How much does society value one year living in full health?

Marek Studzinski

As ageing populations increase the pressure on healthcare budgets, health economic tools like cost-effectiveness analyses become more important. They help policy makers make efficient and transparent healthcare funding decisions but also pose challenging questions. To decide whether a new treatment should be funded by public resources it is often helpful to understand how much society values improving population health in monetary terms. Finding this monetary value of health is difficult. Using data on the subjective wellbeing of individuals, for example expressed in life satisfaction, and their health can provide useful insights with some important limitations.

In the action line on the “Evaluation of Healthcare“ we aim to expand the framework of economic evaluations of healthcare interventions to broader subjective quality of life measures such as life satisfaction. In a recently published study in the journal Health Economics, four researchers (1, 2, 3, 4) from the Erasmus School of Health Policy & Management use large-scale life satisfaction data to answer the question: What is the monetary value of living one year in full health?

An uncomfortable truth

For many citizens, the ongoing coronavirus pandemic meant that, for the first time, they observed scarcity in the healthcare sector. From testing capacity to vaccines, not all demands for healthcare could immediately be met. Instead, consideration needed to be given to the different groups demanding access to care, and the associated benefits and monetary costs resulting from providing it to one group over the other. However, the mere thought of connecting economic outcomes with population health is often uncomfortable. For many, such trade-offs are amoral as they imply that some patients’ treatment will simply be too costly to society. However, such trade-offs are already present in most healthcare systems: money can only be spent once and alternative spending opportunities matter as they present the opportunity costs of financing specific treatments. Since health gains across disease areas and patient groups are difficult to compare, how should society decide which treatment is worth its costs?  

What is a QALY good for?

As a first step, health changes need to be made comparable. One way to do so is using quality-adjusted life years (QALYs), a commonly used measure of health. The appeal of QALYs comes from their intuitive premise: one QALY is equivalent to one year in full health, with zero representing the “health state” of being dead. Therefore, QALYs can be used to compare health changes, both gains and losses, across disease areas using a single measure. A new cancer drug might yield 0.8 QALYs for the average patient, while a treatment for a rare genetic disorder acquired at birth would yield 10 QALYs, providing an intuitive measure of their relative benefits.

From private to public

For the individual, a gain of 0.8 or 10 QALYs is undoubtedly an improvement. However, in countries with a public health service, policy makers have to balance the needs of all patient groups when making funding decisions under budget constraints. Whether any of the treatment alternatives also make economic sense crucially depends on the associated costs. Let us assume that the treatment costs of the cancer drug are €29,000, while the treatment for the genetic disorder costs €400,000. Their costs-per-QALY ratio illustrates that in relative terms the cancer drug provides a better ratio of costs and associated health gains: €36,250 (€29,000/0.8 QALYs) is lower than €40,000 (€400,000/10 QALYs) for the alternative. In practice, however, budgetary questions are not a simple choice between two distinct treatment options but involve complex considerations across policy-domains. Therefore, whether society as a whole deems €36,250 to be too costly or not depends on the question: What is the monetary equivalent of living one year in full health?

Valuing health using wellbeing data

Finding this societal monetary equivalent is difficult and there is a range of approaches available. In our recently published study, we try to answer this question using large-scale survey data from Germany, allowing us to observe the relationship between income, health and life satisfaction of a general population sample that is followed over a period of sixteen years. For this sample of the German population, we can therefore observe how individual-level changes in income and health translate into changes in reported life satisfaction. We use these observed relationships to calculate the amount of additional income that would compensate the average individual for a health loss equivalent to losing one year in full health. Using data on life satisfaction can provide an estimate of the monetary value of health based on individuals experiencing health changes, and the impact of these changes on their experienced wellbeing. Many other studies instead infer values from people's stated preferences in small surveys or experiments in which they provide such monetary values themselves based on hypothetical trade-off scenarios. Such approaches are known to be subject to various behavioural biases, itself a thriving research area in behavioural health economics. The approach we chose instead relies on individuals’ experiences and can provide complementary information representative for a broader sample of the population.  

Open science, open questions, open debate

While our study improves on previous methods by providing an alternative estimate to the monetary value of a QALY, our chosen approach is not without drawbacks. We find the monetary equivalent for Germany to be between €20,000 to €60,000 per QALY. The fact that this is not a single value but a large range already illustrates the main drawback of approaches that rely purely on statistical methodologies: the specific way in which the data is analysed will influence the resulting estimates considerably and the underlying assumptions are crucial for the interpretation of results. In the case of our study illustrating this drawback was precisely the point, as it provides insights into the comparative advantages and disadvantages of the varying methods for future applications and potentials study populations. To foster the debate around these approaches, we provide the statistical code underlying our study transparently accessible to interested researchers, but also the broader public. Especially in this research area, transparent practices are necessary to foster an open debate on the benefits and drawback of such estimates and the associated ethical considerations, as ultimately, the question what is the value of health does not only concern health economists.

About the author

Jannis Stöckel is a PhD Candidate in the Health Economics section of Erasmus School of Health Policy & Management. His research revolves around methodological issues regarding the utilisation of subjective wellbeing measures in health economic evaluations and the measurement of spillover effects on for instance informal family caregivers. His broader research interests include applied econometrics with a focus on the economics of ageing and long-term care related topics. You can contact him via email: stockel@eshpm.eur.nl.

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