Tag Archives: Aaron Carroll

What Is a Year of Life Worth? (Part 2)

In making decisions about medical care, everyone should factor in cost — patients, doctors health insurance companies and government. Consider two alternative procedures, A and B. If for each $1,000 spent on procedure A, patients gain one extra month of life whereas using procedure B costs $2,000 for the same gain, A should be preferred to B. By making the efficient choice, we free up money to meet other health and non-health needs.

There remains this problem, however: What if the person who makes the decision about cost is different from the person who realizes the gain? That is what gives rise to charges of “rationing” and “death panels.”

Aaron Carroll writes: “Other countries routinely use cost-effectiveness data to make decisions about health coverage. In Britain, the National Institute for Health and Care Excellence, a government agency that gives guidance about which services the National Health Service should cover, has a threshold of 20,000 to 30,000 pounds per QALY [quality-adjusted life year] — that’s about $31,000 to $47,000. The health service doesn’t make decisions on whether to cover therapies based on this number alone, but it is certainly  a factor.”

And because government healthcare budgets are strained everywhere in the world, you can be sure that the cost-effectiveness criterion is “considered” a lot.

According to a 2002 World Health Organization report, 25,000 cancer patients die prematurely in Britain each year — often because of lack of access to drugs generally available in the U.S. and Europe. (See also this 2013 NHS estimate on all causes of premature deaths.)

To use an example closer to home, in 1994 Hillary Clinton decided that as part of her own health reform, health plans would provide free mammograms only to women 50 and older — and only at two-year intervals. In contrast, the National Cancer Institute and the American Cancer Society at the time were recommending mammograms for women after 40, either annually or every other year, and yearly mammograms after 50.  Similarly, Clinton hinted that she would relax the usual recommendation of a Pap smear every year for sexually active young women. (Canada, at the time, offered the test every three years.)

While these decisions were being made, a review of the literature by Tammy Tengs and her colleagues showed that:

  • Annual mammograms for women age 55 to 64 were expected to cost $110,000 for every year of life saved.
  • Annual mammograms for women in their 40s were expected to cost $190,000 per year of life saved.

In essence, Clinton decided that the lower number was an acceptable use of money while the higher figure was not. The review of the literature on Pap smears showed that:

  • Screening young women for cervical cancer every four years costs less than $12,000 for every year of life saved — a very good deal in the risk-avoidance business.
  • The cost soars to about $220,000 per year of life saved at three-year intervals and $310,000 at two-year intervals.
  • Giving Pap smears every year (as opposed to every other year) is really expensive: $1.5 million per year of life saved.

Clearly, Clinton and her advisers thought $1.5 million was way too high.

These decisions are said to have turned the general public against Hillary Care and doomed the Clinton health reform effort. But we shouldn’t take the wrong lesson away from that experience.

Hillary Clinton was not wrong about the cut-off choices she made. She was wrong in thinking that the White House should make this decision for all the women of America. The tests involved are relatively inexpensive. They can easily be paid for from a health savings account. If not getting a test is keeping someone awake at night, then by all means she should be encouraged to spend the money and get the test.

Here are some public policy principles to guide us going forward:

  1. Wherever possible, people should make their own decisions about risk — using money from savings accounts they own and control.
  2. Doctors should be encouraged to help patients make sensible decisions based on their own knowledge of the literature on cost effectiveness. That is, doctors should be financial advisers as well as health advisers when their patients have to make choices about medical procedures.
  3. Insurance companies should be encouraged (and maybe even required) to reveal what standards they use in making decisions about coverage, and we should encourage an insurance market where people can pay higher premiums for more generous coverage – especially if they are unusually risk-averse.
  4. Government health programs should make coverage decisions that are in line with private-sector insurance. And, like private insurance, the government should announce what monetary cut-off standard it is using. But we should encourage a secondary market for “top up” insurance — for example, providing coverage for expensive cancer drugs the government refuses to cover.

In case you missed it, Chris Conover has applied cost-effective analysis to the entire Obamacare program, based on results from Massachusetts. He writes:

“…. even under the most wildly optimistic assumptions possible, Obamacare costs a jaw-dropping $224,000 per QALY. In the worst case, the costs would be as high as $1.3 million per QALY.”

He presents this chart (green = low estimate; red = high estimate):

Photo credit: Christopher Conover, Duke University

Photo credit: Christopher Conover, Duke University

What Is a Year of Life Worth? (Part 1)

Most conservatives and liberals agree that we should not consider cost in deciding whether people should undergo medical procedures that have the potential to save lives and cure diseases. Unfortunately, most conservatives and liberals are wrong.

