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Disease Prevention, Health Care, and Economics

Disease Prevention, Health Care, and Economics

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something is amiss with the social arrangements that underpin changing lifestyles. These social

arrangements encompass the choices made by individuals, the environments in which they live, the

types of work they do, the supply of food and other health related commodities, as well as direct

actions taken by governments.

The chapter attempts to take these policy issues and explore how the economic analysis of

prevention can add to debate and policy development. The chapter starts by asking what is

prevention, and draws on the economic concepts of human capital and utility maximization. This

provides a framework for investigating why people make the decisions they do, and how they will

respond if their incentives or constraints alter. This approach can yield useful insights into behavior:

why do individuals keep smoking? Why are obesity levels rising? Why do health care providers miss

opportunities for simple screening of their patients? Why do parents not have their children

immunized? Thus economic analysis can provide a basis for designing prevention strategies. The

importance of good health to many aspects of human well-being suggests there should be particular

attention paid to prevention in consideration of equity of opportunity.

Section 23.3 addresses whether there is a current under-investment in prevention. For many

policymakers and public health advocates, this question is about whether more prevention will save

on future health care expenditure. This section repeats the argument that this is the wrong question and

that the appropriate question is whether the benefits delivered justify additional spending on

prevention. The answer is “it depends”; the potential benefits of prevention are broader than gains in

health outcomes and thus the return on an investment in prevention can only be assessed once there is

clarity about the benefits to be considered. Section 23.4 then turns to the special challenges in

building an evidence base for prevention policy.



23.2 WHAT IS P REVENTION?

Traditionally prevention has been classified in three stages: primary prevention, aimed at limiting the

development of risk factors; secondary prevention, aimed at reducing the development from risk

factors to established disease; and tertiary prevention aimed at reducing disease progression.

Alternative approaches have been based on type of risk activity (clinical, develop personal skills,

strengthen community actions, create supportive environments, reorient health services, build health

public policy; Rush et al. 2002); by categories of activity (prevention, detection, health programs, and

education; Ungar and Santos 2002); by type of approach (clinical prevention, health promotion, health

protection, and healthy public policy; Goldsmith et al. 2006).

“Prevention is better than cure” according to the old saying. But what is prevention? A recently

proposed definition for England is:

a clinical, social, behavioral, educational, environmental, fiscal or legislative intervention or broad partnership program

designed to reduce the risk of mental and physical illness, disability or premature death and/or to promote long-term physical,

social, emotional and psychological well-being. (Le Grand 2009)



Many of these activities lie within the domain of governments, such as regulation (banning tobacco

advertising), environmental regulation (controls on pollution), fiscal measures (taxing “bads” such as

tobacco and alcohol); while others lie within the scope of public health programs which are

population based and non-exclusive in consumption. However, there are various activities which rely

on a service provided to an individual, such as screening, immunization, and early detection. These

services may be provided within or independently of other aspects of personal primary care services;



for example primary care providers can provide services such as screening for risk factors,

counseling for lifestyle change, early detection through physical examinations (such as cervical

cancer or prostate disease) or encouraging their patients to undergo further tests (such as for bowel

cancer). The ongoing management of individual risk factors, or established continuing disease relies

on the activities of health care providers and their interactions with patients.

The concept of the health production function was introduced earlier (see Chapter 6 in this

volume) and provides a useful starting point for consideration of prevention, just as it does for

economic behavior and addiction, concepts of equity and fairness, and the determinants of health in

childhood (Chapters 10, 34, and 8 of this volume, respectively). Health is a product of genetic

inheritance, environmental and context factors, lifestyle choices, and the use of medical services.

Prevention cannot be considered in a static framework as it takes a long-term view. Although the

notion of health human capital has been a powerful conceptual tool, there has been little attempt to

apply it specifically to prevention as distinct from treatment (Kenkel 2000). Prevention is an activity

now that will affect future health, through changing the risk of future bad health and/or death, or

promoting well-being. While prevention is generally considered as an investment, so that action taken

now will have a positive effect on future health, this definition also allows for a negative, or

disinvestment, effect. Thus health in the current period is a product of genetic inheritance at birth, and

other inputs in all previous periods. These inputs can be actions taken by the individual, i.e. their own

effort, or actions taken by others such as government regulation or intervention to change

environmental or contextual factors, or services provided through the health system.

