OECD Secretary-General Angel Gurría alongside White House Council of Economic Advisers Chairman Kevin Hassett.

An important consequence of opioid addiction is the negative impact on the U.S. economy in the form of lost wages and productivity resulting from death, incarceration and decreased productivity. Estimates suggest that this could amount to around $40 billion annually.

On the other side of the fiscal ledger, lost productivity also has effects on tax revenue. Estimates suggest the combined impact reduced federal, state and local tax revenue by almost $16 billion in 2016.

As many of the costs are borne by state and local governments, the impact varies significantly across the country, with some areas affected much worse than others.

Significant costs also arise from providing health-care to victims. In 2014 alone, there were over 80,000 emergency room visits and over 60,000 hospitalizations due to opioid overdoses. Medicare and Medicaid were the primary payers in around two-thirds of these cases.

As noted in the OECD Economic Survey of United States, opioid use and opioid-related death rates appear to be considerably higher in the U.S. than in other OECD countries. This is partly explained by the greater prevalence of opioids in the United States, where prescription rates are four times higher on average than in other OECD countries.

While causation is difficult to establish, the correlation with the proportion of people unemployed or not looking for work in the U.S. in areas most affected by opioids suggests that this can ultimately lower participation in the labor force.

Indeed, economist Alan Krueger found that around 20 percent of males between the ages of 25 and 54 who were neither working nor looking for work were regularly taking opioid painkillers.

When addiction leads to criminality, the consequences of a felony record can drastically reduce employment possibilities. Public outlays are also incurred through costs for policing, law enforcement and other public services in dealing with drug overdoses and addiction treatment. This includes taking children into care when parental neglect occurs.

An analysis by the White House Council of Economic Advisers — using an approach that attempts to calculate the economic costs of loss of life — suggests that the overall cost of the crisis to the U.S. economy in 2015 was over $500 billion, or around 3 percent of GDP.

The OECD has highlighted several immediate policy steps that can be taken to help stem the crisis: First, to address the immediate challenge, making drugs that can reverse the effects of overdoses more widely available will help reduce avoidable deaths.

Second, efforts to tighten access to opioids will reduce the inflow of patients and others developing opioid dependence. Third, for those already suffering from addiction, medically-assisted treatments are proven options, but may require relaxing administrative barriers in order to expand their reach.

Finally, these efforts will need to be complemented by re-integrating former addicts into employment and housing to prevent relapse.

The tragic loss of life and enormous impact on society and the economy are more than enough justification to urge policymakers into action. Indeed, the current administration has made combating opioid addiction a priority, and legislators in the U.S. House of Representatives may vote on a variety of packages aimed at stemming the crisis in the coming weeks.

But to effectively address the crisis will require leaders at all levels of government to work in concert — sometimes in new and innovative ways — with partners in the private sector and in local communities across the country to address not only the symptoms of the epidemic, but the many complex underlying problems too.

As the economic impact of the current crisis demonstrates, inaction is simply not an option.

Douglas Sutherland is a senior economist at the Economics Department of the Organization for Economic Cooperation and Development.