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On the economic value of preventive care: a life-cycle model perspective

Job market paper

This paper estimates the value of the adoption of a preventive care innovation while taking into account its effect on household economic decisions. This is in contrast to traditional health economics methods that base their calculation simply on exogenous values of health states. The value is based on a compensating variation computed in a structural life cycle model. As a concrete example, I consider the case of a class of medications, namely statins, which reduces the odds of developing cardiovascular diseases (CVD). In the model, agents choose their labour supply and savings taking into account the progression of their health through levels of severity of conditions related to the disease. Suffering from a CVD affects the leisure cost of working, reduce wages, and imply a direct cost on household’s budget. The risk of CVD does not only depend on prior history of health conditions related to the illness but also on a risk index that can be affected by preventive interventions through statins which allows for a parsimonious approach to take into account the persistence of health shocks and behaviours. The parameters of this model are estimated via the method of simulated moment using data from the English Longitudinal Study of Ageing (ELSA) from 2002/03 to 2012/13, and allow to calculate the value of the usage of this drug for primary prevention in England (£79 billion billion). This estimated value, measured to be representative of the population aged 52 and older in 2004, is nearly 12% higher than considering the value derived from assuming a willingness-to-pay of £23.000 per QALY. I also explore how the value depends on the effectiveness of the drug and of policies directed to its diffusion in the primary care system, as well as non-health related elements such as retirement age. It is also shown that one of the main drives of the results is the implied willingness-to-pay for extending longevity. This concept, related to the value of a statistical life, is governed by the bequest motive formulation.

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