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The impact of smoking on medical care expenditure is analyzed, challenging the widespread belief that smoking imposes a large cost burden on health services systems. The results imply that lifetime expenditure is higher for nonsmokers than for smokers because smokers' higher annual utilization rates are overcompensated for by nonsmokers' higher life expectancy. Population simulation, taking into account the effects of past smoking on present population size and composition, suggests that 1976 expenditure would have been the same if no male born since 1876 had ever smoked. The male population would have been larger, particularly at older ages, increasing medical care expenditure, but this increase would have been offset by lower annual medical care utilization rates. Thus the results imply that smoking does not increase medical care expenditure and, therefore, reducing smoking is unlikely to decrease it.

Assessment of the benefits is one of the major and largely unresolved problems in the economic evaluation of new drugs, particularly so when major benefits concern patients' well-being, joy of life or life quality rather than increased longevity or improved earnings capacity. In this study, a method for assessing the benefits of new drug therapies in terms of improved life quality is proposed. The approach is illustrated for psoriasis, one of the most common and disabling skin diseases. A MIMIC-structural-equation-model for psoriasis-related medical care demand is developed and estimated, treating the psycho-social disability associated with the disease as a latent (unobservable) variable which is characterized fully by its causes and indicators. The model allows computation of a MIMIC-DISABILITY-index, a one-dimensional measure of the overall psoriasis-related impairment in life-quality, for each patient or by selected patient characteristics. Contrary to traditional methods, the MIMIC-index incorporates a large number of disease aspects (indicators) without using arbitrary weights. Application of this approach to the evaluation of new drugs is straightforward. However, it requires a prospective study design, i.e. patients have to be interviewed at least twice, along with a control group, once before and at least once after onset of the new therapy. The MIMIC-index can then be computed for successive stages of the new therapy, expressing the therapy's effectiveness in improving patients' well-being. The index can be used as a physical output measure in cost-effectiveness analysis. Finally, it can be transformed into monetary units allowing performance of formal cost-benefit analysis of new treatment alternatives.