On individual preferences and aggregation in economic evaluation in healthcare

Abstract

For practical reasons, in order to carry out economic evaluations of collective decisions, total costs will generally be compared with total benefits; hence, individuals' willingness to pay (WTP) or quality-adjusted life-years (QALYs) have to be estimated at an aggregate level. So far, aggregation has usually been done by taking the individuals' mean WTP or the unweighted number of QALYs. Since the aggregation process is closely related to the way that income, health and/or utility of different individuals are compared and weighted, it also has significant equity implications. Thus. the explicit (or, more often, implicit) assumptions behind the aggregation process will largely affect how health and welfare are distributed is society. The aggregation problem in economic evaluation is certainly not trivial, but is seldom addressed in current practice. This paper shows the underlying assumptions of aggregate cost-benefit analysis (CBA) and cost-effectiveness analysis/cost-utility analysis (CEA/CUA), and it emphasises the particularly strong assumptions which have to be made when QALYs are interpreted as utilities in the welfare economics sense. Naturally, the appropriate method to choose depends on what is to be maximised: welfare or health. If decisions of resource allocation are to be based on economic welfare theory, then CBA should be preferred. However, if QALYs are interpreted as measures of health, rather than as utilities, then CEA/CUA would be appropriate.