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Discounting for health effects in cost–benefit and cost‐effectiveness analysis
Author(s) -
Gravelle Hugh,
Smith Dave
Publication year - 2001
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.618
Subject(s) - discounting , economics , welfare , marginal utility , value (mathematics) , health economics , quality adjusted life year , value of life , cost–benefit analysis , income elasticity of demand , microeconomics , actuarial science , econometrics , public economics , cost effectiveness , health care , operations management , mathematics , statistics , economic growth , ecology , finance , market economy , biology
Abstract When health effects can be valued in monetary terms, as in cost–benefit analysis, they should be discounted at the same rate as costs. If health effects are measured in quantities (e.g. quality adjusted life years) as in cost‐effectiveness analysis (CEA) and the value of health effects is increasing over time, discounting the volume of health effects at a lower rate than costs is a valid method of taking account of the increase in the future value of health effects. We show that the Keeler–Cretin paradox, often used as an argument against discounting health effects at a lower rate than costs, has no relevance for the choice of discount rate in CEA. We present individualistic and welfare models to argue that the rate of growth of the value of health effects is positive. The welfare model suggests that the value of health grows at a rate dependent on the rate of growth of the value of the direct effect of health on utility, the growth rate of income, the elasticity of the marginal utility of income and the extent to which individuals are insured against the income risks of ill health. Copyright © 2001 John Wiley & Sons, Ltd.