Health Risk and the Value of Life
Daniel Bauer1, Darius Lakdawalla2, Julian Reif3
1University of Wisconsin-Madison.
Journal of Public Economics
|May 2, 2025
Summary
Sick adults value life-saving treatments twice as much as healthy individuals. The value of preventing serious illness equals that of mild illness, impacting healthcare spending and prevention investment decisions.
Area of Science:
- Health Economics
- Biostatistics
- Public Health Policy
Background:
- Conventional life-cycle frameworks for valuing health improvements often lack stochasticity and multiple health states.
- Understanding individual willingness to pay for health gains is crucial for resource allocation in healthcare.
Purpose of the Study:
- To extend the life-cycle framework to a stochastic setting with multiple health states.
- To estimate the value of health and longevity improvements for adults with varying comorbidities.
- To analyze the implications for healthcare rationing and prevention investment.
Main Methods:
- Developed a stochastic life-cycle framework incorporating multiple health states.
- Utilized data on mortality, quality of life, labor earnings, and medical spending.
- Applied the framework to adult populations with different comorbidity profiles.
Main Results:
- Sick adults exhibit nearly double the willingness to pay per quality-adjusted life-year (QALY) for mortality risk reduction compared to healthy adults.
- The value placed on reducing the risk of serious illness is comparable to that of mild illness.
- Findings explain opposition to uniform healthcare rationing thresholds and lower investment in prevention versus treatment.
Conclusions:
- Individual health status significantly influences the valuation of health and longevity improvements.
- A nuanced approach to healthcare valuation is necessary, considering comorbidity and risk perception.
- Results inform policy on healthcare resource allocation, treatment prioritization, and preventative care investment.
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