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

Policy Reports | Health

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

Government Regulations and Economnic Efficiency

Figure IV - Applying Cost-Effectiveness to 139 Regulations

Just as the Harvard Life-Saving Study found no relationship between cost-effectiveness and implementation of lifesaving interventions overall, it found no correlation between cost-effectiveness and implementation when it comes to government regulations.

"Many proposed government regulations are not cost effective."

Table I reports the median cost-effectiveness of regulations considered by several agencies. Large differences exist. Some highly cost-effective regulations have been implemented, such as the Consumer Product Safety Commission's ban on three-wheeled all-terrain vehicles. By avoiding the costs of treating injuries, this ban saves more than it costs. But other highly cost-effective regulations were considered by federal agencies and not implemented, for example, the Occupational Safety and Health Administration's workplace practice standard for electric power generation operation at $59,000 per life-year saved. Perhaps more worrisome, a number of very cost-ineffective regulations have been implemented, such as the Environmental Protection Agency regulation controlling benzene emissions during waste operations at $19 million per life-year saved. Wisely, other cost-ineffective regulations considered have not been implemented, including benzene emission control at chemical manufacturing process vents at $530 million per year of life saved.

Because of this haphazard pattern of investment, government regulations save fewer lives than they might, given the resources consumed, and consume more resources than necessary, given the survival benefits offered. The solution is to base regulatory decisions on whether they are economically efficient. But just how important are the losses due to inefficiency? How many more years of life could be saved? How much money could be saved?

To answer these questions, we performed the same kind of hypothetical reallocation experiment described above, but restricted our investigation to the 139 government regulations for which we had data. Results indicated that the 139 regulations consume $4.11 billion annually and save 94,000 years of life. Thus, if we divide resources consumed by years of life saved, we find an average cost of about $44,000 per year of life saved. If we had invested the same $4.11 billion in the most cost-effective regulations, we would be saving more than twice as many years of life -- 211,000 annually, or 117,000 more than the status quo. [See Figure IV.]

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