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Discounting for health effects in cost-benefit and cost-effectiveness analysis

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  • Hugh Gravelle

    (National Primary Care Research and Development Centre, Centre for Health Economics, University of York, York, UK)

  • Dave Smith

    (Center for Health Research, Portland, OR, USA)

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.

Suggested Citation

  • Hugh Gravelle & Dave Smith, 2001. "Discounting for health effects in cost-benefit and cost-effectiveness analysis," Health Economics, John Wiley & Sons, Ltd., vol. 10(7), pages 587-599.
  • Handle: RePEc:wly:hlthec:v:10:y:2001:i:7:p:587-599
    DOI: 10.1002/hec.618
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    References listed on IDEAS

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    2. Arthur E. Attema & Han Bleichrodt & Olivier L’Haridon & Patrick Peretti-Watel & Valérie Seror, 2018. "Discounting health and money: New evidence using a more robust method," Journal of Risk and Uncertainty, Springer, vol. 56(2), pages 117-140, April.
    3. Diane Dawson & Hugh Gravelle & Mary O'Mahony & Andrew Street & Martin Weale & Adriana Castelli & Rowena Jacobs & Paul Kind & Pete Loveridge & Stephen Martin & Philip Stevens & Lucy Stokes, 2005. "Developing new approaches to measuring NHS outputs and productivity," Working Papers 006cherp, Centre for Health Economics, University of York, revised Dec 2005.
    4. Hugh Gravelle & Werner Brouwer & Louis Niessen & Maarten Postma & Frans Rutten, 2007. "Discounting in economic evaluations: stepping forward towards optimal decision rules," Health Economics, John Wiley & Sons, Ltd., vol. 16(3), pages 307-317.
    5. Carl Lyttkens, 2003. "Time to disable DALYs?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 4(3), pages 195-202, September.
    6. Olivier Chanel & Pascale Scapecchi & Jean-Christophe Vergnaud, 2006. "How to correctly assess mortality benefits in public policies," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 49(5), pages 759-776.
    7. repec:spr:pharme:v:36:y:2018:i:7:d:10.1007_s40273-018-0672-z is not listed on IDEAS
    8. Ben Groom & Cameron Hepburn & Phoebe Koundouri & David Pearce, 2005. "Declining Discount Rates: The Long and the Short of it," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 32(4), pages 445-493, December.
    9. Michael Spackman, 2011. "Government discounting controversies: changing prices, opportunity costs and systematic risk," GRI Working Papers 67, Grantham Research Institute on Climate Change and the Environment.
    10. Stephen Martin & Peter C Smith & Sheila Leatherman, 2006. "Value for money in the English NHS: Summary of the evidence," Working Papers 018cherp, Centre for Health Economics, University of York.
    11. Phoebe Koundouri & Ben Groom, "undated". "Sustainability and the Economics of the Environment: Cost-Benefit Analysis and the Dynamics of the Long-Run Discount Rate," DEOS Working Papers 0903, Athens University of Economics and Business.
    12. Karl Claxton & Mark Sculpher & Anthony Culyer & Chris McCabe & Andrew Briggs & Ron Akehurst & Martin Buxton & John Brazier, 2006. "Discounting and cost-effectiveness in NICE - stepping back to sort out a confusion," Health Economics, John Wiley & Sons, Ltd., vol. 15(1), pages 1-4.
    13. Fred Hellinger, 2015. "Measuring the Cost Effectiveness of HIV Prevention Interventions in the US: Pitfalls and Problems," Applied Health Economics and Health Policy, Springer, vol. 13(2), pages 129-133, April.
    14. Mike Paulden & Karl Claxton, 2009. "Budget allocation and the revealed social rate of time preference for health," Working Papers 053cherp, Centre for Health Economics, University of York.
    15. Cairns, John, 2006. "Developments in discounting: With special reference to future health events," Resource and Energy Economics, Elsevier, vol. 28(3), pages 282-297, August.
    16. Mareike Schad & Jürgen John, 2012. "Towards a social discount rate for the economic evaluation of health technologies in Germany: an exploratory analysis," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 13(2), pages 127-144, April.

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