Covid-19 has everyone talking about cost-benefit analysis. The President himself started the conversation with his notorious tweet, “We can’t have the cure be worse than the problem.”
Fixing U.S. Healthcare blog has touted cost-benefit analysis as a key approach to taming the healthcare cost tapeworm.
This week, columnist Tom Friedman and political philosopher Michael Sandel write in the New York Times,
I predict we will soon be hearing cost-benefit analyses showing that the dollar value of a life saved by social distancing is too high to sustain the existing restrictions. This purely utilitarian approach is far from the ideal of solidarity, which requires that we show as much care and concern for those who are weak and vulnerable as for those who are strong and powerful.
They challenge the dollars-and-cents cost-benefit approach, and instead appeal to our sense of common humanity and the common good.
Just as they predict, another New York Times article does report a cost-benefit analysis of the social-economic shut-down. Economists from the U.S. and Germany this week published their model of the U.S. economy with or without an “optimal” business slow-down policy. Without any government policy, consumers would themselves voluntarily curtail spending in 2020 by $800 billion, a 5.5% drop. Covid-19 deaths in the U.S. would rise to 1.7 million. With a government-imposed business restriction policy, the economic slow-down would grow to $1.8 trillion, but deaths would drop by a half million. Thus, the cost per life saved would be $2 million.
Here’s my take:
Is the cost of an economic shut-down too much to pay for the lives being saved? To answer, we can turn to Viscusi and other economists who have used the “willingness to pay” model since the 1970s to set an economic price on a statistical life. Granted that these “dismal scientists” know the “price of everything and the value of nothing,” nevertheless their calculations, such as those reported this week, can inform the current discussion.
Medical scientists use the same approach for cost-benefit research. We typically value one quality-adjusted-life-year at $150,00 and, using a widely accepted 1:15 ratio, value a total lifetime at $2.25 million. Thus, we say that a statin at $100,00 per QALY, a stent at $38,000, or a by-pass at $75,000 are all worth the cost, but evolocumab (Repatha) at $799,000 per QALY is questionable, as discussed in a previous post. We also recognize that patients’ next year of life is worth much more to them than an extra year gained, say, 10 years from now, that is, we discount future benefits.
By these measures, $2 million in temporary economic shut-down costs to save one more person’s life now — of course, spread out across the entire $21 trillion economy — is in line with other “willingness to pay” trade-offs that we make every day.
Conclusion: Shut-Down Is a Bargain
Fixing U.S. Healthcare welcomes the introduction to Americans of the concept of cost-benefit analysis. Just as it helps ground our response to the coronavirus, cost-benefit analysis can also guide healthcare reform. As this blog has identified at post, post, and post, some of the care Americans get simply isn’t worth the cost.
However, public health spending – including even our current extensive social-economic shut-downs – is a good example of a true bargain.
Now, take action.
Title: Nearly empty duty-free shop at Beijing Airport amid COVID-19 pandemic
By: Mx. Granger / CC0