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Presentation

Session: Methodology 1
Room: Chydenius Rooms
Time: Fri 11:45-13:00

Presenter: Erik Nord (Norwegian Institute of Public Health. Mental Health)

Abstract

Main stream practice in economic evaluation of health programs is to discount health benefits at the same rate as costs. The validity of the practice is not self-evident, given that discounting of costs and discounting of benefits have different rationales. However, the practice has been advocated on the grounds that discounting costs and effects at different rates can lead to inconsistencies in reasoning (Drummond et al, 2006). The aim of this paper is to examine these ‘consistency arguments’ to see if they really do constrain the choice of discount rate for health benefits as claimed by their proponents. I find that the arguments – as they have been presented in several much referenced papers over the last 30 years - are lacking in stringency and misleading.
First, I miss a distinction between two different aspects of time preference: (A) Preferences with respect to when programs are implemented (e.g. now versus in ten years) and (B) preferences for benefits sooner rather than later in comparisons of programs that are candidates for implementation at the same time. While most priority setting decisions are choices between programs that compete at the same time (B), some of the main papers in the field focus on the issue of neutrality with respect to program timing (A). I submit that in these papers the tail has been wagging the dog.
Second, Weinstein & Stason (1977) and Lipscomb, Torrance and Weinstein (Washington Panel,1996) claim that equal discounting of costs and benefits follows from an assumption that the dollar value of health benefits remains constant over time. But the recommendation of equal discounting also rests on important implicit value assumptions. The ‘consistency argument’ is empty without these assumptions and is thus not an argument in itself.
Third, in Weinstein & Stason (1977), Viscusi (1995) and Claxton, Culyer and Sculpher et al (2006) there are attempts at arithmetic demonstrations of the ‘unavoidableness’ of equal discounting. The demonstrations are paradoxical (given that discounting of costs and discounting of benefits have different rationales). I submit that the paradoxical results stem from statements and arithmetic operations involving contestable implicit assumptions and that the ‘demonstrations’ are interesting examples of how mathematics may not always enlighten debates about values.
Fourth, I address arguments in Claxton et al (2006) invoking the concepts of tradeability of health and costs as health benefits foregone. Using these concepts, the authors claimed that to discount costs and benefits differently is ‘plainly illogical’. I argue that their own text is plainly illogical.
Discounting benefits at the same rate as costs may be justified if the aim of benefit valuation simply is to estimate the present value of individual utility over time. It is remarkable that this 'utilitarian' heart of the issue has not been made clear in the literature. The limited relevance of the equal discounting principle for public policy has thus not been duly acknowledged.

Key Terms

discounting, health benefits, consistency

Authors:

Erik Nord (Norwegian Institute of Public Health. Mental Health)

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