University of South Carolina Arnold School of Public Health Dept. of Health Services Policy and Management HSPM J712 Sept. 15, 2003
Copyright © 1999-2003 Samuel L. Baker
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Cost-benefit analysis Sound applet

I'll discuss:

Measuring costSound applet

Measuring benefitSound applet

UtilitySound applet

Measuring utilitySound applet

Measuring healthSound applet

Cost-benefit and cost-effectiveness analysis -- What is the difference?Sound applet

Cost-benefit analysis (CBA): Sound applet

Cost-effectiveness analysis (CEA):Sound applet

CBA: Business-like public decision-makingSound applet

CEA: Comparing alternativesSound applet

(Discussed in next lecture:) Neuhauser-Lewicki and Eddy do cost-effectiveness analysis.

They compare different applications of medical services in terms of

Cost-effectiveness analysis: Sound applet

CEA = Choosing the best way

Both CBA and CEA show that economic decisions are unavoidableSound applet

Axnick’s measles immunization study implicitly acknowledges the necessity of economic decisions in health care. Sound applet

Political contextSound applet

At the time of the measles article, Congress was considering folding Federal health care subsidies, including the measles immunization program, into a big block grant for states.

Cost-benefit example:Sound applet

Measles immunization benefits Sound applet

The value of a life saved Sound applet

Health as a capital stock Sound applet

Axnick’s method:

Harm from measlesSound applet

Frequency of harm due to measles Sound applet

In 1960, before the measles vaccine went into use:

Measles vaccine history Sound applet

Risks of measles vaccine Sound applet

Comparison of health care costs with measles immunizations Sound applet

The averted costs of long-term care shift the balance in favor of immunization.Sound applet

Why calculate the "present value" of long-term care costs?Sound applet

Long-term ("institutional") care spending spreads out over many future years, so Axnick et al used a
present value calculation.

They calculated, in effect, how big a bank account you'd have needed at that time to be able to pay all the future long-term care costs of the encephalitis victims.

The $170 million net health care savings means that ...

There is no health vs. cost tradeoff for society hereSound applet

because the measles vaccination program saves money and improves outcomes.

But Axnick wanted to make the case for immunization stronger.

"Economic benefits"Sound applet

Valuing life at the present value of future earningsSound applet

Valuing life at the present value of future earnings Sound applet

Equity problems Sound applet

Equity problems Sound applet

Equity problems Sound applet

"Economic benefits" Sound applet

Cost-benefit analysis therefore is: Sound applet

Category Benefit + or cost -
Immunization costs -  $108 million
Immediate measles care averted +   $77 million
Long-term care of encephalitis cases averted (present value) + $201 million
Economic loss averted (present value) + $253 million
Total of above -- the net benefit + $423 million

Benefit-Cost Ratio Sound applet

This text was changed after the voice recording was made.

The cost-benefit ratio is the benefit divided by the cost. This is used to make statements like, "This program gains $X for every dollar spent," where X is the benefit-cost ratio.

Even if you put aside all concerns about how you got the benefit-cost ratio, it still may not be correct to say "for every dollar spent" we get X benefit. Immunixation programs are much more effective when they are universal than when they are small. A vaccine that is less than 100% effective can nevertheless completely control a disease if nearly everybody gets vaccinated. When a high percentage of a population is immune, the minority who are not immune are safe, because it is unlikely that they will contact an infected person.

In this example, here is the benefit-cost ratio:

$531 million benefit

divided by

$108 million cost of immunizations

= 4.92 benefit-cost ratio

You could say that on average a dollar spent on measles immunizations returns $4.92 in benefits. Bear in mind, though, the warning above.

Political success: Sound applet

Main ideas: Sound applet
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