On the welfare theoretic foundation of cost-effectiveness analysis—the case when survival is not affected

Abstract

This paper develops a welfare theoretic foundation for cost-effectiveness analysis (CEA) when survival is not affected. With this foundation, all costs and their corresponding utility-terms should be included. A key question, though, is whether these utility-terms are consistent with quality-adjusted life year (QALY) (utility) theory or not. The results show that health care costs and changes in the utility of health should be included. However, as QALYs do not capture the utility of changes in consumption (as this utility must be independent of health, according to QALY theory), the corresponding changes in consumption costs should be excluded. Regarding the costs for changes in absence from work, these should only be included if the utility of changes in the amount of leisure is included. As no QALY theory has been developed that includes this utility, it is unclear how to handle these costs (even if there are arguments for excluding them). For changes in productivity at work, though, there are robust arguments for the inclusion of these costs. Overall, it seems difficult to provide a clear basis for CEA in economic welfare theory when also including non-medical goods such as consumption and leisure.