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Longevity bias in cost-effectiveness analysis

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Liqun Liu & Andrew J. Rettenmaier & Thomas R. Saving, 2008. "Longevity bias in cost-effectiveness analysis," Health Economics, John Wiley & Sons, Ltd., vol. 17(4), pages 523-534.
  • Handle: RePEc:wly:hlthec:v:17:y:2008:i:4:p:523-534
    DOI: 10.1002/hec.1309
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    References listed on IDEAS

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    6. 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.
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    17. 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.
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