Efficient use of health care resources: The interaction between improved health and reduced health related income loss
2001/9: Hoel, M., Department of Economics, Frisch Centre & HERO. (PDF)
In health economics cost effectiveness is a criterion that is often recommended for prioritizing between different types of health care. A modified use of this criterion can be justified as the outcome of a choice that is made behind a Rawlsian veil of ignorance. This approach is a useful starting point for a critical discussion of cost-effectiveness as a criterion for prioritizing among different types of health expenditures. Moreover, the Rawlsian approach allows us to study the interaction between direct health effects of health care and effects on health related income losses.
Reduced health will in many cases give an income loss that is shared between the patient and society at large. In the special case where the marginal utilities of health status (measured by QALYs) and income are independent of the health state, an efficient allocation of health resources is characterized by net marginal costs per QALY being equalized across different types of health care. Net marginal costs are equal to gross marginal costs minus the reduction in health related income losses due to treatment. In the general case where marginal utilities depend on the health state this rule must be modified.