Now the individual seeks not to maximize health, but to maximize their own utility or well-being

over their life-cycle. Thus they will invest in their own health promoting activities as long as their

individual welfare gain from that is greater than their individual welfare loss from forgoing other

activities. This results in the best outcome for the individual, as judged by the greatest lifetime utility

for that individual, given the opportunities and constraints they face. Does it represent the best

outcome for society? Individuals will determine their own actions, taking environmental and other

context factors as given. However, societies have the opportunity to change the context: health

harming products such as tobacco may be forbidden or regulated to reduce supply or increase prices;

planning regulations may increase open space available for recreation; food standards may ensure

essential nutrients are added such as iodine fortification in bread.

The question of whether one set of social arrangements are better than another lies within the

scope of normative economics. In neoclassical welfare economics, the principle of consumer

sovereignty holds, which means that social welfare is an aggregation of individual welfare utilities,

and individual utility is determined by individuals’ own judgments of what is good for them. If this

principle is used to judge social welfare, then social interventions are warranted to correct market

failures which arise due to lack of information (consumers are unable to make informed choices),

externalities (such as in infectious disease where A’s risk of disease is affected by B’s disease

status), or the moral hazard of insurance (which encourages consumers to use medical treatment at

less than its full cost rather than prevention which is not subsidized). See Kenkel (2000) for a full

exposition.

The importance of health to social welfare has been stressed by extra-welfarism; even proposing

that, if not the only goal of health expenditure, then the most important should be the maximization of

health (Culyer 1991). Most economic evaluation is based on the premise of maximizing the units of

health gain achieved for health expenditure. Although individual preferences across health states are

incorporated in measures such as QALYs, these are limited to aspects of health states, and do not



explore trade-offs between health states, or aspects of them, with other dimensions of well-being. Yet

it seems that for most people there is a trade-off between health and other things they enjoy.

Therefore, restricting the social goals of health expenditure to health outcomes only is a departure

from what people would choose for themselves, or the principle of consumer sovereignty.

However, a concern with fairness or equity is widespread in the stated objectives of health

policymakers, and in health economics (see Chapter 34 of this volume). As Olsen describes, this can

lead to different approaches depending on whether the focus is on a just distribution of health, of the

achievable gains in health, or access to health care. There are criticisms of the extra-welfarist or

health-only approach, by other commentators who still depart from the consumer sovereignty basis of

social welfare; in general, they suggest that some form of social values can be developed through the

community or policymakers as its agents (Mooney 1994; Hurley 2000; Mooney 2001; Richardson

2001; Richardson and McKie 2005).

The notion that there is something special about health and about the fairness concerns generated

by the unequal chances of poor health is strong. Good health is of value not just in itself but also

provides the ability to enjoy other aspects of life; a precondition for human flourishing. “Health and

survival are central to the understanding not only of the quality of one’s life, but also for one’s ability

to do what one has reason to want to do”(Sen 2002). Criticisms of welfarism and utilitarianism

within health economics have been much influenced by the work of Sen (1985, 1987, 1992). Sen

argues that individual well-being comprises two parts; functionings, that is what people do or

achieve, and capabilities, that is what opportunities people have to achieve. However, individuals

may choose freely not to achieve something which lies within their capabilities, and if this should be

the case the resultant inequality is a reflection of personal preferences rather than social inequity.

Extending this to health, then health status can be considered as a functioning, the level of health

achieved, a measure of what people do. The capability to achieve good health (which may or may not

be exercised as a result of personal decisions about smoking or other risky behavior) is the ability

provided by social arrangements including income, environments and other social factors (Sen 2002).

Sen himself has described the complex and multi-dimensional nature of health equity, encompassing

the achievement of good health, the capability to achieve good health, and the distribution of health

care. Inequalities resulting from free choice are not an inequity.

The notion of capabilities has proved an attractive approach for thinking about what equity in

health/health care means; it should also prove to add further insights to understanding the economics

of prevention. It could be said that the goal of prevention is to maximize the capabilities of each

person to achieve good health. As those capabilities are determined by a range of factors outside the

individual’s control, prevention aimed at improving equity in those capabilities is an important

consideration for broader issues of social justice.

