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Longevity bias in cost-effectiveness analysis

  • Liqun Liu

    (Private Enterprise Research Center, Texas A&M University, College Station, TX, USA)

  • Andrew J. Rettenmaier

    (Private Enterprise Research Center, Texas A&M University, College Station, TX, USA)

  • Thomas R. Saving

    (Private Enterprise Research Center, Texas A&M University, College Station, TX, USA)

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    We use a simple lifetime utility maximization model to study the problem of medical resource allocation. This model leads to a welfare specification with a QALY (quality-adjusted life-year) component that captures an individual's preferences over both life expectancy and health status. The goal of medical cost-effectiveness analysis (CEA) is characterized as maximizing the QALY measure for a given total medical expenditure. We show that the CEA with such a goal has a longevity bias: the CEA-based division of a given total medical expenditure between extending life and improving health gives the former a larger share than is called for by welfare maximization. Copyright © 2007 John Wiley & Sons, Ltd.

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    Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

    Volume (Year): 17 (2008)
    Issue (Month): 4 ()
    Pages: 523-534

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    Handle: RePEc:wly:hlthec:v:17:y:2008:i:4:p:523-534
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    1. Dolan, Paul & Edlin, Richard, 2002. "Is it really possible to build a bridge between cost-benefit analysis and cost-effectiveness analysis?," Journal of Health Economics, Elsevier, vol. 21(5), pages 827-843, September.
    2. Bleichrodt, Han & Quiggin, John, 2002. "Life-cycle preferences over consumption and health: a reply to Klose," Journal of Health Economics, Elsevier, vol. 21(1), pages 167-168, January.
    3. Garber, Alan M. & Phelps, Charles E., 1997. "Economic foundations of cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 1-31, February.
    4. Dolan, Paul, 2000. "The measurement of health-related quality of life for use in resource allocation decisions in health care," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 32, pages 1723-1760 Elsevier.
    5. Bleichrodt, Han & Quiggin, John, 1999. "Life-cycle preferences over consumption and health: when is cost-effectiveness analysis equivalent to cost-benefit analysis?," Journal of Health Economics, Elsevier, vol. 18(6), pages 681-708, December.
    6. Bleichrodt, Han, 1997. "Health utility indices and equity considerations," Journal of Health Economics, Elsevier, vol. 16(1), pages 65-91, February.
    7. Johannesson, Magnus, 1995. "The relationship between cost-effectiveness analysis and cost-benefit analysis," Social Science & Medicine, Elsevier, vol. 41(4), pages 483-489, August.
    8. Tomas J. Philipson & William H. Dow & Xavier Sala-i-Martin, 1999. "Longevity Complementarities under Competing Risks," American Economic Review, American Economic Association, vol. 89(5), pages 1358-1371, December.
    9. Johannesson, Magnus & Weinstein, Milton C., 1993. "On the decision rules of cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 12(4), pages 459-467, December.
    10. Liu Liqun & Rettenmaier Andrew J & Saving Thomas R, 2006. "Indirect Costs and Discounting in Health Care Decision-Making: The Role of Distortionary Taxation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-30, January.
    11. Cam Donaldson & Stephen Birch & Amiram Gafni, 2002. "The distribution problem in economic evaluation: income and the valuation of costs and consequences of health care programmes," Health Economics, John Wiley & Sons, Ltd., vol. 11(1), pages 55-70.
    12. Birch, Stephen & Gafni, Amiram, 1992. "Cost effectiveness/utility analyses : Do current decision rules lead us to where we want to be?," Journal of Health Economics, Elsevier, vol. 11(3), pages 279-296, October.
    13. Bleichrodt, Han & Wakker, Peter & Johannesson, Magnus, 1997. "Characterizing QALYs by Risk Neutrality," Journal of Risk and Uncertainty, Springer, vol. 15(2), pages 107-14, November.
    14. David Meltzer, 1997. "Accounting for Future Costs in Medical Cost-Effectiveness Analysis," NBER Working Papers 5946, National Bureau of Economic Research, Inc.
    15. Meltzer, David, 1997. "Accounting for future costs in medical cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 33-64, February.
    16. Tomas J. Philipson & Gary S. Becker, 1998. "Old-Age Longevity and Mortality-Contingent Claims," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 551-573, June.
    17. John A. Nyman, 2004. "Should the consumption of survivors be included as a cost in cost-utility analysis?," Health Economics, John Wiley & Sons, Ltd., vol. 13(5), pages 417-427.
    18. Culyer, A. J. & Wagstaff, Adam, 1993. "Equity and equality in health and health care," Journal of Health Economics, Elsevier, vol. 12(4), pages 431-457, December.
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