The Economic Costs of Alcohol and Drug Abuse in the United States - 1992
Chapter1: Executive Summary

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The economic cost to society from alcohol and drug abuse was an estimated $246 billion in 1992. Alcohol abuse and alcoholism cost an estimated $148 billion, while drug abuse and dependence cost an estimated $98 billion. When adjusted for inflation and population growth, the alcohol estimates for 1992 are very similar to cost estimates produced over the past 20 years, and the drug estimates demonstrate a steady and strong pattern of increase. The current estimates are significantly greater than the most recent detailed estimates developed for 1985 for alcohol and for drugs (Rice et al. 1990) - 42 percent higher for alcohol and 50 percent greater for drugs over and above increases due to population growth and inflation. Between 1985 and 1992, inflation accounted for about 37.5 percent and population growth for 7.1 percent increases.

The National Institute on Drug Abuse (NIDA) and the National Institute on Alcohol Abuse and Alcoholism (NIAAA) asked The Lewin Group to develop more current estimates of the costs of drug and alcohol abuse. Several factors underscored the need for new estimates. First, prior complete estimates used detailed data from 1985. However, the intervening years have seen major changes in the nature of these problems (e.g., the cocaine and HIV epidemics) and in the organization and delivery of drug and alcohol treatment and general health services (e.g., the influence of managed care and other changes in Medicaid, Medicare, and private insurance). Second, there have been important advances in our knowledge about the nature and impact of alcohol and drug problems. This study has incorporated more current data.

According to recent studies, the prevalence of severe drug problems and their consequences has increased since 1985 - notably from the epidemic of intensive/heavy cocaine use and from the increased spread of the HIV epidemic, both of which were in their early stages in 1985. However, most surveys indicate that there are fewer low-intensity drug users. The rates of alcohol consumption and associated problems declined throughout the 1980's - perhaps by as much as 10 percent between 1985 and 1992 (NIAAA 1993; Grant et al. 1994). However, treatment data suggest that since 1985, increasing proportions of persons treated for alcohol problems also have drug problems.

Changes in prevalence have been associated with a material increase in drug costs. Although crime rates did not change substantially during this period, criminal justice expenditures more than doubled overall - even after adjustment for price increases. This can be attributed mainly to increases in the number of persons incarcerated. This reflects a real and widely recognized phenomenon.

The balance of changes are due to new findings and/or methodology indicating larger effects than previously estimated. One substantive change in the methodology has resulted in material increases in cost estimates. This study includes higher proportions of various health problems as attributable to drug and alcohol abuse and dependence, basing this change on the current epidemiological literature. This issue is addressed in detail in chapter 4, which presents the rationale and data that justify the change in methodology and indicates the magnitude of the impact this change has had on the estimates.

Alcohol and drug abuse disorders carry with them a number of specific, well-recognized sequelae. Among them are the following:

  • Health consequences and their effects on the health care system;
  • Criminal behavior, either as a means of individual support, participation in the drug trade, or violence; and
  • Job loss, financial destitution, and subsequent reliance on society's safety nets.

The aim of this study is to quantify the effects of alcohol and drug abuse disorders in dollar terms. This study reviewed research evidence, analyzed available data bases, and discussed findings with topical experts. Additional research into the causal role played by alcohol and drug abuse in the variety of social problems that occur in the United States will benefit future studies.

The main results of this study are summarized in table 1.1. Costs and primary findings are reviewed in the following sections.

Health Care Expenditures

In 1992, total estimated spending for health care services was $18.8 billion for alcohol problems and the medical consequences of alcohol consumption and $9.9 billion for drug problems. Specialized services for the treatment of alcohol and drug problems cost $5.6 billion and $4.4 billion, respectively. This included specialized detoxification and rehabilitation services as well as prevention, training, and research expenditures. Costs of treatment for health problems attributed to alcohol and drug abuse (e.g., cirrhosis, HIV infection, and trauma) were $13.2 billion and $5.5 billion, respectively.