23.2.1 Summary

Prevention encompasses a wide range of activities, both around individual behaviors and choices,

and government interventions and social arrangements. The economic concept of the health

production function provides a useful framework for considering what prevention is. The goal of

prevention is to improve health, and in some arguments it is to maximize health. Health maximization

relegates other sources of human well-being as less important, even though most individuals do not

behave as though health is the only important goal. The importance of good health to many aspects of

human well-being suggests there should be particular attention paid to prevention in consideration of



health equity and social justice more broadly. Sen’s capabilities framework offers a potentially

valuable approach to thinking about prevention, with capabilities encompassing those factors outside

the individual’s control impacting on health and health risks, and achievements the result of

capabilities and individual choices.



23.3 IS THERE AN UNDER-INVESTMENT IN P REVENTION?

To many policymakers and public health advocates, the case for there being an underinvestment in

prevention seems self-evident. Prevention advocates frequently argue that prevention will reduce

health care budgets and not surprisingly Health Ministers and their governments find the notion of

improving the nation’s health while saving health care costs not only very attractive, but the only way

to address the fiscal pressures of growing health budgets (Redmond et al. 2007; Cohen et al. 2008;

National Health and Hospitals Reform Commission 2009).

Economic evaluation was first systematically applied to prevention in the 1970s (Weinstein and

Stason 1976). As the number of studies grew it was clear that far from saving on health spending, in

general prevention increased health care costs (Russell 2009). The number of studies has increased

exponentially since then. Useful resources are provided by registries of these studies; for example

Health Technology Assessment Resources, the NHS Centre for Reviews and Dissemination, and the

Tufts Registry. In early 2009, the NHS Centre for Reviews and Dissemination recorded over 4000

studies on its databases under the heading “prevention.” A systematic review of 599 published

economic analyses compared primary prevention with treatment (though this category included

secondary and tertiary prevention) (Cohen et al. 2008); about 20 percent of prevention strategies will

be cost saving with the other 80 percent generating additional costs, much the same as the proportion

of treatment interventions which were shown to save health care costs.

The reason for this is readily explained. Those individuals need to be identified from the general

population, through some screening or case finding program. And the intervention itself may require

long-term therapy and monitoring. For example, universal childhood vaccination can be easily

targeted—vaccination is targeted to all children at specific ages, and a single dose vaccine requires

only one service. In contrast, reducing the risk of cardiovascular disease through reduction of high

blood pressure is likely to require identifying those with established hypertension from across the

population, and then providing pharmaceutical treatment to those individuals for their remaining

lifetimes. The net costs (or savings) of prevention depend on the cost of the intervention and the

proportion of the population to which it is applied, compared to the cost of treatment and the

proportion of the target group who will become ill in the absence of prevention.

This general conclusion is based on the existing body of evidence from published economic

evaluation studies. At least in the case of primary prevention for cardiac disease, the preventive

interventions that have been assessed have been clinical interventions with pharmaceuticals, such as

medications to reduce high blood pressure or high cholesterol compared with later treatment of heart

disease, with very little attention paid to broader public health programs (Schwappach et al. 2007).

Further, there are strong incentives for producers of such interventions to fund such research (as they

are likely to benefit from adoption) and a resulting under-investment in assessing programs not based

on some proprietary product (Kenkel 2000).

The economic case for prevention does not rest on its ability to generate cost savings, but rather

that it represents a better, in terms of benefits to society, allocation of resources. If the purpose of

health care interventions is, to use the old phrase, “to add years to life, and life to years,” then value



for money can only be determined by comparing the gains from prevention and their costs compared

to the alternatives. This is the scope of economic evaluation; alternatives are compared in terms of

their costs and benefits, defined as achievement of objectives (see Chapter 31 for discussion of this

approach). The appropriate measure of outcome has to capture the benefits of both programs being

compared. So for example, if two different programs which aim to prevent obesity are being

compared, then weight gain would be an appropriate outcome measure. However, if the prevention of

diabetes with treatment of evident disease is the comparison, then the appropriate outcome will

capture the effects of mortality and morbidity. The use of cost-utility analysis is generally preferred to

cost-effectiveness analysis for consideration of prevention programs, as it captures a greater range of

patient relevant effects.

