Valuing Health Outcomes: Policy Choices and Technical Issues

We make decisions every day trading off health risks for money or time. How fast should we drive? Should we spend money on that health club membership? How often should we go to the doctor? What type of job or vacation should we take? Should we wait for the light to turn green before we cross the street?

                          
Similarly, policymakers weigh the costs and benefits of their decisions on what to spend on medical research, environmental protection, food safety, and a whole host of other health issues. Economists quantify these decisions in many ways. Some use a dollars-and-cents framework. Calculating the costs of an illness in lost wages and medical expenditures and determining people’s willingness to pay to avoid a health condition for themselves or others are examples of this approach.

Another approach, called a quality-adjusted life year, or QALY, combines changes in a person’s expected length of life with the quality of that life. This is used to measure the cost-effectiveness of a certain treatment by determining how much longer patients lived because of a medical intervention and if their quality of life—level of pain or degree of symptoms—improved as well.
                        
Senior Fellow Alan Krupnick evaluates the willingness-to-pay and the QALY approaches —and others—in a new RFF Report, Valuing Health Outcomes: Policy Choices and Technical Issues.

He provides a detailed examination of what each tool offers and addresses some of the controversies in the field, such as what is meant by the much-misunderstood term “value of a statistical life.” Krupnick raises fundamental questions as well about whose preferences should be considered when formulating health policy—the individual affected, the family, medical professionals, or society at large?

Representatives from a broad spectrum of government agencies—among them the Environmental Protection Agency, USDA, OSHA, and the National Institutes of Health—as well as RFF researchers and other experts met at RFF in 2003 at a conference (Valuing Health Outcomes: An Assessment of Approaches) and a workshop to come to a consensus about the "value" of these valuation methods. Valuing Health Outcomes reflects this collective input as well as RFF scholarship in this field.