These costs for the medical consequences of alcohol and drug abuse are significantly greater than estimates from the study by Rice et al. (1990), primarily because that study did not utilize mortality-based epidemiological data about the causal involvement of drug and alcohol problems in illnesses other than fetal alcohol syndrome and HIV infection. Thus, alcohol and drug abuse-related costs of most medical consequences were significantly underestimated. In addition, although the medical literature already contains a significant number of studies on the medical consequences of alcohol abuse, which are reviewed and summarized in the Eighth Special Report to the U.S. Congress on Alcohol and Health (NIAAA 1993), researchers for this report found it necessary to review and summarize findings for several medical consequences of drug abuse - including HIV, tuberculosis, and hepatitis B and C. (See Chapter 4).

Premature Death

More than 132,000 persons died as a consequence of alcohol and drug problems in 1992. Of these deaths, 107,400 were related to alcohol abuse and 25,500 were related to drug abuse. The estimated costs were $31.3 billion and $14.6 billion, respectively, representing the present discounted value of expected lifetime earnings (discounted at 6 percent). The average loss per death was almost $350,000 (however, the average loss per drug-related death was almost twice as high as for alcohol due to different average ages of decedents). The costs using a 3-percent discount rate are $45.7 billion and $21.3 billion, respectively. Many of the alcohol- and drug-related deaths were among persons between ages 20 and 40, because the major causes of death, such as motor vehicle crashes, other causes of traumatic death, and HIV infection, are concentrated among younger age cohorts. However, alcohol is also involved in numerous premature deaths among the older population because of long-term, excessive alcohol consumption. As far as premature deaths are concerned, this study found only modest differences from the study by Rice et al. (1990), except that the number of deaths associated with drug-related HIV increased dramatically from 1985 to 1992 - a substantial increase in the cost of drug abuse.

Impaired Productivity

An estimated $82 billion in lost potential productivity was attributed to alcohol and drug abuse in 1992 ($67.7 billion and $14.2 billion, respectively). This accrued in the form of work not performed - including household tasks - and was measured in terms of lost earnings and household productivity. These costs were primarily borne by the drug or alcohol abusers and by those with whom they lived. About $1 billion was for victims of fetal alcohol syndrome who had survived to adulthood and experienced mental impairment. This study has not attempted to estimate the burden of drug and alcohol problems on work sites or employers, nor should the estimates in this study be interpreted in this manner.

Analysis of the recently available National Longitudinal Alcohol Epidemiologic Survey (NLAES) has provided new data on alcohol and drugs in the workforce. Among the working-age population, an estimated 4.6 million persons met the criteria for a diagnosis of drug dependence, and 24.5 million persons had a history of alcohol dependence in their lifetime (using clinical standards of severity). Because of overlaps (3.2 million persons with a prior history of both drug and alcohol dependence), the total number of impaired persons was 26 million. The most severe impact of alcohol abuse was experienced by males who had started drinking (more than just "sips") before their 15th birthday and had at some time met the criteria for dependence. People who started drinking after age 14 had much smaller negative effects on productivity.

Motor Vehicle Crashes

Total costs attributed to alcohol-related motor vehicle crashes were estimated to be $24.7 billion. This included $11.1 billion from premature mortality (counted/included above) and $13.6 billion from automobile and other property destruction. The costs for health care treatment for injuries are included under health care expenditures, previously discussed.

Although research suggests that drug abuse is involved with a small fraction of motor vehicle crashes, this literature is primarily anecdotal and very limited. The National Highway Traffic Safety Administration has begun to systematically acquire information about drug involvement in fatal crashes. However, this effort is still in its early stages, and drug-use information is not yet being routinely acquired in the same way as it is for alcohol.


Costs of crime attributed to illicit drug abuse were estimated at $59.1 billion, and costs of crime attributed to alcohol abuse were estimated at $19.7 billion. These costs include reduced earnings due to incarceration, crime careers, and criminal victimization; and the costs of criminal justice and drug interdiction. Costs of crime are itemized in table 1.2 and are an elaboration and reorganization of the costs in table 1.1. In addition to drug-defined and alcohol-defined crimes, such as drug trafficking and driving under the influence, the costs of crime also include the following:

  • Drug abuse is estimated to have contributed to 25 to 30 percent of income-generating crime, and
  • Alcohol abuse is estimated to have contributed to 25 to 30 percent of violent crime.

