Estimating the monetary value of health: why and how

Abstract

The efficient allocation of scarce health care resources is an important but difficult task. Health economic evaluation, and more specifically, costeffectiveness analysis, can be a helpful tool for informing these allocation decisions. While some consider comparing costs to health outcomes as an impossible trade-off, it is defensible if made on a collective level, and considering that in a resource constraint setting, costs just quantify what care/benefits need to be sacrificed by others. If one accepts the cost-effectiveness framework, one also accepts its decision rule, which states that a treatment is considered costeffective if the ratio of cost per QALY is lower than a certain threshold, which is oriented either on what society is willing to pay for a QALY or on the opportunity costs of displaced care. This decision rule implies the necessity for obtaining monetary estimates of the value of a QALY. In previous research, this was mainly attempted by using two conceptually different approaches. First, and more recently, estimates of an opportunity cost based threshold were calculated based on the marginal returns to health care spending, with applications in the UK, Spain, the Netherlands and Sweden. A much larger branch of literature obtained estimates of the societal monetary valuation of a QALY. This was either based on the value of a statistical life (or prevented fatality), obtained through revealed or stated preferences, or on the societal willingness to pay for certain health gains using stated preferences techniques such as contingent valuation willingness to pay experiments or discrete choice experiments. The estimates of the monetary value of a QALY that were obtained are context and approach depended, and also can differ considerably if a similar approach is used in the same context. This chapter will outline an additional alternative approach for estimating the monetary societal valuation of a QALY: the well-being valuation approach. This approach is not strictly based on either stated nor revealed preferences, and entails using regression analysis and observational data. Using life satisfaction (or SWB) as proxy for overall utility, the marginal rate of substitution of the well-being impact of income and health is calculated to obtain a monetary estimate of a QALY. This chapter will also include first results of applying this approach in two different contexts. In one of the applications, we also extent this valuation to a broader well-being outcome measure, namely capability well-being, as extending the evaluative space of economic evaluations is of increasing importance and would also require a monetary valuation of the broader outcome measure. While the well-being valuation approach is not prone to framing biases like willingness to pay experiments, it comes with other caveats like the requirement of obtaining unbiased estimates of the well-being and impacts of income and health, which are notoriously difficult to obtain. Due to methodological differences and context dependency, it may, in general, never be possible to obtain one “true” estimate of the monetary value of a QALY in a society, but future research will further refine the ballpark in which this value may lie, which is informative for decision makers.