Medical care at the end of life, which is often is estimated to contribute up to a quarter of US health care spending, often encounters skepticism from payers and policy makers who question its high cost and often minimal health benefits. It seems generally agreed upon that medical resources are being wasted on excessive care for end-of-life treatments that often only prolong minimally an already frail life. However, though many observers have claimed that such spending is often irrational and wasteful, little explicit and systematic analysis exists on the incentives that determine end of life health care spending. There exists no positive theory that attempts to explain the high degree of end-of life spending and why differences across individuals, populations, or time occur in such spending. This paper attempts to provide the first rational and systematic analysis of the incentives behind end of life care. The main argument we make is that existing estimates of the value of a life year do not apply to the valuation of life at the end of life. We stress the low opportunity cost of medical spending near ones death, the importance of keeping hope alive in a terminal care setting, the larger social value of a life than estimated in private demand settings, as well as the insignificance in quality of life in lowering its value. We derive how an ex-ante perspective in terms of insurance and R&D alters some of these conclusions.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13333.
Length: Date of creation: Aug 2007 Date of revision: Handle: RePEc:nbr:nberwo:13333
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Find related papers by JEL classification: I1 - Health, Education, and Welfare - - Health I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health I32 - Health, Education, and Welfare - - Welfare and Poverty - - - Measurement and Analysis of Poverty I39 - Health, Education, and Welfare - - Welfare and Poverty - - - Other J0 - Labor and Demographic Economics - - General
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