Somewhat different rates apply for different types of crimes and alcohol and drugs. In contrast, about 5 percent or less of income-generating crime is attributed to alcohol, and 5 percent or less of violent crime is attributed to drug abuse.

Expenditures within the criminal justice system totaled $23.6 billion ($17.4 for drugs and $6.2 billion for alcohol). Costs to victims were $11.8 billion ($3.8 billion for drugs and $8.0 billion for alcohol). Most of the estimated victim losses were for lost lifetime earnings of homicide victims, but this estimate also includes medical expenses, lost work, and damaged/destroyed property. In addition, victims lost $2.6 billion in stolen cash and property. A substantial loss of potential productivity to the economy was associated with incarceration of inmates for drug- and alcohol-related offenses (460,000 and 140,000 person years at a loss of potential productivity of $17.9 billion and $5.4 billion, respectively). Further losses of $19.2 billion are attributed to a full-time equivalent of 600,000 drug abusers and traffickers dropping out of the legitimate economy in order to earn income from predatory and/or consensual crime (e.g., drug trafficking, gambling, and prostitution).

Social Welfare

This study estimates that 3.3 percent of social welfare beneficiaries in 1992 received benefits because of an administrative determination of drug- or alcohol-related impairment. While subsequent welfare reform has largely terminated alcohol or drug dependence as a primary cause for benefit eligibility, these impairments resulted in transfers of $10.4 billion in 1992, with administrative and other direct service expenses of $683 million for those with alcohol problems and $337 million for those with drug problems. Although administrative and direct service costs are included in the costs to society, the value of income transfers is not included because they simply shift or transfer resources from one part of society (a loss to taxpayers) to another part of society (a gain to transfer payment recipients). Several studies have found that social welfare beneficiaries have only modestly higher rates of alcohol and drug problems than the general population; however, this does not appear to have been their primary reason for eligibility. While as many as 30 to 40 percent of beneficiaries do use illicit drugs and/or abuse alcohol, it would appear that for most of these individuals their use of alcohol and psychoactive drugs is not of such a severity as to have impaired their ability to gain employment.

Who Bears the Costs of Alcohol and Drug Abuse?

Much of the economic burden of alcohol and drug problems falls on the population that does not abuse alcohol and drugs (see table 1.3). For alcohol problems, governments bore costs of $57.2 billion (38.6 percent) in 1992, compared with $15.1 billion for private insurance, $9 billion for victims, and $66.8 billion for alcohol abusers and members of their households. For drug abuse, governments bore about $45.1 billion (46.2 percent) of the total of $97.7 billion; private insurance, $3.1 billion; victims, about $6.5 billion; and abusers and members of their households, $42.9 billion.

Costs are imposed on society (nonabusers) in a variety of ways. These include drug- and alcohol-related crimes and trauma (e.g., motor vehicle crashes); government services, such as criminal justice and highway safety; and various social insurance mechanisms, such as private and public health insurance, life insurance, tax payments, pensions, and social welfare insurance.

The costs primarily born by abusers include (1) lost legitimate earnings (and household productivity) related to impaired functioning in the labor market; (2) lost legitimate earnings related to incarceration; and (3) foregone legitimate earnings when drug abusers pursue income through illegitimate means, including predatory and consensual income-generating crime (e.g., theft, drug trafficking, and prostitution). Even these costs are shifted somewhat. Lost earnings translate into lost tax revenue (a shift to government), and income from theft accrues to the benefit of abusers - a loss for victims. It is more difficult to assess the incidence of burden from the drug economy, where abusers forego legitimate earnings for income from other sources. This is discussed briefly in chapter 7.