The case of more investment in prevention has been argued on the cost per QALY for many

programs providing high economic value (Woolf 2009). This is not enough to make sensible

investment decisions on prevention. Even interventions which provide health gains for a relatively

low cost may be targeted to a large proportion of the population. For example in Australia, about half

of the adult population are over-weight or obese (Australian Institute of Health and Welfare 2008), so

that even a low cost program will have a large target group, meaning a large total expenditure. A

focus on cost per QALY does not consider the impact on the total budget, and this may be beyond the

capacity of the government or the willingness of the nation to pay (see Birch and Gafni 1992).

Arguments in favor of prevention often include the economy wide effects of better health. This is

the gain in society’s economic production due to increased labor force participation, and lower

payouts for disability related income support. The argument is that reducing mortality and morbidity

will increase the productive capacity of the economy by reducing sickness due to absenteeism and by

increasing workforce participation. There are several problems with accepting the human capital

value of prevention. These fall into two categories. First, distributional issues: health gains are

valued more highly for those in the paid workforce, and potentially for some groups of workers over

others; this would, for example, value gains for middle aged men over older people and women.

Second, the validity of wage rates as a measure of increased production: absenteeism may be

compensated by the additional effort of other workers or the employment of new workers; and

whether the marginal wage is equal to the marginal productivity of labor (see Chapter 31 on costeffectiveness analysis for more discussion). More broadly, though, the issue of the appropriateness of

production gains as the measure of benefit has to be considered against the overall objectives of

investments in health care.

23.3.1 Is Health All There Is?

Although quality adjusted survival is clearly an advance on measuring only lives saved, or life-years

gained, it is limited to health gains, thus implicitly determining the goal of health care expenditure to

be health and only health. Health gain maximization alone is perhaps best expressed as “A QALY is a

QALY is a QALY.” This assumes that a QALY gain is independent of the process by which it is

gained and of to whom it accrues. A QALY gained from preventive effort may not be equivalently

valued to the same QALY gain from treatment (Schwappach 2007); it depends on the relative

disutility of being sick and undergoing therapy, and that of the effort required for prevention. While

economic evaluations of prevention have been good at capturing the relative costs, there has been less

attention to the differential values of the process aspects. Similarly, the social value of a unit of health

gain is generally assumed to be equally valued, irrespective of the total gain to any one individual,



their initial health state, or other characteristics. Most commentators accept that there is more to be

considered in the benefits of health care than units of health status gained, at least conceptually, but

this is rarely implemented in practical applications (Brouwer et al. 2008; Coast 2009). Practically,

decision-making in settings where economic analysis is routinely used, such as NICE in the UK, use

QALY maximization as a proximate goal; but ask for consideration of other factors, such as consumer

and patient autonomy, fairness in the distribution of limited resources, availability of alternative

treatments, severity of the condition (National Institute for Health and Clinical Excellence 2007).

Critics of QALY maximization have pointed to the need for wider outcomes and for the inclusion

of aspects of process utility (Mooney 1994); for example, individuals are often prepared to pay for

extra convenience, additional comfort, and for information that has no immediate bearing on their

health status. The potential importance of these extra benefits has led to renewed interest in applying

cost-benefit analysis, and stated preference methods to elicit values for the benefits of health care.

But what benefits should be considered? The answer to this question is generally summarized as

whatever individuals who make up society value, as indicated by their willingness to pay. It helps to

explore this idea in the context of particular types of prevention programs. A note of caution, though,

is that eliciting willingness to pay through surveys where the decision is hypothetical and the

respondent knows they will not have to pay, should not be taken as valid estimates of consumer value.

23.3.2 Screening and the Value of Information

Screening is often assumed to lead to improved health, as individuals with established risk factors or

early but non-symptomatic disease can be identified and appropriate action, modification of risk

exposure, or early therapy can be instituted. The conditions under which screening can be assessed to

be effective in population health outcomes are well-established, and evaluation should include the

cost per unit of health outcome. However, the immediate “product” of screening is information, as

Cairns and Shackley (1993) point out: “screening in health care can be viewed as an investment

which yields additional information.” This raises the issue of whether information has value

independent of its use in taking action to avoid poor outcomes, and if so how to assess it.

