THCB

How Much Is a Life Worth?

This blog continues my ongoing series of “mysteries of health economics.”

The mystery this week is “what is a life worth?” We cannot ignore this question because it seems unthinkable. As will discuss, coverage decisions by public and private insurers depend on the answer. Some payers are rather explicit about they think a life is worth.

Before I try to solve this mystery, let me acknowledge that we should not spend money on health services that are of zero value (or worse.) But what about expensive health services that might prove to be of some value? How much should we spend on these?

Let us accept the reality of insurance. When we “purchase” health care, someone else foots the bill. Perhaps insurance should contain big deductibles, but even big deductibles are quickly exhausted if we need surgery or have a chronic health problem. If we are pooling our resources to pay for medical care, then we will probably want to reach some sort of collective decision about what drugs and treatments we will pay for. The alternatives would be to invite massive moral hazard. (Let me repeat for those who bang the drum loudly for big deductibles – deductibles are quickly exhausted when serious illness strikes and moral hazard again rears its ugly head.)

Now imagine a new cancer drug that offers a small prospect of survival to patients who have no other choices. Suppose that on average, patients who receive this drug can expect to live about another three months and that there are no downsides to this drug. If the drug company offered to give the drug away for free we would surely want patients to have access to it. If the drug company asked $100 million a dose, we would probably agree to spend the money elsewhere.

There must be some price under $100 million that would cause us to stop and think this over. Should we pay for the drug if it costs $500 per patient? What if it cost $100,000?

At some point we must answer the unthinkable question. In this case, we must determine how much should we be willing to spend to offer individuals three more months of life? Regulators in many countries have already given their answer. For example, the UK recently refused to pay for the skin cancer drug ipilimubab because the cost per “quality adjusted life year” was between £54,000 and £70,000. The UK uses a threshold of about $100,000 per year of life, a threshold that is accepted in most developed countries. But is that really what a year of life is worth? By all accounts, this threshold is based on past spending norms, adjusted for inflation. What was once seat of the pants policy, driven purely by budgetary needs, has become the gold standard for measuring the value of a life.

This all seems rather ad hoc. Rather than accept a valuation that was seemingly pulled out of thin air, academics have sought to value life by looking at how people actually behave. Some researchers have asked people what their lives are worth. Carefully constructed surveys generate values for a year of life well in excess of $100,000.

Such surveys are notoriously unreliable. If we could observe people spending their own money on health services, then we would truly know what they think their lives are worth. But insurance means that we only see people spending someone else’s money. Here is where economists have gotten rather clever. Workers are often confronted with tradeoffs between relatively safe jobs and relatively riskier jobs that pay more money. (Controlling for skills and experience, the data definitely show that riskier jobs pay more.) Assuming that employers do not pay higher wages out of the goodness of their hearts, they must be paying higher wages in order to convince workers to take on more risk. Led by Harvard’s Kip Viscusi, economists have looked at the data and determined that workers can expect to get paid an extra $5000-$10,000 to take on a job that has a heightened mortality risk of 0.1 percent. This adds up to $5-10 million for every additional death, or well over $250,000 for every year of life lost. If workers insist on getting paid $250,000 extra to compensate for the prospect of losing a year of life, then they must hold their lives very dear.

So is a year of life worth $250,000 to the average worker? Many people criticize Viscusi’s work, in part because it makes strong assumptions about what workers know about job risk and about worker mobility. Some economists observe that these calculations do not take into consideration the importance of hope. But if we try to correct for any resulting biases, the value of a life would probably be even bigger! One bias might work in the opposite direction – we might insist on receiving a lot of money to take on additional risk, but be unwilling to give up the same amount of money to reduce risk.

My mother always told me that “if you don’t have your health, you don’t have anything.” She held life very dear. So do I and so do most people – more so than the UK and other regulators want to believe.

Everyone is concerned about rising medical costs, and for good reason. At some point we may spend so much on medical care that we will no longer be willing to give up so much money to live longer or better, preferring to spend the money on food and shelter. And in today’s tough economic environment, perhaps quite a few of us have reached that point. But in our zeal to cut spending, let’s not throw out the baby with the bath water. Effective medical care remains one of the greatest bargains, even when that means spending tens of thousands of dollars to save just one year of life.

