Abstract
BackgroundThe question of appropriate discount rates in health economic evaluations has been a point of continuous scientific debate. Today, it is widely accepted that, under certain conditions regarding the social objective of the healthcare decision maker and the fixity of the budget for healthcare, a lower discount rate for health gains than for costs is justified if the consumption value of health is increasing over time. To date, however, there is neither empirical evidence nor a strong theoretical a priori supporting this assumption. Given this lack of evidence, we offer an additional approach to check the appropriateness of differential discounting.MethodsOur approach is based on a two-goods extension of Ramsey’s optimal growth model which allows accounting for changing relative values of goods explicitly. Assuming a constant elasticity of substitution (CES) utility function, the growth rate of the consumption value of health depends on three variables: the growth rate of consumption, the growth rate of health, and the income elasticity of the willingness to pay for health. Based on a review of the empirical literature on the monetary value of health, we apply the approach to obtain an empirical value of the growth rate of the consumption value of health in Germany.ResultsThe empirical literature suggests that the income elasticity of the willingness to pay for health is probably not larger but rather smaller than 1 and probably not smaller but rather larger than 0.2. Combining this finding with reasonable values of the annual growth rates in consumption (1.5–1.6%) and health (0.1%) suggests, for Germany, an annual growth rate of the consumption value of health between 0.3 and 1.5%.ConclusionIn the light of a two-goods extension of Ramsey’s optimal growth model, the available empirical evidence makes the case for a growing consumption value of health. Therefore, the current German practice of applying the same discount rate to costs and health gains introduces a systematic bias against healthcare technologies with upfront costs and long-term health effects. Differential discounting with a lower rate for health effects appears to be a more appropriate discounting model.
Highlights
The question of appropriate discount rates in health economic evaluations has been a point of continuous scientific debate
The health economic literature offers neither empirical evidence nor a strong theoretical a priori in support of the assumption that vH will rise over time. This holds even if one is prepared to consider g C > gH to be a valid observation. Given this lack of evidence, we offer an additional approach to check the appropriateness of differential discounting which is based on a two-goods extension of Ramsey’s optimal growth model
Given the improvements in the quantity and quality of health during the last century and the promises of modern life sciences to render the prosecution of this development possible, it is reasonable to assume that gH is strictly positive
Summary
The question of appropriate discount rates in health economic evaluations has been a point of continuous scientific debate. There is neither empirical evidence nor a strong theoretical a priori supporting this assumption Given this lack of evidence, we offer an additional approach to check the appropriateness of differential discounting. Throughout the last few decades, there has been much debate on discounting of costs and health effects in the economic evaluation of healthcare interventions [1,2,3,4,5,6,7,8]. We present the widely accepted proposition that a lower discount rate for health gains than for costs is justified if the consumption value of health (vH) is growing over time. The last two sections of the article provide a discussion of our findings and a short conclusion
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