Life and Health Valuation
IV. Health Policy Reference Desk >> F. Health Policy Methods >> Life and Health Valuation (last update: 6.29.2020)
Topic Outline
Value of a Human Body
- Chemical Elements. The raw components of a human body if broken down to its basic chemical elements is:
- Body Components. According to a July 2004 article by Patrick DeJusto in Wired magazine, a body is worth $45,618,575.82. This is calculated by selling the bone marrow, DNA, lungs, kidneys, heart … as components and assuming that every conceivable organ could be harvested and sold.
Value of a Statistical Life
Empirical Estimates
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Literature Review. Viscusi and Aldy have written an exhaustive summary of the literature on the value of a statistical life (VSL) (February 2003). The authors find “estimates using U.S. labor market data, which typically show a VSL in the range of $4 million to $9 million. These values are similar to those generated by U.S. product market and housing market studies” (p. 4).
- Variations by Age. A 2018 literature synthesis done for Consumer Product Safety Commission found that among 16 studies meeting criteria for inclusion, “these studies suggest that VSL for children exceeds VSL for adults by a factor of 1.2 to 3.0, with a midpoint of roughly 2.”
- Income Elasticity. The VSL literature is generally in agreement that VSL increases with real incomes, but the exact rate at which it does so is subject to some debate. This DOT analysis (pp. 8-9) reviews literature showing elasticity estimates ranging from 0.5 to 0.6; 1.32 to 1.44; and 1.5 to 1.6.
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Willingness-to-Pay. Many studies have attempted to deduce how much Americans are willing to pay for a year of life in good health. The values vary considerably, some as low as $10,000. A study published in 2008 put the figure as high as $297,000; other assessments approach $1 million.
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VSL Calculators
Duke sociologist James Moody has created an online calculator that can be used to assess the human cost of violence by calculating the number of people who know someone killed or disabled by a disease (e.g., HIV/AIDS) or act of violence. The user has to provide population size (e.g., U.S. population), the local network size (which, according to Moody may range from 26-49 members for extended families and 192-290 for “acquaintances” who know each other’s names), and the number of people in the event (e.g., individuals with HIV/AIDS or victims of homicide).
VSL Thresholds Used in Regulation
History of VSL Thresholds
In his book The Economists’ Hour, Binyamin Appelbaum documents how VSL estimates have been used in regulatory decisions since the 1970s.
- In 1972, a member of a Nixon administration task force on regulating the auto industry put a life’s worth at $885,000 in 2020 dollars.
- One of the earliest VSL estimates used in regulation came from a 1978 calculation by Warren Prunella (a Canisius College economics professor). He estimated the value of a life saved by proposed furniture fabric flammability standards at $1 million, which was later adopted by Congress for regulations made by the Consumer Product Safety Commission.
- By 1998, Department of Transportation’s VSL had risen to $2.5 million.
Current VSL Thresholds in U.S.
All thresholds below have been converted to 2020 dollars using the methodology required by DOT (p. 8) to account for price inflation and real wage growth.
- Consumer Product Safety Commission (2018). $8.7 million (2014 dollars = $10.2 m. in 2020) is used for valuation of fatal risks in children.
- Environmental Protection Agency. $7.4 million (2006 dollars = $10.3 m. in 2020).
- Department of Transportation/Federal Aviation Administration (2016). $9.6 million (2015 dollars = $11.0 m. in 2020). For illustrative purposes, analysts should calculate high and low alternative estimates of the values of fatalities and injuries by using alternative VSLs of $5.4 million and $13.4 million (2015 dollars) = $6.2 to $15.4 m. in 2020.
International Thresholds
Harvard researchers Lisa A. Robinson, James K. Hammitt and Lucy O’Keeffe for the Bill and Melinda Gates Foundation: Valuing Mortality Risk Reductions in Global Benefit‐Cost Analysis. The authors recommend calculating VSL by multiplying a country’s Gross National Income (GNI) per capita times 160. For the U.S., this method would yield a VSL of $10.8 million.
Value of a Statistical Life Year (VSLY)
The value of a statistical life year (VSLY) is analogous to VSL except that it applies only to one year instead of an entire lifetime.
Empirical Estimates
One can impute VSLYs from VSL values using the formula for payment on a loan with fixed annual payments. In such calculations VSL represents the loan amount and the number of periods equals average remaining years of life expectancy for whatever population was used to derive the VSL estimate. For example, in wage-risk studies, the average age of workers used might be 40, in which case life expectancy at age 40 would be used to calculate VSLY. The interest rate used in the calculation is the social discount rate. Thus, a VSL of $10 million, assuming 40 years of remaining life expectancy and a discount rate of 5%, yields a VSLY of $583,000.
VSLY Thresholds
Harvard researchers cited above suggest that to obtain VSLY, VSL should be divided by the remaining years of life expectancy (undiscounted) for persons at the average age of adults in a country. Medical interventions costing less than this amount are deemed “cost-effective.” For the U.S., this method would yield a VSLY of $314,822.
Cost per QALY
In health-related cost-effectiveness analyses, the gold standard is to calculate a cost per quality-adjusted life year (QALY). See more detailed discussion here. A 2016 literature synthesis details the different ways in which willingness-to-pay for a QALY can be inferred empirically. Figures as as low as $10,000 and as high as $1 million per QALY have been reported.