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MattPaul CooperBill GustafsonUntangled Healthcare Recent comment authors
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Anonymous
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Good day! I simply want to give an enormous thumbs up for the good data you have right here on this post.
I might be coming back to your weblog for extra soon.

Matt
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Matt

Indeed.

Barry Carol
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Barry Carol

Jeff – That was a very interesting and informative comment. I also hope you heal quickly and suffered no permanent effects. I think your emergency room experience with respect to both your own care and care administered to others reflects providers’ perception of our litigation environment and patient expectations plus a desire to generate revenue from well insured patients. As for cardiology related services, it seems that everyone wants to expand there because it pays well, even by Medicare. I’ve long favored high deductible health plans as a good way to mitigate utilization of healthcare services. I know liberals claim… Read more »

Nate Ogden
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Nate Ogden

“One area where I certainly agree with you is on the disparity in prices per procedure and per brand name drug between the U.S. and Europe and Canada.” Allow health plans to reimburse foreign sourced prescriptions and the price of brand name Rx will plummet. If an American can travel the world and buy Rx any place he wants along the way its redicilous to say he can’t be trusted to order from home. The key factor here is not that American’s will actually buy their drugs from overseas, its the fact it will create awareness. Once people see the… Read more »

Barry Carol
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Barry Carol

Untangled Healthcare – Agree or not, at least Nate, I and several others use our real names when commenting. Our attitude is if it’s worth saying, it’s worth owning up to. You seem like a pretty smart and knowledgeable guy but we have no idea who you are or what you do. Are you a doctor, an academic, an insurance executive, health economists? A little more color there might better help us understand your perspective. One area where I certainly agree with you is on the disparity in prices per procedure and per brand name drug between the U.S. and… Read more »

Untangled Healthcare
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Barry and Nate, I certainly did not mean to be anonymous and thought I had posted my personal info earlier. I also agree with all of your observations Barry. I have a consulting practice since 2007 that specifically focuses on local organizational needs when it comes to understanding and developing health care systems that will address the needs of the community, I address community health profiles, professional supply, and health belief culture and health information technology. I believe that health is a local phenomenon and that all citizens should take a role in defining their values, needs and ‘nice to… Read more »

Nate Ogden
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Nate Ogden

” I believe that society must reach agreement on how to help those who can’t help themselves.” Haven’t we tried this and it failed miserably? I don’t see how this can ever work but on paper when we allow those that can’t help themselves to self identify and those seeking assistance are given power of taxation and regualtion over those with the ability to assist. Is it still help/assistance when its confiscated against the will of those that have it? “in a free market with no cost control” The most efficient we ever were and the most effective cost control… Read more »

Jeffrey Harris
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Nate, I wanted to get back to you all week. Unfortunately I had an embarrassing incident wherein I tripped while walking my dog. With both hands occupied I did the traditional face-plant onto the concrete. As my nose touched down a foul crack echoed through the neighborhood. All I could think was ****$$$%%% that hurt! Second thought, get out of here fast before someone sees your foolishness. I trotted down the hill with Bodi ; blood dripping everywhere; bag of dog poop in one hand and dog leash in other. This all culminated in 12 hours of ER evaluation with… Read more »

Nate Ogden
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Nate Ogden

is the dog remaining silent or talking about who put him up to it? Its a dog don’t beleive him if its naming names. I’ll agree that means testing is needed, I would just hope for a drastic change in how and who does it. I would like to see an inversion of the responsibility pyramid. It seems responsibility starts at the federal government level then trickles down to the individual with the individual responsible for very little today. If we flipped that and responsibility started with the individual then finally the federal government I feel it would solve many… Read more »

Untangled Healthcare
Guest

Thanks Bill, I agree with you. Actually their are some good examples of redesign. I point you to Ezekiel J. Emanuel (Author) Healthcare, Guaranteed: A Simple, Secure Solution for America available on Amazon or Kindle.

Certainly we are speaking of a social paradigm shift.
To start with physicians will be paid FFS and have a health outcome component as a kicker. See the NCQA Bridges to Excellence Program and CMS pay for performance models.
Unfortunately we still need to work on human motivation due to the tremendous issues with patient compliance.

It is heartening to hear your comment though.

