Asking the Wrong Questions

What’s a year of life worth? Here is Aaron Carroll on the subject:

When asked, most oncologists thought that a drug should cost less than $100,000 per year of life gained to be cost-effective. When confronted with a patient (even a hypothetical one), however, they endorsed giving drugs that cost up to $250,000 per additional year of life.

The authors conclude that we should do a better job of helping doctors understand how cost-effectiveness information should be used. I agree with that, but want to add to it. It’s necessary, but not sufficient.

I think society needs to have this discussion. Almost no one has $250,000, or even $100,000, saved up if they need it to extend their life for one year. So when we say we think that’s the reasonable number, we’re asking others to pay for it, either through government programs or private insurance. Is $100,000 a reasonable amount to pay for an additional year of life? Is it too low? Is $250,000 enough?

What’s wrong with this post? Answer below the fold.

What people have saved is completely irrelevant. What is relevant is: when making choices between small risks and small amounts of money, what is the implicit value of a year of life in the choices people actually make. We need not ask others to pay this amount. The question is: would people be willing to pay an extra premium to cover extra treatments, given that the treatment will cost $X per year of life saved. These are the decisions that should guide us in deciding what health insurance contracts should look like. From the economics literature, we know that $100,000 is well within the range of the choices people make. The $250,000 figure is bumping up against the upper bound, but it too is not unreasonable.

Comments (11)

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  1. Tom H. says:

    Good post. Carroll is not an economist.

  2. Linda Gorman says:

    Plus, one hopes that an economist would be uncomfortable claiming that everyone has the same “societal” utility function or, for that matter, budget constraint.

  3. Anne Alice says:

    I don’t think there’s any way you can put a set value on a final year of life.

  4. Devon Herrick says:

    Carroll may a physician rather than an economist, but he alludes to one concept that I’ve heard economists discuss. That is: something that is unaffordable individually is also probably not affordable collectively. Is $100,000 an appropriate cost per quality-adjusted life year saved? If I’m paying the price, the cost may be too high; if society is paying for me, then it’s probably too low in my opinion.

    Linda is correct, utility functions and budget constraints vary among people. However, when I began my doctorate in 1992, Professor Fass taught us in Cost/Benefit Analysis that the rule of thumb was $100,000 at that time. Of course, that also 20 years ago.

  5. brian says:

    Difficult subject matter.

  6. Bob Hertz says:

    Compared to other nations, America is obsessed with measuring health care expenses by individual decisions…..

    both decisions of the individual, as to which health plan to buy and what deductible to accept and what level of savings to apply………..

    and also decisions for the doctor, i.e.who to resuscitate and when to install feeding tubes, and who has chosen a “DNR” and will I be sued if I carry it out…………

    Tbis can be an impossible burden. So few of us are given the wisdom to know who to save and who to let go.

    Readers of this blog may recoil at my next suggestion, but there is an argument here for turning some hospitals into federal agencies.

    I call it ‘facility based funding.’ A federal safety net hospital would require no personal insurance or personal spending.

    If your relative is deathly ill, you could send them to a federal hospital that is funded by taxes. (like the VA, actually.)

    If the doctors at this place save your relative for a year, great. If your relative dies in a week, well, that was going to happen anyways.

    This is not a perfect system by any means.

    But it may be a system we can afford.

    Canada works this way, and it is not a bad country to live in.

    Americans do seem to be letting the perfect be the enemy of the good, in the area of terminal illness.

  7. Greg Scandlen says:

    I think it is bizarre to take one patient for one year to decide how much he/she is worth. This is where insurance is a useful concept. An individual facing a need like this is part of a cohort many times greater than himself. So instead of one person costing $250,000, in fact we have a million people of whom maybe 10 need the $250K treatment — $2.5 million = $2.50 per person. The question is not whether Joe is worth $250,000/year, but whether you would be willing to pay $2.50/year to protect yourself in this circumstance. This is exactly the point of insurance.

  8. brian says:

    Bob, I’m not sure the U.S. could even afford that system.

  9. Linda Gorman says:

    Why is it that people so often believe, despite evidence to the contrary, that federal control will improve things?

    Were the federal government to operate private hospitals as utilitites, medical care would change, and not for the better. For indicators of what would happen to patient care, take a look at the Indian Health Service, the VA, and county hospitals like Los Angeles County’s Martin Luther King Jr./Drew Medical Center. And let’s not even consider costs.

    Personally, I’d much rather pay the extra money on my personally owned policy. Greg Scandlen, as usual, has it exactly right.

  10. Bob Hertz says:

    Greg has the right principle but his numbers seem not to add up.

    If just 10 people out of a million need an expensive treatment, then he is right, the marginal cost of insurance is very small spread across the whole group.

    But if you take one million Americans from age 40 to 70, I suspect that the number who would benefit from expensive treatments is a lot closer to 40,000 than it is to 10!!

    I am referring to strokes, cancer, transplants, hip and knee replacements, serious injuries to spine, septic shock, AIDS, and so on.

    Greg’s comment leaves the impression that catastrophic insurance should cost about $10 a month and so why doesn’t everyone buy it.

    However, catastrophic insurance for me runs $450 a month for a $7500 deductible, and that is with Blue Cross. I am age 60.

    And for all I know, Blue Cross is losing money in my section of the individual market.

    Let me add a comment for Linda………

    The VA and the Indian Health Service have certainly given out their share of lousy treatments over the years, but they have never hounded a patient into bankruptcy over medical bills. There will always be some people in America who would prefer free health care to really good health care, and I respect that.

  11. Greg Scandlen says:

    Bob Herz –
    It was just an illustration of how insurance works. Plug in whatever numbers you want. But keep in mind a large part of the cost of your insurance is the social welfare aspect the legislature has imposed on health insurance. The legislature would like to “do something” about substance abuse, so instead of passing a program and the taxes to fund it, it mandates insurance coverage. Instead of paying taxes, you pay higher premiums and the insurance company gets blamed for the cost. Sweet deal for politicians, not so sweet for insurance buyers.