The value of information is generally treated as positive. Evidence to support this is drawn from

studies which show a positive willingness to pay for tests which provide information but do not

change outcomes, such as ultrasound in normal pregnancy (Berwick and Weinstein 1985) or prenatal

screening which identifies a fetus affected by a severe condition even though the mother has already

rejected the option of abortion (Mooney and Lange 1993). Even with relatively common conditions,

most people screened will receive a negative (no suspicious finding) result, and these people may

gain reassurance from the information. This may be particularly the case with prenatal screening. On

the other hand, information can have negative effects, with a positive screening test result raising

anxiety, increasing the need for that individual to change their lifestyle, or increase their use of the

health system. Indeed, once individuals have had a positive result they may perceive themselves to be

at risk for other conditions as well (Stone and Stewart 1996), and one study showed that identifying

untreated hypertension led to an increase in the use of health services for non-related conditions.

The case of prenatal screening is particularly complex, as the “intervention” available to parents

with a positive result is termination. Evaluations have frequently assessed the “cost per case

prevented” which, in effect, treats the birth of handicapped child as having no value (Sadovnick and

Baird 1981; Piggott et al. 1994). This is a complex ethical debate, and beyond the focus of this

discussion.



Similarly, genetic screening also has some very specific implications (Hall et al. 1988), and with

the increased potential for genetic screening these will become more important. The information from

a genetic test has value to people beyond the individual tested. It has consequences for other family

members, as even knowing there is a potentially inherited condition changes their risk status. Parents

may feel guilty at having passed on an inherited condition; affected siblings may blame their parents;

and unaffected siblings may also experience guilt associated with being one spared poor health.

Genetic information, even the knowledge of whether an individual has been tested, or has refused a

test, can determine their risk status; and this could be used by employers or insurers. Neither welfarist

nor extra-welfarist approaches have to date adequately addressed the value of information issues

(Hall 1996).

23.3.3 Preferences over lifestyles

The inclusion of non-health outcomes is evident in investigations of preferences for aspects of

treatment, for primary care services, and for screening (Longworth et al. 2001; Gerard et al. 2003;

Scott et al. 2003; Haas 2005). Primary and secondary prevention programs often target lifestyle

choices, such as smoking, diet, alcohol consumption and physical activity. However, similar nonhealth attributes for the benefits of these types of programs have received little attention in economic

studies; such attributes might be change in body shape, ability to participate in other activities, or

features of the intervention such as social interaction with other program participants (see Owen et al.

2010 for an example). However, it would seem that social marketers are aware that non-health

outcomes may be as or more important than health outcomes, with anti-smoking campaigns promoting

social acceptability, and diet and exercise programs promising greater attractiveness and improved

family life.

Individuals’ choices are influenced by their perceptions of costs, risks and benefits; when an

individual has to change in some way, whether it is to attend a screening clinic, take a child for an

immunization, or alter their diet, they are asked to give up something they would enjoy. Participating

in screening requires giving up the time to travel and wait, plus any anxiety and discomfort associated

with the examination and waiting for the results. Having one’s child immunized means more time,

plus dealing with any side-effects of the vaccine. Changing one’s diet means forgoing the pleasures of

forbidden food, pleasures that can be missed even after long-term change (Brink 2009). In economic

terms these are losses in consumer utility, though rarely counted in evaluations of prevention.

Indeed it is difficult to know how to count them. Standard economic theory has assumed that

consumer preferences are fixed, and that what is a consumer loss today would be a loss tomorrow,

next year and in several years’ time. Public health and health promotion, in contrast, are prepared to

change consumer preferences and social acceptability. Smoking in many countries is no longer

socially acceptable, and individuals who once enjoyed tobacco can become strident in their lack of

enjoyment of others’ smoking. Individuals who once avoided physical activity can develop pleasure

in the process of exercise (Brink 2009). There are also for many lifestyle behaviors an apparent

contradiction between individuals’ continued actions and their expressed preference to “kick the

habit.” The development of approaches which explain the effect of addiction on demand is covered in

Chapter 10 of this volume.

