Cost of Living

Sarah Palin is afraid Obamacare will put a price on human life. But we already do.

Sarah Palin

Conservatives often accuse liberals of not valuing human life. Rarely do they accuse them of valuing it too precisely.

On Friday, Sarah Palin posted a statement on her Facebook page railing against the presidential “death panel,” which she said will decide whether you are “worthy of health care” based on your “productivity in society.” As many have pointed out, Palin’s concerns are not rooted in fact. The “death panel” she describes is a consultation that’s available to the elderly to discuss end-of-life care and treatment, which would be covered under health care reform. It would not be a thumbs-up or thumbs-down on whether your grandmother or disabled sibling lives or dies.

Still, the notion that health care reform would result in insurance companies withholding treatment based on a person’s age or health—essentially putting a price on their life—persists. But what this criticism ignores is the fact that the system already puts a price on life. It’s just not the government that decides it.

Take the most obvious example: life insurance. When people buy a plan, they are assessing the economic value of their own life. (Not, mind you, their intrinsic or moral value.) When someone dies, an insurance plan is meant to provide his or her family with roughly the same amount it would have received had that person survived, at least for a while. Or say a person dies in a plane crash and their family sues the airline for damages. Compensation tends to equal the amount of money the person would have made—i.e., his or her productivity—plus reparation for pain and suffering.

That calculation can often be controversial. After 9/11, attorney Kenneth Feinberg had the unenviable job of determining the compensation packages for families of victims based on how much the deceased would have made in their lifetimes. But it’s a widely accepted metric for assessing the economic value of a life.

Everyday policy decisions also put a price tag on human life. If a city is deciding whether to install a traffic light at a particular intersection, for example, it will weigh the number of lives saved against the cost of installation. Or take something more controversial: the decision to send American troops to Iraq without fully protective armor. It’s not that the armor didn’t exist, says Uwe Reinhardt of Princeton University. It’s that in a cost-benefit analysis, the increased risk of death did not outweigh the increased cost.

There are other ways to calculate a life’s worth: Look at how much people get paid to do dangerous jobs like mining or construction. Examine how much people will pay for live-saving treatments like kidney dialysis—it costs about $70,000 a year—and extrapolate. Or simply survey people: How much would they be willing to spend to extend their life by a year?

So what is the value of a life? Somewhere around $5 million. It’s an extremely general estimate, but it’s based on a vast literature of cost-benefit analysis of the various types described above. One study published in 2004 and using labor data from 1997 puts the value of an average life at $4.7 million. Other studies by the same author, Vanderbilt University’s Kip Viscusi, put it anywhere from $4 million to $10 million. Estimates based on revealed preference studies, in which Americans analyze costs and benefits in the context of their own lives, put the value of a year of life at between $100,000 and $300,000, according to Peter Neumann of the Tufts Medical Center.

But those are just implicit estimates. In many countries, the government actually puts an explicit dollar amount on saving a life. Britain, with something called the “quolly,” is the clearest example. The metric is the Quality-Adjusted Life Year, or QALY, basically a measurement of time adjusted to account for your health. Everyone gets a rating between 1 and 0: One means you’re perfectly healthy. Zero means you’re dead. Anything in between stacks the quality of your life against that of a healthy person. For example, if you have “some problems with performing usual activities, some pain or discomfort,” you get a rating of 0.76. If you’re depressed as well, your score drops lower. Someone in extreme pain or discomfort who can’t wash themselves and is depressed might even get a negative rating. (For a better explanation, see here. For an even better one, here.)

Medical treatments are then assessed according to their cost per QALY. Say you have cancer and there is a $100,000 treatment that would extend your life by five years, but those years would be painful. You might get a score of 0.20, which would make those five years equal to 1 QALY. Under the British system, then, this treatment would not cost $20,000 per year—it would cost $100,000 per QALY. This system allows doctors to compare the efficiency of treatments for different diseases, whether it’s HIV or depression or Alzheimer’s, on the same scale. It also gives the government a metric by which to cap spending. Right now, the British health care system generally doesn’t cover treatments that cost more than about 30,000 pounds per QALY. (That’s about $50,000 at today’s exchange rate. This is what people mean when they talk about rationing.)

The United States is nowhere close to fixing its citizens with price tags. Americans bristle at the notion of barring life-saving treatments just to save money. That’s why Obama has mostly stayed away from cost-effectiveness analysis. Oh sure, the White House and its advisers love to tout the benefits of its relatively benign step-cousin, comparative-effectiveness research, or CER. But CER is nowhere to be found in the health care reform legislation. (Meanwhile, the stimulus package allocates $1 billion to CER.) What’s the difference? CER compares medical treatments to see which ones are more effective. CER adds money into the equation. It asks not only which treatment is most effective, but also which treatment is most efficient. The former question is common sense. The latter makes people squeamish.

Say we did start using QALYs to measure efficiency. There’s still one big problem: We can’t agree on how to value life. Healthy people, for example, rate the lives of paraplegics as lower quality than paraplegics rate their own lives. Whose perspective should a QALY measurement take? At the same time, people tend to value fairness over efficiency when it comes to health care. When given the option of treating the sick and dying or the relatively young and healthy with limited resources, people favor the sick—even if it’s less efficient to do so. “The point is, a rigorous doctrinaire dollar-per-QALY approach is somewhat problematic,” says Neumann.

QALYs also assume that a year lived by an 80-year-old is worth less than one lived by a 20-year-old. But that’s not accurate, says Dana Goldman of the RAND Corp. “It’s not taking into account hope, not taking into account the chance of living to see your daughter’s wedding, it’s not getting at the extra value we put on the end of life.” Yes, the U.S. health care system has to rein in costs, says Goldman, but “QALY is not ready for prime time.”

The United States will eventually have to price the lives of its citizens, says Reinhardt: “Our children will without any doubt have to address this issue.” Right now, we can save plenty of money in health care just by eliminating wasteful spending, he says. But eventually, we’re going to have to start rationing in a more, well, rational way. We can either move to a system that takes into account the efficacy of the care or retain the current system, which basically rations care based on income level. “If I had to bet, I’d bet on the latter,” Reinhardt says. “But there’s an opportunity to have the former.”