A Twitter exchange recalls classic economic analysis: The problem of future costs

The following is a guest post by Harold Pollack, the Helen Ross Professor of Social Service Administration at the University of Chicago. As Harold notes, this post has a tweet as genesis, making good on my claim that important and serious exchanges occur on Twitter.

Emma Sandoe and Austin Frakt had an exchange on twitter that raised some classic questions of medical cost-effectiveness. Hence this quick note.

Health insurance generally, and Medicaid in particular, appear to save lives by increasing the chance that someone with hypertension will get a blood pressure check and receive basic medications. A recent paper indicates that a global vaccination campaign could save 6.4 million children’s lives. Considering these interventions, some natural questions arise: Do these interventions save money? Are they cost-effective?

The first question is usually taken to mean: “Will this reduce healthcare spending?” Generally speaking, this is the wrong question. After all, if our only goal were to reduce health sector spending, we could walk into the ICU and shoot every patient. We spend money on medical care because we value the health these services produce, and because improved health produces many other outcomes we value, too.

Policymakers often expect, or want to say, that that public health measures or clinical preventive services save money. Some of these services do, especially childhood vaccinations. Most of the good interventions do not save money. That’s not the right goal or the proper standard for these interventions, any more than it is the right standard for cancer surgery.

The more reasonable questions concern cost-effectiveness. Does a life-extending or health-promoting intervention produce sufficient health improvements to justify the net expenditures of social resources this intervention will require or induce? Of course, this is a hard question to answer. How do we measure health outcomes? How do we capture the full range of costs? How much should we value, in dollar terms, another year of healthy life for a 25-year-old or a 70-year-old? The field of medical cost-effectiveness explores these questions in great depth.

You might initially miss some other subtleties, too. Suppose I implemented an intervention in the year 2000 that controlled your blood pressure so you didn’t die of a stroke in 2005. When I consider the cost of the intervention, should I consider the cost of treating the heart attack you survived in 2010? The answer seems pretty clearly: “Yes this should count.” How about the cost of your eyeglasses, Lipitor, and Viagra you will consume because you are alive to consume them? Again, the answer seems pretty clearly: “Yes this should count.” If an intervention improves your length and quality of life, we need to count all the additional medical expenditures the intervention makes possible when we consider its cost-effectiveness.

Now the hard question: What about the cost of the hamburger you were alive to greatly enjoy in 2007? On the other side of the ledger, should we count your productive output that same year?

It turns out….we should count these things, too. If we “take credit” for your improved quality of life that our intervention made possible by keeping you alive and healthy, we should count all the medical and the non-medical resources expended over that time that made possible that quality of life. Someone or something paid for that hamburger. This must be counted.

In many analyses, we can’t actually do this. There are still implications to consider. The classic paper by my colleague David Meltzer lays some out, along with their associated math: As a society we should do more to support life-extending and productivity-enhancing interventions among the young. We should also be doing more interventions that improve quality of life among the seriously ill, even if these interventions are not actually life-extending. More here.

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