When Does the Cure Become Worse Than the Disease? Applying Cost-Benefit Analysis to the Covid-19 Recovery

By Derek Soled, Michelle Bayefsky and Rahul Nayak.
Early in the Covid-19 outbreak in the United States, President Trump suggested that the cure – closing the American economy and sheltering at home – may be worse than the disease. Although he was criticized for focusing on the economy when so many lives were at stake, the question of how to weigh the economic ramifications of “shelter-in-place” has become the primary consideration in policy discussions around reopening the economy. This is not the first time that societies have considered the monetary cost of human life and health, but explicit cost-benefit analysis (CBA) in the context of healthcare has previously been shunned by many American policymakers. It is striking, therefore, that lawmakers have openly made the utilitarian argument that reopening the economy could be worth the potential loss of human life. Some economists have also written explicitly that CBA can and should be applied to the question of when to reopen the economy. In this post, we consider the merits and limitations of using cost-benefit analysis (along with similar approaches such as risk-benefit analysis and cost-effectiveness analysis) to approach the Covid-19 recovery.
In the US, CBA is routinely used to evaluate health-promoting environmental and labor regulations. However, overtly using cost-effectiveness thresholds in healthcare spending decisions is considered taboo, in large part because narrowing patients’ healthcare choices is seen as a violation of their autonomy. As a result, the US spends substantially more on healthcare compared to the rest of the world, with minimal difference in outcomes. Despite the apparent rejection of CBA in healthcare, rationing decisions are made informally every day in the US. Hospitals and insurance companies have internal committees that decide what medications and treatments should be on formulary or covered. Furthermore, many patients must make difficult rationing decisions when they cannot afford the out-of-pocket costs for medications and procedures.
In the United Kingdom, by contrast, the National Institute for Health and Care Excellence is tasked with determining whether healthcare interventions are worthwhile in terms of the benefit to human life. The agency uses the threshold of £20,000 to £30,000 per quality-adjusted life year (QALY) and if a treatment is not considered cost-effective, it is typically not covered by the National Health Service. The basic rationale behind this approach is utilitarian: the goal is to distribute limited health resources in a way that maximizes the health and well-being of society.
Overall, the utilitarian approach, as manifested in cost-benefit analysis, can sometimes serve as a useful guide for policy-making. However, a closer examination of CBA’s ethical underpinnings and application in a pandemic is warranted. In order to determine how much a health benefit is worth, economists often rely on people’s “willingness to pay” for amenities that increase safety or health (e.g. seat belts or wage premiums for risky occupations). From these marginal decisions, it has been estimated that Americans would be willing to spend $50,000-$150,000 per QALY or $1-$10 million for the “value of a statistical life”. These estimates can be helpful when comparing two or more options that have clear spending or health outcomes, such as which medication or procedure to use to treat a particular condition. The calculations might also generally inform how much economic damage can justifiably be sustained in order to protect the population from Covid-19.
Although it is tempting to apply some form of cost-benefit analysis to the Covid-19 recovery, there are notable limitations to this approach. First, oftentimes the costs and benefits are not knowable; at this junction, even the most sophisticated Covid-19 models carry substantial uncertainty. Second, models that place a price on human health gains are based on relatively small, incremental risk-benefit trade-offs. However, different approaches to whether and how to reopen the economy carry incrementally large costs, both financially and with regard to human life. Third, by the nature of CBA, discussions tend to focus primarily on pecuniary benefits and harms. While dollars and cents are more easily quantifiable and comparable, non-economic losses, such as the sadness of a family that has lost a loved one, are more difficult to quantify but no less important under a truly utilitarian framework.
But the most important limitation to using CBA in the Covid-19 context is distributional. Cost thresholds are set by the willingness to pay of the average person, and the framework is agnostic to whether the risks and benefits are accrued by the same or different people. During the Covid-19 outbreak, the benefits and risks have been distributed highly asymmetrically. African Americans are disproportionately dying from Covid-19, most likely due to a combination of factors, including more individuals who must continue to work in-person jobs throughout the pandemic, decreased access to healthcare, and increased rates of underlying comorbidities. At the same time, families dependent on low-wage jobs in the service sector, including a disproportionate number of Hispanics and women, have been dramatically impacted by widespread layoffs. By assuming that the US population can be reduced to an average person, CBA fails to capture the central question of cost and benefits to whom.
Although CBA cannot be easily translated into clear recommendations for when to reopen the US economy, there will still be a vital role for utilitarian calculations – tempered by justice considerations – regarding other Covid-19 policy choices. For example, CBA models can more precisely estimate the costs and benefits of wide-spread testing, and marginal tradeoffs can be quantified, considered, and debated. Whether or not we embrace CBA and use terms like “Quality Adjusted Life Year,” we will implicitly be making money-versus-health calculations.
Trade-offs between human life and money have always existed in medicine. Just as the country has been forced to talk openly about the rationing of ventilators, we hope that policymakers will feel emboldened to include CBA in discussions of health policy once the pandemic subsides. If we can have honest conversations about whether drugs and treatments are worth their price tags, we can work towards a more efficient – and also a more equitable – healthcare system.

Authors and Affiliations:

 

Derek Soled, MSc, Harvard Medical School and Harvard Business School
Michelle Bayefsky, BA, Harvard Medical School

Rahul Nayak, MD, Harvard Medical School and Massachusetts General Hospital, Department of Medicine

Competing Interests: The authors have no competing interests.

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