23.3.4 Summary

Although it is frequently argued (but not by economists) that prevention will save expenditure on



future treatment, the current body of evidence demonstrates that it is more likely to generate additional

health care costs. However, the evaluations that have been undertaken are predominantly of clinical

interventions, rather than broad public health programs. That said, the economic case for a greater

investment in prevention rests on the benefits of prevention outweighing the opportunity costs of

increasing preventive activities. These benefits may go beyond better health outcomes as measured by

Quality Adjusted Life Years; a unit of health gained from treatment is not equivalent to the same

health gained from prevention unless the (dis)utility of illness and undergoing treatment is equivalent

to the (dis)utility of the effort required by prevention. Other potential benefits from prevention are the

value of information, improved well-being from a different lifestyle, and lower risks of future

adverse events. These have not been systematically considered in evaluations to date. The range of

benefits that it is appropriate to consider depends on the concept of social welfare that is adopted.



23.4 ASSESSING P REVENTIVE STRATEGIES

This section now turns from how to assess whether there is an under-investment in prevention to the

question of how to assess proposed interventions. The pattern of health service delivery and thus a

nation’s investment in prevention is not fixed by some central single decision. Rather it is the result of

various decisions: the decisions of funders about what services to cover and how to pay for them; the

decisions of providers in what services to provide; and the decisions of consumers about whether to

visit health care providers, and then to follow their advice. How do individuals make those

decisions? Understanding decision-making is the basis for predicting how people will change their

behavior if the incentives change. For example, economic explanations for the rise in obesity

demonstrate how technology has changed the costs of purchasing and preparing different foods, while

increasing workforce participation outside the home has increased the opportunity costs of time spent

preparing food (Cutler et al. 2003). The assessment of prevention must account for the extent to which

people will actually change their behavior; for example providing free early childhood health checks

will not deliver benefits unless parents take up the service.

23.4.1 Considerations for the Economic Evaluation of Prevention Programs

Economic evaluation relies on clinical studies for evidence of effectiveness. An economic evaluation

is increasingly conducted alongside the clinical trial of new pharmaceuticals, and although much less

often for evaluations of other medical interventions and health delivery programs, interest in doing so

is growing. For acute conditions, the endpoint of the trial is the final relevant outcome of interest.

Consequently for many treatments, the evidence of effectiveness and costs can be drawn from one

study. This is not the case for evaluations which include a prevention, particularly a primary

prevention, arm. The range of interventions being considered can be broad, so that evidence has to be

drawn from a number of studies. The final relevant outcome may be distant in time from the

intervention, so that the trial evidence is based on intermediate outcomes; for example, a lifestyle

intervention may be evaluated in terms of changes in diet and exercise, whereas the final relevant

outcome is reduction of cardiovascular disease and will not occur until many years after the initial

intervention. This requires extensive and often complex modeling, with input to the model developed

from a range of sources. Another type of complexity arises because several risk factors are

precursors to a range of diseases. For example, smoking, alcohol consumption, illicit drug use, diet,

and lack of exercise are implicated in injury and accidents, many cancers, coronary heart disease and

stroke, respiratory disease, and diabetes (WHO 2002). An issue related to immunization is that the



individuals who benefit are not just those vaccinated, but others whose risk of being infected will

reduce as the pool of infection is reduced (Beutels et al. 2003). All this implies that generally there is

much greater uncertainty in models of prevention programs.

The application of economic evaluation is focused on the incremental effect of an identifiable and

separable program, for example adding a new drug into a current treatment regimen. But prevention is

the outcome of many factors; what prevention happens and how is the result of a complex set of

individual decisions, whether they are the decisions of individuals as consumers and patients

(lifestyle, immunization, screening for common diseases or risk factors, whether and how to use

health services) or as providers (workforce participation, where to locate, and what services to

offer), and the way they interact. While clinical and behavioral interventions are often considered as

substitutes, their maximal effect may be through their interaction.