Comparison With Prior Studies

Estimates from this study are generally comparable to those produced by prior major studies on the economic impact of drug and alcohol abuse. Although literally hundreds of differences have occurred from study to study - and that is true in comparing this study with Rice et al. (1990) - it is fair to say that generally similar methodological approaches have been applied in most of the studies discussed below. This is true in terms of the nature of the effects included in the estimates and in terms of how values have been estimated.

Figure 1.1 compares results of the present study with the prior estimates, making adjustments for inflation and population growth during the 17 years that these estimates cover. Detailed comparisons are made with Rice et al. (1990), and more general comparisons with Rufener et al. (1977), Berry et al. (1977), Cruze et al. (1981), and Harwood et al. (1984). The current estimate for alcohol, $148.0 billion, is almost equal to the average of the four previous major studies and more than 40 percent greater than that of Rice et al. (1990). The drug abuse estimate of $97.7 billion is about 50 percent greater than that of Rice et al. (1990). There is a clear trend of increasing cost estimates for drug abuse across these studies when the productivity impact estimate of Harwood et al. (1984) is taken into consideration.

Cost of Illness GraphFigure 1.1 Comparison of Estimates From the Major Cost-of-Illness Studies for Alcohol and Drug Abuse, Adjusted for Inflation and Population Growth. Sources: 1975 alcohol: Berry et al. (1977); 1975 drugs: Rufener et al. (1977); 1977 drugs and alcohol: Cruze et al. (1981); 1980 drugs and alcohol: Harwood et al. (1984); 1985 drugs and alcohol: Rice et al. (1990); 1992 drugs and alcohol: analysis by The Lewin Group; price and population data: U.S. Bureau of the Census (1993). Note: Bars in bar chart are arranged in order as cited in key.

Generally similar methodologies have been used to estimate the costs of alcohol abuse in each of the five studies. Each successive study incorporated the newest data and findings about the nature, extent, and impact of alcohol problems, yet these data did not produce fundamental changes in the estimates. The major cause of variation across the five studies is reduced productivity. Probably the most fundamentally different estimate was that of Rice et al. (1990), which yielded significantly lower estimates for health expenditures and reduced productivity than the other studies. Those topics receive intensive attention in this study, which documents and explains the nature of the differences in data, methods, and findings between this study and that of Rice et al. (1990) (see section 4.2 and section 5.3).

The five major drug abuse studies demonstrate a clear upward trend in cost estimates since 1975. This trend is generally attributable to the increasingly severe impact of drugs. Although some notable methodological differences exist between the first study (Rufener et al. 1977) and all the subsequent studies, there is evidence that most of the increase during the 17-year period is due to real changes in effects of drug abuse. Reasons for increased costs between 1977 and 1992 include emergence of the cocaine and HIV epidemics; an eightfold increase in State and Federal incarcerations for drug offenses (213,000 versus 28,000); and about a threefold increase in crimes that are attributed to drugs, such as burglary (100,000 versus 32,000). The prison census almost tripled between 1977 and 1992 (U.S. Department of Justice 1994g).

The most variable cost component across the five drug studies has been the impact of drug abuse on employment and earnings. Although this study estimates this impact to be 60 percent greater than that estimated by Rice et al. (1990) - $14.2 billion versus $8.7 billion - this is only one of several differences of this same magnitude that have contributed to the growth in costs.

Updated Estimates for 1995

Inflation and growth in the U.S. population have driven the economic effects of alcohol abuse and drug abuse higher since 1992 (see table 1.4 below). Based on these two effects, the estimated total costs of alcohol and drug abuse are projected to have increased 12.5 percent between 1992 and 1995. Accordingly, in 1995 alcohol abuse is estimated to have cost $166.5 billion and drug abuse is estimated to have cost $109.8 billion. These projections reflect adjustments for population growth (about 1 percent per year) and price changes (different rates for consumer and medical prices and for wage increases). However, no adjustment was made for potential changes in the incidence and prevalence of alcohol and drug problems during this period.