Bill Gustafson
Guest

All life is precious to the person but has a limited value to others. My biggest disappointment in all this is that no one is working on redesigning the model. We need to spin our thinking around to a place where health is the norm. As long as you keep paying while we are sick the incentive is to hold you between wellness and death. The perfect medicine could not be used in our society because it would end a large part of our healthcare industry and that tells me we have a deeper problem. The only solution I have… Read more »

Barry Carol
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Barry Carol

Every time I hear someone try to make a connection between life expectancy and the quality and efficiency of our healthcare system, I cringe. Leonard Schaefer, a healthcare expert and former CEO of Wellpoint, in his 2007 Shattuck Lecture, told us that our population’s health status is determined 40% by personal behavior, 30% by genetics, 20% by socioeconomic status and environmental factors and only 10% by the quality of healthcare than one has access to. Just because life expectancy is relatively easy to measure doesn’t mean it has much to do with how good or cost-effective our (or any other)… Read more »

Untangled Healthcare
Guest

1. I can’t believe someone would point to race and minority as an issue regarding our healthcare cost burden. Please research your literature on disparities in access to preventive medicine you will find that the determinant is income. Not race. And if you head down that path I will show you some pictures of diabetic feet in a foot clinic where access was unavailable due to a lack of sufficient funding for the given county. 2. I have personally met and presented to executives at Wellpoint and admire their commitment to prevention. Yes, chronic disease is to a large extent… Read more »

Nate Ogden
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Nate Ogden

“I can’t believe someone would point to race and minority as an issue regarding our healthcare cost burden.” I can’t believe someone would pretend to have an intellectual conversation then jump up screaming as soon as the FACT that genetics matter in life expectancy. You can take a wealthy African American male and live his entire life in Japan he still won’t have Japanese genetics or life expectancy. This isn’t middle school science class, if you can’t accept the basic scientific fact that we are not all created equal genetically there is no sense trying to discuss this with you.… Read more »

Untangled Healthcare
Guest

Here is the new reply: “I can’t believe someone would point to race and minority as an issue regarding our healthcare cost burden.” I can’t believe someone would pretend to have an intellectual conversation then jump up screaming as soon as the FACT that genetics matter in life expectancy. [comment: jeffrey harris] I was not referring to genetics, I was referring to the fact that disparities research proves access to care and its attendant proportionality to quality adjusted life years relates to income regardless of race and ethnicity. You can take a wealthy African American male and live his entire… Read more »

Nate Ogden
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Nate Ogden

You can take a wealthy African American male and live his entire life in Japan he still won’t have Japanese genetics or life expectancy. [comment: jeffrey harris] Actually his blood pressure will be quire lower and he won’t suffer the consequences of end organ damage from that disease. BETHESDA, Md., Oct 28 2011– African-Americans with two copies of the APOL1 gene have about a 4 percent lifetime risk of developing a form of kidney disease, according to scientists at the National Institutes of Health. The finding brings scientists closer to understanding why African-Americans are four times more likely to develop… Read more »

Nate Ogden
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Nate Ogden

http://repository.upenn.edu/cgi/viewcontent.cgi?article=1012&context=psc_working_papers Analysts often juxtapose the poor ranking of the United States in life expectancy and the very high percentage of its gross national product that is spent on health care. In 2007, the United States spent 16% of its GDP on health care, by far the highest fraction of any country (Congressional Budget Office 2007). The conclusion that is often drawn from this combination is that the United States’ health care system is extremely inefficient (e.g., Anderson and Frogner 2008). One recent study estimated that, if deaths attributable to smoking were eliminated, the ranking of US men in life expectancy… Read more »

Nate Ogden
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Nate Ogden

http://infoproc.blogspot.com/2009/04/us-human-development-indices.html

Asian females in the US have a life expectancy that is 3 y higher than that of females in Japan [34].

The gap between the life expectancy of the 3.4 million black males in high-risk urban areas in America 8 and the life expectancy for the 5.5 million Asian females in America 1 in 2001 was 20.7 y.

