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Getting Better: Improving Health System Outcomes in Europe and Central Asia
BOX 2.1 What Is Better Health Worth? Introducing the Value of Statistical Life There are two basic approaches to estimating a person’s willingness to pay for better health. The first is the stated-preference (or contingent valuation) method, which involves asking a person to choose between various options as a typical consumer would. For example, a respondent could be asked whether he or she would be willing to pay US$10,000 for a heart operation that, on average, results in two additional years of life. The problem is that the respondent is facing a hypothetical situation—no real transaction takes place. The alternative is the revealed preference approach, which focuses on actual individual behaviors in economic decision making. For example, one can look at market outcomes such as the wage premium necessary to attract workers to take a job with some risk of personal injury or the amount that consumers are willing to pay for safety devices such as automobile air bags or smoke detectors (Drummond et al. 2005). The result of these analyses is a concept called the value of statistical life (VSL). It is defined as the amount required to accept additional risk (or pay for lower risk) divided by the level of that risk. In essence, it tells us how much people would be willing to pay for small increases in the odds of survival. Thus, a key aspect of willingness-to-pay analysis is that it takes a probabilistic approach to the value of health. Asking people how much they would pay to avoid a fate of certain death would not yield useful insights—nor is it realistic. Our everyday decisions about food, transport, work, or medical care are made in a context of uncertainty. Therefore, valuing health can be seen as equivalent to asking how much people are willing to pay for better odds of surviving in good health. For society as a whole, a policy expected to “save” a statistical life is one that is predicted to result in one less death within the population over a certain time period. In this case, as for many policies, the individuals whose lives would be extended cannot be identified in advance. As such, it is not the same as saving a specific person from certain death. The link with health spending should be clear: investing in the health system can be seen as a collective effort to reduce population-wide mortality rates through access to better medical care. The extent to which a society is willing to pay taxes to fund its health system will thus in part reflect VSL. A large number of studies have been undertaken to estimate VSL among people of different ages, at different income levels, and across different countries. A widely cited literature review estimated a VSL between US$3 million and US$7 million in the United States, for an average of around US$5 million (Viscusi 1993). This amount can be translated into a value of a statistical life year, for example, of US$250,000 for a middle-aged adult in the United States. Cross-country studies have helped identify a range for the income elasticity of VSL or, more simplistically, a typical value of about 120 times gross domestic product (GDP) per capita (Miller 2000; Viscusi and Aldy 2003). In ECA, this number translates into between US$250,000 and over US$3 million (purchasing power parity), depending on the country. The value of additional life-years would continued
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