Cost per QALY Thresholds in U.S.
Overview
- In the U.S. typical cost/QALY values range from $50,000 to $200,000.
- According to a nationally representative sample of Americans from the 2001 Medical Expenditure Panel Survey (MEPS), the average quality of life across the entire sample of adults was 0..868 (where 1=”best imaginable health state” and 0=death). Thus, in VSLY terms, a cost per QALY of $50,000-200,000 is equivalent to $43,000 to $174,000 per VSLY.
- For an average newborn born in 2020, cohort life expectancy is roughly 85 years (83.0 years for males, 86.5 years for females). Using a discount rate of 3%, the net present value of these VSLYs translates into the equivalent of a VSL ranging from $1.3 to $5.3 million.
Medicare
By law, Centers for Medicare and Medicaid Services (CMS) has maintained a policy that cost-effectiveness is not considered in national coverage determinations (NCDs) for the Medicare program.
- A systematic analysis of over 100 NCDs made between 1999-2007 showed that “of the 64 coverage decisions determined to have a corresponding cost-effectiveness estimate, 49 were associated with a positive coverage decision and 15 with a noncoverage decision. Of the positive decisions, 20 were associated with an economic evaluation that estimated the intervention to be dominant (costs less and was more effective than the alternative), 12 with an incremental cost-effectiveness ratio (ICER) of less than $50,000, 8 with an ICER greater than $50,000 but less than $100,000, and 9 with an ICER greater than $100,000.”
- Medicare provides kidney dialysis at an average annual cost of $91,300. The average quality of life for a patient needing regular kidney dialysis is 0.75. Given that these patients would die without dialysis, this implies that Americans are willing to spend at least $121,711 (i.e., $91.300/.75) per QALY keeping Medicare recipients alive. So this could be viewed as a revealed preference lower bound on Medicare’s implicit cost per QALY.
ICER
The Institute for Clinical and Economic Review (ICER) does cost-effectiveness assessments for clinical procedures (e.g., preventive services, surgeries), diagnostic equipment and medications. Third party carriers use ICER analyses in making coverage decisions.
- Although ICER itself does not set any maximum threshold, it reports that in the U.S., one QALY (i.e., full year of optimal health) is conventionally valued at anywhere from $100,000 to $150,000.
- ICER routinely reports results using QALY values of $50,000, $100,000, $150,000 and $200,000 as a form of sensitivity analysis (this type of fine-grained analysis might allow an insurer to routinely cover anything that passes the $50,000/QALY threshold, but opt to impose some sort of cost-sharing on covered benefits for procedures that only can meet the $200,000/QALY threshold).
- evLYG. Some have raised concerns that taking into account quality of life might bias policy decisions unfavorably against people with disabilities or who otherwise are in poor health. That is, any sort of quality of life adjustment is going to automatically assign a higher value to someone who is healthy compared to someone with the identical life expectancy who is somehow incapacitated. For this reason, ICER also reports results using an Equal-Value Life Year Gained (evLYG) method, which assigns an identical value to every year of added life expectancy regardless of the health status of the patients benefiting from a given drug or procedure and without any discounting of future years.
Cost per QALY Thresholds in Other Countries
- World Health Organization. WHO deems “highly cost effective” any medical treatment that provides one year of good health (i.e., disability-adjusted life year or DALY, which is roughly equivalent to QALY) at a cost less than the national annual GDP per capita. WHO considers “cost effective” any treatments that provide one QALY at a cost less than three times this figure. In the U.S. in 2020, this is roughly equivalent to $202,000.
- Australia. An analysis of Australia’s pharmaceutical benefits advisory committee found that it was likely to approve a drug if its cost per QALY was below 1.35 times the per capita GDP in 1999 (=$91,100 U.S. in 2020).
- England. Britain’s National Institute for Health and Care Excellence (NICE) is more likely to recommend coverage of a treatment if it costs less than £20,000 to £30,000 (equivalent to $25,000 to $37,000). This is not a hard ceiling. NICE also considers other factors, including the condition and population it treats, the level of evidence of effectiveness and the availability of alternative treatments, among others.
- Poland. Poland legislated in 2012 a cost-effectiveness threshold of three times per capita GDP (the WHO standard).
- Thailand. Thailand has a threshold of 0.8 times per capita GDP (=$54,000 U.S. in 2020).
Valuation of Morbidity Losses
Similar methods can be used to value losses associated with poor health. The Department of Transportation values accidental nonfatal injuries using VSLs. Each type of accidental injury is rated (in terms of severity and duration) on a scale of quality-adjusted life years (QALYs), in comparison with the alternative of perfect health. These scores are grouped, according to the Maximum Abbreviated Injury Scale (MAIS), yielding coefficients that can be applied to VSL to assign each injury class [using the Maximum Abbreviated Injury Scale (MAIS)] a value corresponding to a fraction of a fatality:
MAIS 1 (Minor) = .003 VSLs
MAIS 2 (Moderate) = .047 VSLs
MAIS 3 (Serious) = .105 VSLs
MAIS 4 (Severe) = .266 VSLs
MAIS 5 (Critical) = .593 VSLs
MAIS 6 (Unsurvivable) = 1.0 VSL
Thus, using the 2020 VSL value, a severe injury is valued at $11.0 m. x .266 = $2.9 million.