Table 1.1: Economic Costs of Alcohol and Drug Abuse in the United States, 1992
Table 1.1: Economic Costs of Alcohol and Drug Abuse in the United States, 1992 (millions of dollars)
Economic Costs Total Alcohol Drugs
Health Care Expenditures
Alcohol and drug abuse services $9,973 $5,573 $4,400
Medical consequences $18,778 $13,247 $5,531
Total, Health Care Expenditures $28,751 $18,820 $9,931
Productivity Effects (Lost Earnings)
Premature death $45,902 $31,327 $14,575
Impaired productivity $82,201 $67,696 $14,205
Institutionalized populations $2,990 $1,513 $1,477
Incarceration $23,356 $5,449 $17,907
Crime careers $19,198 - $19,198
Victims of crime $3,071 $1,012 $2,059
Total, Productivity Effects $176,418 $106,997 $69,421
Other Effects on Society
Crime $24,282 $6,312 $17,970
Social welfare administration $1,020 $683 $337
Motor vehicle crashes $13,619 $13,619 -
Fire destruction $1,590 $1,590 -
Total, Other Effects on Society $40,511 $22,204 $18,307
Total $245,680 $148,021 $97,659

Source: Analysis by The Lewin Group.
Note: Components may not sum to totals because of rounding.

Table 1.2 Total Costs of Alcohol and Drug Abuse for Specific and Related Crime, 1992 (millions of dollars)
Type of Cost Total Alcohol Drugs
Criminal Justice Expenditures and Victim Health Care
Economic Costs to Victims
Medical expenses for victims of violent crimes $505 $400 $105
Property damage $221 $28 $193
Total, Economic Costs to Victims $726 $428 $298
Criminal Justice System
Police protection $6,191 $1,547 $4,644
Legal and adjudication $1,701 $491 $1,210
State and Federal correction $8,483 $1,790 $6,693
Local correction $3,517 $2,326 $1,191
Total, Criminal Justice System $19,892 $6,154 $13,738
Federal Drug Traffic Control $3,753 $62 $3,691
Subtotal, Public Expenditures $23,645 $6,216 $17,429
Private Legal Defense $416 $68 $348
Subtotal $24,787 $6,712 $18,075
Crime-Related Productivity Losses
Homicide victims (premature death) $8,016 $6,589 $1,427
Other victims of crime $3,071 $1,012 $2,059
Incarcerated offenders $23,356 $5,449 $17,907
Crime careers $19,198 - $19,198
Subtotal $53,641 $13,050 $40,591
TOTAL $78,428 $19,762 $58,666

Source: Analysis by The Lewin Group.
Note: Components may not sum to totals because of rounding.

Table 1.3: Where the Burden of Alcohol and Drug Problems Falls, 1992
Table 1.3: Where the Burden of Alcohol and Drug Problems Falls, 1992 (billions of dollars)
Area Alcohol Drugs
Abusers and households $66.8 $42.9
Government $57.2 $45.1
Private insurance $15.1 $3.1
Victim losses $8.9 $6.5
TOTAL $148.0 $97.7

Source: Analysis by The Lewin Group.
Note: Components may not sum to totals because of rounding.

Table 1.4: Updated Cost Estimates: 1992 Estimates and Inflation- and Population-Adjusted Costs of Alcohol and Drug Abuse for 1995
Table 1.4: Updated Cost Estimates: 1992 Estimates and Inflation- and Population-Adjusted Costs of Alcohol and Drug Abuse for 1995 (millions of current-year dollars)
  Alcohol Drugs
1992 1995 1992 1995
Health Care Expenditures
Specialty alcohol and drug services $5,573 $6,660 $4,400 $5,258
Medical consequences $13,247 $15,830 $5,531 $6,623
Productivity Impacts
Lost earnings - premature death $31,327 $34,921 $14,575 $16,247
Lost earnings - illness $69,209 $77,150 $15,682 $17,481
Lost earnings - crime/victims $6,461 $7,231 $39,164 $43,829
Other Impacts
Crashes, fires, criminal justice, etc. $22,204 $24,752 $18,307 $20,407
Total $148,021 $166,543 $97,659 $109,832

Source: Analysis by The Lewin Group.
Note: Components may not sum to totals because of rounding.