What Is a Year of Life Worth?

If there is one thing most conservatives and liberals agree on, it’s that we should not consider cost in deciding whether people should undergo medical procedures that have the potential to save lives and cure diseases. Unfortunately, most conservatives and liberals are wrong.

Declaring the idea of cost effectiveness a “forbidden topic in the health care debate,” Aaron Carroll shows just how adverse we are to the idea of comparing money cost with health outcomes. It’s even written into the Affordable Care Act:

“… we in the United States are so averse to the idea of cost effectiveness that when the Patient Centered Outcomes Research Institute, the body specifically set up to do comparative effectiveness research, was founded, the law explicitly prohibited it from funding any cost-effectiveness research at all. As it says on its website, ‘We don’t consider cost effectiveness to be an outcome of direct importance to patients.’”

He goes on to give another example:

“Take the United States Preventive Services Task Force, which was set up by the federal government to rate the effectiveness of preventive health services on a scale of A to D. When it issues a rating, it almost always explicitly states that it does not consider the costs of providing a service in its assessment.”

“And because the Affordable Care Act mandates that all insurance must cover, without any cost sharing, all services that the task force has rated A or B, that means that we are all paying for these therapies, even if they are incredibly inefficient.”

Here is the brutal reality: we don’t have an unlimited pile of money to spend on anything. And if we don’t pay attention to what we get for the money we spend (which has been historically the case for government regulatory agencies) we will end up spending money in ways that actually reduce life expectancy for the average American. In a 1996 study for the National Center for Policy Analysis, Tammy Tengs revealed that:

• 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 will save 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 will saves at most one life every decade, the cost is $5.4 million per year of life saved.

Tengs, along with Professor John Graham and a team of researchers at the Harvard Center for Risk Analysis, systematically gleaned from the literature annual cost and lifesaving effectiveness information for 185 interventions. Some of these interventions had been fully implemented, some partially implemented and some not implemented all. The researchers then asked: what if we reallocated funds from regulations and procedures that give us a low rate of return to those procedures that give us a high one?

• The 185 interventions cost about $21.4 billion per year and saved about 592,000 years of life.

• If that same money had been spent on the most cost-effective interventions, however, 1,230,000 years of life could have been saved—about 638,000 more years of life than under the status quo.

• Implementing the more cost-effective policies, therefore, could save twice as many years of life at no additional cost.

This same principle applies to health insurance. Unless you want your premium to go through the roof, you should choose an insurer that follows a reasonable standard. But that brings us back to Aaron’s point. How are you to know what standard your insurer is using if we the whole subject is a “forbidden topic”?

A few years ago, Time Magazine announced that $50,000 for a year of life saved is

“… the international standard most private and government-run health insurance plans worldwide use to determine whether to cover a new medical procedure…. Nearly all other industrial nations—including Canada, Britain and the Netherlands—ration health care based on cost-effectiveness and the $50,000 threshold.”

But a Stanford University economist calculated that the threshold for kidney dialysis for Medicare enrollees should be $129,000. Mark Pauly and his colleagues suggested a standard of $100,000 in Health Affairs (gated). Economists generally believe that such standards should be based on the implicit values people reveal when they make choices between money and risk in the job market and in in making choices as consumers. Studies show that the Implicit “value of a statistical life year,” to use a term of art, ranges from $50,000 to $150,000. As Pam Villarreal, Biff Jones and I explained in Health Affairs:

“This is not the amount of money that people would accept to give up their lives. It is instead the implicit value that people place on their lives when making choices between additional risk and money, when the risks involved and the amount of compensation needed to induce people to accept those risks are both small.”

For the many problems involved in arriving at a figure, see a review by Ike Brannon. For an extension of the idea to “quality adjusted life years” or QALYs, see Aaron Carrol’s discussionand links to the literature. The main point there is that a year spent on a respirator shouldn’t count anywhere near as much as a year doing normal activities.

There remains the question of “rationing” and “death panels.” I’ll address that in a future post.