The Regulation Equation: Factoring In the Price of Health

Abstract

Controversy erupted early in 2003 after the U.S. Office of Management and Budget (OMB) proposed that the lives of older people were worth less in dollar terms than those of younger people. The idea was included in a plan published in the 3 February 2003 Federal Register by the OMB’s Office of Information and Regulatory Affairs (OIRA) that was designed to improve how the federal government determines the benefits and costs of proposed regulations, including environmental regulations. A revised version issued 17 September 2003, called Circular A-4, stipulates that specific age-adjustment factors should not be used. But it still includes a number of calculation processes that many perceive discount the value of health as people age. To help address the controversy that still simmers over how, or whether, to assign a specific value to effects such as degraded human health, OIRA and several federal agencies asked a committee of the National Academies’ Institute of Medicine (IOM) to weigh in with guidance on one type of cost–benefit analysis, called cost-effectiveness analysis (CEA), which can include calculations of the dollar value of human life and which was included in Circular A-4. After an effort spanning about two years, the committee issued its report, Valuing Health for Regulatory Cost-Effectiveness Analysis, on 11 January 2006. The committee concluded that the techniques advocated by the OMB, including CEA, have their place, but also have important deficiencies, which could be addressed to some extent by following the committee’s main recommendations. In addition, the committee—whose 16 members represent several U.S. and Canadian universities, health care systems, and state and federal agencies—cautions that CEA likely will remain an imperfect tool that should be balanced with other objective and subjective considerations of a regulation’s impact. Uncertainties about the future use of CEA, as well as the OMB’s overall regulatory review approach, continue to stir sharp divisions among critics and supporters. All sides are closely watching the OMB to see how it proceeds.