The Monetary Value of Life

CBA, in contrast to CEA, demands the assignment of monetary value to the benefits of a program or procedure. The health benefit whose monetarization has received the most explicit attention in the literature of CBA is life itself. Economic evaluation of life itself, as superficial and distorting as it may sound, is in one sense now an ordinary phenomenon. Now that a great number of effective but often costly means of preserving life are available, we inevitably and repeatedly pass up potential lifesaving measures for other good things, and money mediates those trade-offs. In CBA, however, one goes further and assigns a particular monetary value, or range of monetary values, to life. Is that value $200,000 or $2,000,000? Other questions abound. Is the monetary value of a relatively short remaining segment of life (a year, say) simply an arithmetic proportion of the whole life's value? If we assume that the length of different people's lives that remains to be saved or preserved is equal, is the economic value of their lives the same, or does it vary— for example, with income level, wealth, or future earning power? And if it does vary, should we still use those varying values or instead some common average in doing CBA of healthcare?

Independent of the debates on those questions, economists have developed two main models for translating empirical data into an economic value of life: discounted future earnings (DFE), also known as human capital, and willingness to pay (WTP). DFE looks at the future earnings forgone when a person dies. In the economy, those earnings are what is lost when a person dies, so that from the perspective of the whole economy (if we can speak of any such thing), it would be self-defeating not to save a life for $200,000 if the value of the person's earnings (after discounting the future figures back to present value) was more than that. While such DFE calculations continue to be used in some CBAs in healthcare, DFE has been largely surpassed in economists' work by WTP. In WTP the value of life is taken to be a direct function of people's willingness to use resources to increase their chances of survival. Suppose one annually demands an extra $500, and only $500 extra, to work in an occupation that runs an additional 1 in 1,000 risk of dying. Then according to WTP, $500,000 (1,000 x $500) is the monetary value one puts on one's life. Within the context of CBA, this would mean it would be inefficient to devote more than $500,000 per statistical life saved to healthcare that eliminates prospective risks of death.

In economic theory, WTP is generally regarded as the superior model; it captures the range of life's subjective, intangible values that DFE seems to ignore. Generally people spend money for reasons of subjective preference satisfaction quite independent of monetary return. That is, economic value incorporates consumption values, not just investment. Despite that firm basis in underlying economic theory, WTP has raised a host of objections. For one thing, questions arise similar to those that afflict DFE. Just as there are in DFEs, there are wide variations in willingness to pay— largely based on people's wealth and income. May those variations in value legitimately affect what is spent on lifesaving measures? If their effect is legitimate, is that only for services privately purchased, or also for those funded publicly? Defenders of WTP have articulated many responses to handle these and other critical questions, but the model may still seem suspicious. Any statement to the effect that "it was efficient not to save his life (now lost)—it was worth only $500,000" is not easily accepted. Consequently, despite its professional popularity, WTP has hardly gained widespread moral acceptance for actual use in health-policy.

The basic problem is simply that in the end the world is such a different place for a loser than it is for a winner. Suppose one refuses to pay more than $500 (when one could) for a CAT scan or magnetic resonance image (MRI) that one knows is likely to eliminate a 1-in-1,000 portion of the risk of dying from one's malady, and that then one later dies because of that decision. Of course one has in some sense consented to what happened, but one never thought anything remotely like "$500,000—no more—is the value of my life," the life that after the fact is irretrievably lost. The move that economists make in WTP to get from an initial trade-off between money and risk to the value of a real, irreplaceable life is puzzling. One critic has claimed that in principle only valuations of life made directly in the face of death are correct reflections of the actual economic value of life (Broome). And as another contributor to this discussion has noted, we do not know of anyone "who would honestly agree to accept any sum of money to enter a gamble in which, if at the first toss of a coin it came down heads, he would be summarily executed" (Mishan, p. 159—160). Some conclude from this that CBA can set no rational limit on what to spend to save a life because no particular finite amount of money is adequate to represent the real value of life.

Even if this point about the actual value of a life is correct, however, it may not render WTP estimates of the value of life irrelevant for use in health policy. In the context of setting policy about whether to include a certain service in our package of insurance, we cannot just assume that the later perspective of an individual immediately in the face of death is the correct one from which to make decisions. Such a perspective may be proper for the legal system to adopt in awarding compensation for wrongful death, for there we are trying to compensate people for losses actually incurred. But perhaps healthcare decisions ought to be made from an earlier perspective. In modern medical economies, after all, most people either subscribe to private insurance plans or are covered by public ones. Once insured, whether in private or public arrangements, subscribers and patients as well as providers find themselves with strong incentive to overuse care and underestimate opportunity costs. Why should we not address the problem of controlling the use of care in the face of these value-distorting incentives at the point in the decision process, insuring, where the major cost-expansion pressure starts? In the context of CBA for health policy, while it may not be necessary to claim that willingness to risk life shows us the value of life, willingness to risk may still be appropriate to use in any case. Perhaps what is important in decisions to invest resources in healthcare is only that what gets referred to as the monetary value of the benefits should be derived from people's decisions to bind themselves in advance to certain restrictions on the provision of care. The problem with WTP may then be narrower: Many of the values of life generated by WTP are not sufficiently close to the actual decisions of people to take risk by limiting their own investment in lifesaving. That would render any resulting CBAs that used them crude and ungrounded, but would not necessarily seal the fate generally of WTP-using CBA.

It is possible that as a formal method of analysis, CBA will never have great influence. Even if that is true, however, the larger enterprise of less formal CBA will remain an active and crucial dimension of the broader attempt to find the proper place of healthcare in our lives overall.

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