Nate Ogden
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Nate Ogden

http://health.dailynewscentral.com/content/view/0002418/42/ The primary cause of the disparities between racial and geographic groups is early death from chronic disease and injuries, an analysis of data from the Census Bureau and the National Center for Health Statistics showed. Asian-American women living in Bergen County, NJ, enjoy the greatest life expectancy in the US, at 91 years. American Indians in South Dakota have the worst, at 58 years. The differences were attributed to a combination of injuries and such preventable risk factors as smoking, alcohol, obesity, high blood pressure, elevated cholesterol, diet and physical inactivity — particularly among people from 15 years to… Read more »

Untangled Healthcare
Guest

Nate, I have read your entries on this topic and find that in most cases I agree with you. I used the wrong descriptor when I said “address universal coverage”. If you check out my blog or slide share you will find a cause and effect diagram that points historical benchmarks when we did consider coverage e.g. WWII, Medicare/Medicaid in the 60s, The Nixon era, The Clinton era etc. I do stay informed on international healthcare trends through sources such as Health Affairs, The RWJ Foundation, The NIH and the WHO. Most importantly I do not pick and choose from… Read more »

Nate Ogden
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Nate Ogden

What does life expectancy have to do with healthcare? If you want longer life expectancy drive fewer miles in cars, change your diet, and get rid of the minorities. From your listed sources I’ll assume you have never seen an analysis of life expectancy broken down by race? An asain in america lives just as long as they do in asia. A white european lives as long as a european. The reason the US has a lower life expectancy then the other nations is because of our considerably larger minority make up. When you correctly adjust the numbers the difference… Read more »

MD as HELL
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MD as HELL

My life is worth what I have it insured for. The lives of my wife and children are worth all I have. My mother and sisters and their families are self-sufficient.

Anyone else’s life is worth regarding but not funding.

There is no shortage of human life on this planet. It gets thrown away every day.

Why would we want to pour money down a rathole that returns nothing?

Untangled Healthcare
Guest

Sounds a bit angry to me. Surely you have others in your life who add value. I here your frustration. I have had diabetes for 45 years and had it not been for public assistance would not be here. My value is to my patients, their families, the numerous health systems I have contributed to and the old man at the supermarket that needed an extra $3.00 to complete his grocery transaction. The question is: Who are you, and what do you want. If you define your world by who and what makes you more successful, or less miserable I… Read more »

MD as HELL
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MD as HELL

Wrong end of the telescope and the wrong denominator do not make it right to plunder from people that which is theirs for the benefit of unseen others favored by the politbureau.

Untangled Healthcare
Guest

Agreed, This is a personal decision that communities must address. My point: WHO stats American healthcare cost per capita $7500 English healthcare cost per capita $4000 MRIs per 1M pop in USA = 26 MRIs per 1M pop in England = 7 I believe Friends on both sides of pond are adding valuable science in fields of medicine and chemistry so all of the technology was not created here. What I believe we need is an open dialog on procedural cost, quality adjusted life years gained and how much society should contribute before we grow anymore livers in RTP. Or… Read more »

Nate Ogden
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Nate Ogden

“If we look at the world we are the only society that did not address universal coverage in 1900.” We are one of the few countries that didn’t try Communism/Socialism. Fascism either, are you suggesting we give those a try? To correct your factual error yes we have addressed universal healthcare numerous times since 1900 and every time so far we as a nation decided we didn’t want such a system. It’s one thing for someone to champion and push a bad idea like universal healthcare, but to champion an idea that is failing all over the world….I’ll let you… Read more »

Margalit Gur-Arie
Guest

Nate, you are off on a tangent again. Ms. Sanger was also opposed to abortions and in spite her activism held what would be classified today as racist views. Planed Parenthood today should not be held responsible for its founder’s views anymore than the U.S. as a whole should be accused of blatant racism based on the fact that it was founded by white, racist slave owners. As to a man’s right to his own body, by all means, men should have complete discretion whether to abort, or keep, a fetus growing in their own bodies. Contributing one cell to… Read more »

nate ogden
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nate ogden

its always easy to justify taking away someone else’s rights isn’t it?

How does 9 months of giving birth even begin to compare to 18 years of labor? You can hire a women to give birth for you for a fraction of what 18 years of child support cost.

What were you saying MG about conservatives not respecting individuals rights? Seems the left is equally as happy to deny individual rights.

Margalit Gur-Arie
Guest

Oh, I’m sorry, I thought you were advocating for “life”, but it seems that you want men to have the power to force women to have abortions so they don’t have to pay child support.

There is a much easier solution for men who don’t want to support children, don’t you think? Or is that an infringement on your right to pursue happiness?

