Valuing intangible costs of substance abuse in monetary terms

Claude Jeanrenaud, Sonia Pellegrini IRER, University of Neuchâtel

NeuchâtelOctober 25th, 2003

Purpose

(1) Defining the notion of « intangible costs »

(2) Discussing some of the methodological questions that arise when valuing the intangible costs of addictive products

What are intangible costs ?

Substance abuse generate:

Tangible vs. intangible costs

Intangible costs :change in health-related quality of life (HRQOL),excluding any direct and indirect costs

Tangibles costs :• forgone production• material costs

Both the tangible and the intangible costs affect the well-being

Economic implicationsof substance abuse

health per se

change in well-being

non health

reduced HRQOL forgone production

intangible tangible

Ignoring this component because we don’t know how to measure it leads to a gross under-estimation of the consequences of substance abuse

When both tangible and intangible costs are valued, the latter constitute a considerable part of the total costs:

– Violent crime : 82.6%

– Multiple sclerosis: 89.9%

– Smoking : 50.0%

– Alcohol abuse : 66.2%

Can intangible costs be ignored?

Intangible costs are the monetary (or income) equivalent of the loss of health per se

Most studies only value direct and indirect costs (tangible costs)

Intangible costs are said to be difficult or impossible to assess

Missing markets : one cannot rely on market prices to place a value on changes in HRQOL

Valuing intangible costs

Conversion of health units (natural units) in money units

Health implications of alcohol abuse

natural units

conversion

income equivalent = money unit

A preference- or non preference-based approach ?

A restricted or a global approach ?

A disaggregated or an all-inclusive approach ?

A one-step or two steps procedure ?

Survey design

Some methodological issues

Preference- or non preference-based approach

The conversion of natural units in monetary terms is based on preferences

People are asked how they would trade health against money

Income equivalent of a reduced HRQOL

Method : contingent (CV) survey

Preference-based (willingness-to-pay approach)

CV method : allows us to learn how people value health

People are asked to state :

the maximum amount of the income they would accept to forgo to avoid a deterioration of their health state (keeping their well-being constant)

Income equivalent of a reduced HRQOL

The analyst decides how much people would pay to avoid drug harm (hypothesis)

Non preference-based (short cut)

Bernasconi (1993) : for each drug user, there is at least a member of the household who would accept to sacrifice all his assets.

Collins & Lapsley (1996): The value of the goods that the deceased would have consumed plus a lump sum amount for each year of life lost provide a lower bound for the intangible costs

Restricted or global approach ?

Restricted or global approach ?

Both the HC and the WTP methods can be used in a global or restricted perspective:

Human capital : – global if used to value all aspects of substance

use or abuse– restrictive if used to value only part of the

burden (resources costs)

WTP approach :– global if used to value all health and non-health

implications – restricted if use to value intangible costs only

WTP : global perspective

WTP global perspective: applied to assess all the costs borne by the community, i.e. tangible and intangible:

Difficulties :

– The stated value depends on which costs are carried by the social security system

– It doesn’t reflect the total cost for the community

WTP : restricted perspective

WTP restricted : applied to assess the intangible costs only

Difficulties :

– The questionnaire must be carefully designed so that the respondent does not take possible losses in future income or out-of-pocket payments when stating his WTP

– Is it sufficient to tell the respondents not to do it ?

Disaggregated or all-inclusive approach ?

Alcohol abuse has many health implications : Abusers face a higher risk for more than 60 diagnoses groups

Excessive alcohol consumption also has behavioral and psycho-social consequences

How to include all these effects in the cost estimate ?

Alcohol abuse is a complex problem

Procedure:

• Identify the adverse health effects related to excessive alcohol consumption

• Value the health implications of the most significant alcohol-related diseases

Problems:

– The risks for the different alcohol-related diseases are not independent

– Risk of overestimation (embedding effect, budget constraint)

Valuing each effect separately and summing them up

Procedure:

• Specify a life time profile for (typical) excessive drinkers

• Value the change in HRQOL using a CV survey

Problems :

– What is a representative abuser ?

– How to attach a probability to each profile ?

Valuing a profile

From health metrics to money metrics

From health metrics to money metrics

One-step conversion

Change in health state (natural units) is converted directly in monetary units

CV survey (profile or specific diagnoses)

Two-step conversion

Change in health state (natural units) is converted in utility units (QALY or DALY)

Utility weights are assessed through a time-trade-off or a standard gamble survey

Use an estimate of the income equivalent of a QALY or use some standard value

Survey design

Ex ante : WTP for a risk reduction

Ex post : WTP of a (potential or real patient) for retrieving perfect health

WTP is higher when ex ante approach is used

Ex ante or ex post approach

Real patients have a better knowledge of the health implications of the illness on their well-being

Potential patients tend to overstate the consequences of a specific disease (ex: potential patients would prefer to die, real patients prefer to live with the disease)

Surveyed population : real patients or potential patients

Sometimes, the respondents cannot imagine to be at risk. Example: a scenario in which an abstinent must imagine to be an alcoholic.

Alternative scenario : the respondent express his WTP to provide a treatment for a member of his family or a close friend.

What should the respondent consider : a change in his own health state

or in that of someone else ?