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Health Risk and the Value of Life.

Daniel Bauer1, Darius Lakdawalla2, Julian Reif3

  • 1University of Wisconsin-Madison.

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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.

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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.