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Discounting Health And Cost‐Effectiveness Analysis: A Response To Nord

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  • James K. Hammitt

Abstract

Nord (2011) criticizes standard arguments which assert that consistency requires that future health benefits must be discounted at the same rate as future costs in cost‐effectiveness analysis (CEA). He suggests these arguments are misguided because they require transitivity of preferences across decision contexts and that it can be appropriate to discount health at different rates depending on the programs to be compared. I claim that rejecting transitivity is unwarranted and would sharply diminish the utility of CEA. Factors that tempt Nord to reject consistency can be accommodated by recognizing that CEA does not perfectly mimic normative social preferences because it omits factors (like distribution of health in a population) that can be normatively significant. A better approach is to maintain consistency in application of CEA but authorize decision makers to depart from rankings implied by CEA when justified and to explain which specific factors justify the decision. Finally, the assertion that health must be discounted at the same rate as costs requires the additional assumption that the dollar value of health does not change over time, a point that is not always recognized in standard arguments. Copyright © 2011 John Wiley & Sons, Ltd.

Suggested Citation

  • James K. Hammitt, 2012. "Discounting Health And Cost‐Effectiveness Analysis: A Response To Nord," Health Economics, John Wiley & Sons, Ltd., vol. 21(7), pages 878-882, July.
  • Handle: RePEc:wly:hlthec:v:21:y:2012:i:7:p:878-882
    DOI: 10.1002/hec.1782
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    References listed on IDEAS

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    1. Karl Claxton & Mike Paulden & Hugh Gravelle & Werner Brouwer & Anthony J. Culyer, 2011. "Discounting and decision making in the economic evaluation of health‐care technologies," Health Economics, John Wiley & Sons, Ltd., vol. 20(1), pages 2-15, January.
    2. Erik Nord, 2011. "Discounting future health benefits: the poverty of consistency arguments," Health Economics, John Wiley & Sons, Ltd., vol. 20(1), pages 16-26, January.
    3. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    4. Hugh Gravelle & Werner Brouwer & Louis Niessen & Maarten Postma & Frans Rutten, 2007. "Discounting in economic evaluations: stepping forward towards optimal decision rules," Health Economics, John Wiley & Sons, Ltd., vol. 16(3), pages 307-317, March.
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