Nate Ogden
Guest
Nate Ogden

What a shock, a liberal being nypocritical and not holding women to the same standard. If a women doesn’t want to get pregnant why don’t we demand she live a chaist life if thats how you feel.4

Spin all you want margalit you can’t square a double standard. Your sexist, embrace it.

Margalit Gur-Arie
Guest

“If a women doesn’t want to get pregnant why don’t we demand she live a chaist life if thats how you feel”

You don’t get to demand anything. A woman has complete jurisdiction over her body, and a man has complete jurisdiction over his body. This does not extend to the body of the man or woman either one has relations with.
It doesn’t matter how much you twist things around. Men have no right to use women bodies without explicit consent in any way shape or form. And vice versa.

Nate Ogden
Guest
Nate Ogden

except a women does, at her sole discreation a women can confiscate a portion of a mans labor for 18 years, a man has no equal right to subject a women to such a demand. There is no clearer example of sexual discrimination.

A women can chose to give birth to a child the man does not want and then collect from the man for 18 years. Why can the man not collect from the women for 18 years is she aborts a child he does want?

Margalit Gur-Arie
Guest

This “sexual discrimination” was initiated by the almighty in his infinite wisdom. All through history and through today, women everywhere have payed a high price for being the gender tasked with creating, carrying, delivering and raising babies, instead of being the gender that is taller, more muscular and better suited for hard labor (read Genesis). Women have been (and still are) abused,beaten, raped and exploited on a daily basis by men. For many years women have been treated like property, like second class citizens and those were the lucky ones. There is no full equality even today, even in the… Read more »

Nate Ogden
Guest
Nate Ogden

so the constitution and equal protection only apply when you feel like using it as a tool to discriminate. Your perfectly ok with a guy today being held accountable for actions someone else engaged in hundreds of years ago. We all know how bias the left is its just nice to see you admit to it for a change.

nate ogden
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nate ogden

You are also choosing to completely overlook is that the key proponent in promoting eugenics/forced sterilization was Harry Laughlin.

Key by what measure? I could pick any number of progressives and say they were key.

MG
Guest
MG

“My recolection on schaivo was it had everything to do with denying food and water and nothing to do with living wills. It was a very distinct argument about someone being able to naturally eat and drink but killing them by not providing it. Which was different then keepng someone alive with IV fluids and nourishment. Do you think people should be allowed to commit sucide that have no underlying health condition? Someone that can stay alive without the assistance of medicine wouldn’t they be commiting sucide if they just decided to stop eating and drinking water? Argument isn’t so… Read more »

nate ogden
Guest
nate ogden

“yet time and time again ‘conservatives’ at their time in America tried to prevent this with the most horrific examples being the various practices of eugenics that predominated late 19th century/early 20th century American” “There are a few conservatives who are true libertarians and really believe in personal freedom & liberties. My experience in life though is that these people make up a limited minority in the modern conservative movement in America today.” My experience with Liberals is they are projectionist liars who blame all their personal faults on conservatives. Your Eugenics claim struck me as, how shall we say,… Read more »

MG
Guest
MG

Yes there was a definite element on the left at the time in the early 20th U.S. century who believed that using eugenics to sterilize people to reduce certain ‘undesirable elements’ out of the population was beneficial for the population as a whole and not harmful to those it was imposed on. Linking it to ‘feminism’ and elements it shared around controlling reproduction is really a stretch though. The reason forced sterilization was opposed by the Catholic Church at the time was not for the harm or taking away of personal liberties from individuals but that it stopped procreation. You… Read more »

nate ogden
Guest
nate ogden

“An individual’s choice with their body should be their own”

So you also support a fathers right to decide if his child is aborted, you wouldn’t want to subject a man to 18 years of labor to pay for a child he didn’t want correct? Or do only women get control of their body in your argument?

MG
Guest
MG

That is a slightly different argument and a complicated one without a clear and straight forward answer because it involves more than one person.

nate ogden
Guest
nate ogden

very complicated and one that mostly likley doesn’t have a solution either side would be happy with, but as of right now the male has no say over the labor derived from his body inspite of the left harping for 40 years about freedom of choice and doing with ones body as they please. In spite of the hypocracy of the left in this matter they are never confronted with it when they accuse conservatives of deny women control of their bodies. While there surly many conservatives with their hands in eugenics again the left was just of not more… Read more »