As health care rationing becomes more evident, we will have to recognize that fiscal policy decisions on taxes and spending create tradeoffs.

When Does it Cost Too Much to Save a Human Life?

May 25, 2014 • 345 Views
EST. TIME TO READ: 2 minutes

Is $1 a day for someone else’s pill too much to pay with your tax dollars? $10? $100? $1,000?

Kaiser Health News recently reported that a new treatment for hepatitis C with a 90% success rate will cost $1,000 a pill. Lasting 12 weeks, the treatment regimen amounts to $84,000. With health care increasingly covered by our tax dollars, deciding who should get the pill is no longer a private decision. For California alone, we could be talking about a total of $6.3 billion that would pay only for those who were most ill.

The Kaiser article also points out that with more infected people, the Medicaid population might be disproportionately affected. As a federal/state program that primarily targets lower income individuals, Medicaid cannot raise premiums for more expensive prescriptions and procedures. Instead, the tax payer bears the burden.

And that takes us to QALYs. When is the cost of adding QALYs–quality adjusted life years–too high?

Perfectly, this graph from Princeton economist Uwe Reinhardt displays QALYs tradeoffs. Somehow, “we” (who??) have to choose a point on a supply curve that theoretically represents diminishing marginal returns but is really about people’s lives. As the medical interventions to secure more QALYs become increasingly expensive, at what point do we say, “No?”

Fiscal Policy and the Value of a Human Life

From: NY Times Economix

Our bottom line? Whether done by the market, by insurers or by government, we have always rationed medical care. Having a limited supply of the land, labor, and capital we allocate to medical care has always meant that some get more and some get less. Now though, the rationing is becoming ever more evident as government and fiscal policy are increasingly involved.

As economists, we know that the federal programs that are funded by fiscal policy decisions require tradeoffs because their supply of money is finite. Spending more on one item means less elsewhere. Sometimes though, as with rationing health care, those cost tradeoffs are rarely discussed.

How would you like the media to cover the tradeoffs that healthcare spending necessitates? Please let us know.

Sources and Resources: While Uwe Reinhardt’s columns on health care have always been been thought provoking, I found his QALY discussion especially meaningful as a complement to the facts in the Kaiser Health News article.

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