Dying Too Soon: How Cost-Effectiveness Analysis Can Save Lives

Policy Reports | Health

No. 204
Saturday, June 01, 1996
by Tammy O. Tengs


Figure I - Cost of Gaining an Additional Year of Life

For every one of us, death is inevitable. Premature death, however, is not. Through some reasonable mix of public and private strategies, we can substantially reduce the chance that we will die before our time. We can exercise and eat right, avoid tobacco, wear our seat belts and make sure our smoke alarms have working batteries. When more collective action is warranted, the federal government can regulate industry so as to protect us from such hazards as exposure to certain carcinogens in the air we breathe and the water we drink. As a society, we can adopt policies to immunize our children, pass speed limit and motorcycle helmet laws and adopt uniform building codes so that structures will not collapse on us in the event of natural disasters.

"Are we getting our money's worth from health and safety measures?"

All risk reduction policies have two things in common: they have economic consequences, and they save lives. Thus it makes sense to compare lifesaving interventions according to their "value for the money."

Determining the value of a health promotion intervention requires estimating the costs as well as the benefits of that intervention. Costs are usually defined as the dollar value of the resources consumed. For example, when a physician takes the time to counsel a patient to stop smoking, the physician's time represents a resource that is consumed, and a dollar value can be attached to that resource. From a societal perspective, all costs should be considered, regardless of who bears those costs.1

The survival benefits of a health promotion intervention can be captured in any number of ways, but the most common measures are "lives saved" and "years of life saved." The latter measure has the advantage of taking into account when a premature death is averted. For example, avoiding the premature death of a 40-year-old who then lives to be 78 would imply that 38 years of life are saved.

However, the benefits of a health promotion intervention are generally not limited to an extension of years of life. Seat belts, for example, reduce the risk of dying in serious automobile accidents, but they also prevent nonfatal injuries. Environmental regulations reduce human exposure to certain carcinogens, but they also protect the ecosystem. Medical therapy can improve patients' survival prospects, and also affect their quality of life.

"Not all health and safety measures are equally cost-effective."

Thus public health investment decisions inevitably require making trade-offs between cost, increased life expectancy and other benefits. The technique of cost-benefit analysis (as opposed to cost-effectiveness analysis) handles these trade-offs not only by measuring the cost of the resources consumed, but also by placing a dollar value on the years of life saved and on other benefits as well. The implication is that if the monetary benefits exceed the costs, the program should be implemented. While cost-benefit analysis is theoretically sound, offering a way to trade off all of the effects of an intervention using a single metric, techniques for monetizing health and other benefits are in their infancy. Thus in this report we refer not to cost-benefit analysis, but to cost-effectiveness analysis. This technique defines costs in a similar manner, but "effectiveness" is defined simply as "life-years saved." Of course this has the disadvantage of ignoring any other benefits of health promotion interventions. The advantage is that it temporarily sidesteps the need to place a dollar value on a year of life.2

Table I - Cost-Effectiveness of Proposed Regulations

Cost-Effectiveness of Common Interventions. Not all health and safety measures are equally cost-effective. For example [see Figure I]:

  • By spending $182,000 every year for sickle cell screening and treatment for black newborns, we add 769 years collectively to their lives at a cost of only $236 for each year of life saved.
  • By spending about $253 million per year on heart transplants, we add about 1,600 years to the lives of heart patients at a cost of $158,000 per year of life saved.
  • Equipping just 3 percent of school buses with seat belts costs about $1.6 million per year; but since this effort saves only one child's life every year, the cost is about $2.8 million per year of life saved.
  • We spend $2.8 million every year on radionuclide emission control at elemental phosphorus plants (which refine mined phosphorus before it goes to other uses); but since this effort saves at most one life every decade, the cost is $5.4 million per year of life saved.

Cost-Effectiveness of Government Regulation. Specific policies resulting from proposed government regulations vary widely in their cost-effectiveness, depending on the agency involved. For example, as Table I shows, the median proposed EPA regulation costs 100 times more per year of life saved than the median proposed highway safety or consumer product safety standard.3

How Cost-Effectiveness Analysis Can Save Lives. Because of the radical differences in cost-effectiveness that now exist, redirecting even relatively small amounts from less cost-effective to more cost-effective areas could have a noticeable impact. For example, suppose we took away $45,000 per year from the money we spend regulating emissions at phosphorus plants and used it instead to screen the 20 percent of black newborns who are not now screened for sickle cell anemia. The effect on life expectancy of phosphorus plant workers would be negligible. However, black children would gain an additional 192 years of collective life expectancy every year.

Cost-Effectiveness as a Guide for Public Policy. This paper explores how the use of cost-effectiveness information to guide health policy decisions can improve our survival prospects. The paper begins by clearing up a number of misconceptions about cost-effectiveness analysis. Next, it compares the use of cost-effectiveness as a guide to other strategies for making survival investment decisions. Finally, it considers how our present failure to make policy decisions based on economic efficiency results in the loss of life.

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