Declaring the idea of cost-effectiveness a “forbidden topic in the health care debate,” Aaron Carroll shows just how averse we are to the idea of comparing money cost with health outcomes. It’s even written into the Affordable Care Act:

“… We in the U.S. are so averse to the idea of cost-effectiveness that when the Patient Centered Outcomes Research Institute, the body specifically set up to do comparative effectiveness research, was founded, the law explicitly prohibited it from funding any cost-effectiveness research at all. As it says on its website, ‘We don’t consider cost-effectiveness to be an outcome of direct importance to patients.’”

He gives another example:

“Take the U.S. Preventive Services Task Force, which was set up by the federal government to rate the effectiveness of preventive health services on a scale of A to D. When it issues a rating, it almost always explicitly states that it does not consider the costs of providing a service in its assessment.

“And because the Affordable Care Act mandates that all insurance must cover, without any cost-sharing, all services that the task force has rated A or B, that means that we are all paying for these therapies, even if they are incredibly inefficient.”

Here is the brutal reality: We don’t have an unlimited pile of money to spend on anything. And if we don’t pay attention to what we get for the money we spend (which has historically been the case for government regulatory agencies), we will end up spending money in ways that actually reduce life expectancy for the average American. In a 1996 study for the National Center for Policy Analysis, Tammy Tengs found that:

  • By spending $182,000 every year for sickle cell screening and treatment for black newborns, we add 769 years collectively to their lives at a cost of only $236 for each year of life saved.
  • By spending about $253 million a year on heart transplants, we add about 1,600 years to the lives of heart patients at a cost of $158,000 per year of life saved.
  • Equipping 3% of school buses with seat belts costs about $1.6 million a year, but this effort will save less than one life-year, so the cost is about $2.8 million per year of life saved.
  • We spend $2.8 million every year on radionuclide emission control at elemental phosphorus plants (which refine mined phosphorus before it goes to other uses), but this effort will save at most one life every decade, so the cost is $5.4 million per year of life saved.

Tengs, along with Professor John Graham and a team of researchers at the Harvard Center for Risk Analysis, systematically gleaned from the literature annual cost and lifesaving effectiveness information for 185 interventions. Some of these interventions had been fully implemented, some partially implemented and some not implemented all. The researchers then asked: What if we reallocated funds from regulations and procedures that give us a low rate of return to those procedures that give us a high one?

  • The 185 interventions cost about $21.4 billion a year and saved about 592,000 years of life.
  • If that same money had been spent on the most cost-effective interventions, however, more than 1.2 million years of life could have been saved — about 638,000 more years of life than under the status quo.
  • Implementing the more cost-effective policies, therefore, could save twice as many years of life at no additional cost.

This same principle applies to health insurance. Unless you want your premium to go through the roof, you should choose an insurer that follows a reasonable standard for what care is covered. But that brings us back to Carroll’s point. How are you to know what standard your insurer is using if the whole subject is a “forbidden topic”?

A few years ago, Time Magazine reported that $50,000 for a year of life saved is

“… the international standard most private and government-run health insurance plans worldwide use to determine whether to cover a new medical procedure…. Nearly all other industrial nations — including Canada, Britain and the Netherlands — ration healthcare based on cost-effectiveness and the $50,000 threshold.”

But a Stanford University economist calculated that the threshold for kidney dialysis for Medicare enrollees should be $129,000. Mark Pauly and his colleagues suggested a standard of $100,000 in Health Affairs. Economists generally believe that such standards should be based on the implicit values people reveal when they make choices between money and risk in the job market and make choices as consumers. Studies show that the implicit “value of a statistical life year,” to use a term of art, ranges from $50,000 to $150,000. As Pam Villarreal, Biff Jones and I explained in Health Affairs:

“This is not the amount of money that people would accept to give up their lives. It is instead the implicit value that people place on their lives when making choices between additional risk and money, when the risks involved and the amount of compensation needed to induce people to accept those risks are both small.”

For the many problems involved in arriving at a figure, see a review by Ike Brannon. For an extension of the idea to “quality adjusted life years,” or QALYs, see Aaron Carroll’s discussion and links to the literature. The main point there is that a year spent on a respirator shouldn’t count anywhere near as much as a year doing normal activities.

There remains the question of “rationing” and “death panels.” I’ll address that in a future post.

This article first appeared on Forbes.com.