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The 130th Annual Meeting of APHA |
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The 130th Annual Meeting of APHA |
Julia C. Witt, BA, MA, Department of Economics, University of Guelph, Gordon Street, Guelph, ON N1G 2W1, Canada, 519-824-4120 ext 3014, wittj@uoguelph.ca
The process by which Canadian provinces decide what to cover, or to remove from coverage, under Medicare often seems ad hoc, without clear guiding principles. It has been argued, most notably in the context of the Oregon experiment, that cost-effectiveness analysis could be used as an explicit tool to determine what services should or should not be covered. Cost-effectiveness analysis is considered the “solution” to the ethical implications of monetarization of benefits in cost-benefit analysis; “effectiveness” is measured in terms of health outcomes rather than dollar values, which avoids wealth effects implicit in willingness-to-pay measures. However, while cost-effectiveness analysis has been widely accepted as the “best” available alternative in health care decision making, unlike cost-benefit analysis, it is not well rooted in welfare economic theory. Hence, many questions remain as to whether this type of framework actually yields the best outcome for a society. Furthermore, it is not clear from the underlying principles of cost-effectiveness analysis if distributional issues are really avoided. This paper considers that argument in a welfare economics framework, looking at both the production and the consumption side of the issue. It is well known that cost-effectiveness analysis requires strong assumptions about the utility function, if it is to fit into the framework of welfare economics. Furthermore, there are distributional issues when aggregating individual utility functions, which have been the centre of some controversy. Less often discussed are the implications of the assumptions made about the structure of costs for the production side of the model. In particular, when costs are not constant, as they seldom are, the cost-effectiveness ratios become a function of the project size, and should be evaluated subject to opportunity costs. This paper looks at the problems that arise when the standard assumptions are relaxed, both from the utility and production side of the issue. The paper addresses the issue of public health coverage from a theoretical perspective; it explores the possibility of non-constant marginal cost and the implications in deciding what should be covered.
Learning Objectives: The audience will be able to
Keywords: Economic Analysis, Theory
Presenting author's disclosure statement:
I do not have any significant financial interest/arrangement or affiliation with any organization/institution whose products or services are being discussed in this session.