The inclusion of additional health care costs which arise due to complications, side-effects or

failure of the initial treatment are clearly directly related to the intervention and so generally accepted

as good practice. Prevention programs can give rise to unrelated costs, where the improvement in

longevity means an aging cohort with more cancers and chronic disease (McPherson 2008; van Baal

et al. 2008). There is no agreement as to whether these should be included, and for recent

contributions to the debate, see Lee (2008) and Meltzer (2008). It is worth noting that this will

generally have more impact on the cost-effectiveness of prevention programs, as it raises the cost of

prevention.

Another issue is the choice of discount rate. The higher the discount rate, the more that future

benefits, as well as costs, are reduced in value. Prevention programs are likely to be highly sensitive

to the choice of discount rate as costs are usually incurred immediately, while benefits (health gains

and future treatment costs avoided) arise in the future. The approach adopted by most government and

regulatory bodies is that the same discount rate should be applied to costs and benefits. Discounting

costs reflects a preference for current funds over future funds; this may reflect a pure time preference

for the present over the future, or the opportunity cost of capital funds. There seems to be no argument

over there being a positive time preference over funds. The consistency argument is simply that if

costs are discounted, then benefits should be discounted at the same rate; and that to not do so would

result in constant delaying of expenditure (as the future costs are valued less than current

expenditure).

Critics of this approach argue that differential discounting of costs and health gains is appropriate,

with a much lower rate (or even zero) applied to health gains, to reflect the social value of future

health gains compared to current gains. Differential discounting will generally make prevention

programs more attractive (Brouwer et al. (2005) provide some examples). Schwappach argues that as

revealed preferences demonstrate that most people do have decreasing discount rates over time, this

should be incorporated in the analysis of prevention (Schwappach 2007). Indeed, the National

Institute of Health and Clinical Excellence in the UK mandated differential discounting, with 6

percent applied to costs and 1.5 percent applied to benefits, until 2004. The change to using the same

discount rate remains contested (Claxton et al. 2006; Gravelle et al. 2007).

In short, the economic evaluation of prevention programs presents more challenges than most

therapeutic interventions. There are a number of issues which have received relatively little attention,

and have not been resolved in theory. Therefore, the practice needs to be cognizant of these and their

impact on the results and address them explicitly.

23.4.2 Taxes and Subsidies



There is a long history of imposing taxes on the health “bads” of tobacco and alcohol. The rationale

for taxing these substances was initially based on externalities. That is, as smoking and high

consumption of alcohol led to more disease, and that as costs of treatment are shared either through

private insurance or public financing, smokers and drinkers were not paying their way. The

imposition of taxes made private costs more aligned with social costs. The responsiveness of

consumption to price increases has been well-studied, and increasing prices on tobacco and alcohol

does alter consumption. Once research showed that the additional costs of health care attributable to

smoking were more than covered by the revenue raised through tobacco taxes, the argument moved to

much more paternalistic grounds, that it was governments’ role to protect individuals from the

consequences of poor choices. The extent to which government should interfere with individual

choice remains controversial (Jochelson 2006).

Not surprisingly, given the success of public health in reducing tobacco consumption (through

fiscal and other strategies), a similar approach has been advanced for unhealthy foods, the so-called

fat tax. There is a substantial literature on the use of taxation and food choices; examples are Darmon

et al. (2002); Drewnowski and Darmon (2005); Drewnowski and Specter (2004). Whereas any

tobacco use is harmful, dietary change is largely concerned with a balanced diet rather than removing

such foodstuffs entirely. Further, as food is essential and a higher component of household

expenditure in low income groups, taxes on food have equity considerations. Against that, a diet high

in fruit and vegetables is a more expensive option than one consisting of more energy dense foods,

which can make healthy eating behaviors less reachable for low income groups. This makes the

arguments of selective taxation of food much more complex.

Fiscal interventions can alternatively lower prices through subsidies, so that healthy choices are

made cheaper choices. Many programs have removed or reduced financial barriers, such as the

provision of free immunization or screening programs. Studies which have modeled changes in

consumption, using actual market data, concluded that purchasing patterns respond to price, though the

extent of the response should be expected to vary with incomes, availability and prices of other

foods, and cultural factors (Goodman and Anise 2006). A longitudinal study from China found large

and significant responses in food consumption to changing prices (Gou et al. 1999). In the US, a

prospective observational study investigated the association between food prices and children’s

BMI, and the density of food outlets (restaurants, grocery and convenience stores); lower prices for

fruit and vegetables were associated with lower increases in BMI (Sturm and Datar 2005).

Some success in increasing consumption of fruit and vegetables through free or subsidized

provision has been demonstrated, but with short follow-up periods and often without measuring the

effect on weight loss (Bere et al. 2005; Wall et al. 2006). Changing prices at consumption points,

such as cafeterias and vending machines, does seem to increase the purchase of healthier alternatives

(Sutherland et al. 2008a).

23.4.3 Direct Financial Incentives

Paying directly for good behavior rather than taxing unhealthy behavior is attracting widespread

policy attention (McGinnis et al. 2002; Redmond et al. 2007; Scott and Schurer 2008; Le Grand 2009;

National Health and Hospitals Reform Commission 2009). This can be for adherence to prescribed

therapy, regular attendance for screening and immunization, or participating in healthy lifestyles, and

is intended to reinforce change and to encourage personal responsibility for maintaining one’s own

health. Financial incentives have proved effective in encouraging relatively simple behaviors, and



particularly those which require a once only decision; appointment keeping, immunization, extending

antenatal care to low income women, ensuring completion of TB treatment in homeless or drug using

populations, and screening have all been shown to be responsive to incentives (Giuffrida and

Torgerson 1997; Jepson et al. 2000; Kane et al. 2004; Jochelson 2007; Sutherland et al. 2008b). As

expected, the larger the incentive, the greater the change observed.

Financial incentives have also been applied to more complex behaviors such as smoking, physical

activity, and diet. Rewards are effective in increasing participation in behavior change programs, but

these diminish once the reward is withdrawn; they also have some effect in inducing short-term

changes in behavior, but these diminish over longer periods. Incentives have been shown to have

modest to no effect on short-term outcomes such as weight loss; and the evidence shows a lack of

sustained change (Kane et al. 2004; Goodman and Anise 2006; Jochelson 2007; Madore 2007; Cahill

and Perera 2008; Paul-Ebhohimhen and Avenell 2008; Sutherland et al. 2008a; Marteau et al. 2009).

However, they may be more effective as part of multi-faceted strategies than used alone (Jochelson

2007).

23.4.4 Incentives Linked to Health Insurance and Employment

As part of the German health reforms in 2004, sickness funds (insurers) have been allowed to offer

bonuses to their fund members for health promoting behavior, namely screening, immunization, checkups, and exercise (Schmidt 2007). Bonuses may take the form of cash payments, reductions in

insurance premiums, decreased co-payments on certain service use, or in kind such as sporting

equipment. Those who enrolled in the program had lower health care costs than those who did not

participate; but enrollment was on a voluntary basis and the analysis does not adjust for other factors,

such as initial health status. A similar approach has been adopted by PruHealth, a private insurer

operating in the UK and South Africa, offering lower premiums for healthy behaviors. According to

the company, costs have been reduced among the health behavior adopting group (Wilkinson 2008).

This is not surprising. Those who volunteer for participation in such programs are likely to be better

risks than those who do not; so in effect, this scheme allows the insurer to identify a better risk group.

Further it is not clear that these programs promote real change, or just encourage participants to forms

of behavior that are monitored and so rewarded.

The idea that cost savings accrue from better lifestyles, healthier employees will improve

productivity and reduce absenteeism costs, has also been used to advocate that employers subsidize

health promotion programs for over twenty years, but with little rigorous analysis to support the

assertion (Warner and Murt 1984). More recently, for example, the US Department of Health and

Human Services (2003) argued that:

Employers are becoming more aware that over-weight and obesity, lack of physical activity, and tobacco use are adversely

affecting the health and productivity of their employees and ultimately, the businesses’ bottom line...with benefit-to-cost

ratios, ranging from $1.49 to $4.91 (median of $3.14) in benefits for every dollar spent on the program



but did not provide the evaluations on which the claim is based. However, other economic evaluation

studies of health promotion programs (as discussed above) may engender some skepticism about

these claims. Health promotion at work may also be used to attract workers, by offering non-wage

benefits, or to selectively attract individuals with better health expectations.

23.4.5 Problems in Rewarding Complex Behaviors



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