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1 Introduction
Pages 15-40

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From page 15...
... can be one important contribution to the regulatory decisionmaking process. This report of the Committee to Evaluate Measures of Health Benefits for Environmental, Health, and Safety Regulation provides recommendations and guidance on the valuation of health and safety improvements in CEA.
From page 16...
... Background Federal agencies are directed by executive order (and sometimes by statute) to estimate and report the expected benefits of proposed major regulations in conjunction with their estimated costs.1 For economically significant health and safety rules, these analyses must generally include both a BCA and a CEA.
From page 17...
... . BOX 1-1 OMB's Rationale for Requiring CEA as Part of Regulatory Analysis In remarks to a 2003 conference on Valuing Health Outcomes at Resources for the Future, John Graham, Administrator of the Office of Management and Bud get's (OMB's)
From page 18...
... Specifically, the Committee was asked to: · Describe current practices among federal agencies for evaluating the costs and outcomes of regulatory measures. · Review measures of health benefits currently used in CEA, including specific instruments and assessment techniques applied to value health within these composite measures.
From page 19...
... The sponsors' charge specifically directed that aspects of CEA other than the measurement and valuation of health benefits -- discounting, for example -- be considered only as they relate to the question of valuing health benefits.2 The charge also specified that the Committee should refrain from examining methods for assigning a monetary value to HALY measures. The Committee does, however, comment more generally on the practice of using monetized HALY measures in BCA.
From page 20...
... This schedule is reflected in the regulatory agendas developed by each agency, which are published twice a year in the Federal Register and list all recently completed and planned regulatory actions. Once an agency decides to move ahead with a regulation, it often convenes an internal agency workgroup to study the problem and identify regulatory options (see, e.g., EPA, 2003)
From page 21...
... The proposed regulatory language is then published in the Federal Register, along with a preamble that discusses the rationale for the overall regulation and its specific provisions and that summarizes the economic analysis. Related reports, including the complete economic analysis, are placed in a docket (and generally on the agency's website)
From page 22...
... President Carter also initiated a process for centralized review of significant regulations. President Reagan then made regulatory relief a cornerstone of his economic program and developed a more centralized system involving OMB review of agen cies' major regulatory actions (1981)
From page 23...
... In addition, the Executive Order requires agencies to involve the public in regulatory development, for example, by disseminating information on regulatory plans, providing opportunities for public comment, considering the use of consensual approaches such as negotiated rulemakings, and publishing information on the rationale for the regulation as well as the supporting analyses. Executive Order 12866 also establishes the basic requirements for economic analysis of major regulations.
From page 24...
... Further, in choosing among alternative regulatory approaches, agencies should select those ap proaches that maximize net benefits (including potential economic, envi ronmental, public health and safety, and other advantages; distributive impacts; and equity) , unless a statute requires another regulatory ap proach (EOP, 1993, p.
From page 25...
... . Although the requirements apply specifically to significant regulations subject to OMB review, such analyses are often carried out for rulemakings that are not economically significant, as well as BOX 1-5 Executive Orders Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks In April 1997, President Clinton issued an Executive Order directing all federal agencies to (1)
From page 26...
... Summary Within the current framework for regulatory development, economic analysis is one of many factors that must be considered by decision makers. Other considerations include the statutory requirements, the justification for regulatory action, the feasibility of nonregulatory as well as regulatory options, the potential effects of nonquantifiable impacts, the distribution and equity of the impacts, and the results of public involvement and comment.
From page 27...
... Welfare economics, which provides the conceptual foundation for BCA, serves as the predominant framework for informing public decisions about the economic impact of regulatory interventions and resource allocation. Within this tradition, social welfare or well-being is understood as the aggregation of individuals' personal welfare, and personal well-being is defined as the satisfaction of individual preferences, valued in monetary terms.
From page 28...
... Both benefits and costs are calculated at the societal level, and measured in monetary terms to the extent possible. Net benefits, the extent to which the total benefits exceed total costs, can be compared across policy options to determine what intervention, if any, will maximize social welfare.
From page 29...
... In practice, costs are often defined to include the economic impacts of the requirements imposed by a regulation or other intervention, and benefits include the outcomes or goals associated with imposing the requirements.6 Both costs and benefits may include offsetting effects; for example, a rule that requires expenditures to decrease hazardous air emissions from engines may lead to fuel cost savings, or a rule that requires treatment to remove a drinking water contaminant may lead to the use of chemicals that pose other risks. Because the end result is the calculation of net benefits (i.e., benefits minus costs)
From page 30...
... Thus analysts must rely on other valuation approaches. As noted earlier, the starting point for estimating monetary values is typically the concept of individual WTP: the maximum amount of money an individual would voluntarily exchange to obtain the improvement (e.g., reduced health risks or better health status)
From page 31...
... The Kaldor-Hicks criterion forms the basis of the standard decision framework generally applied in BCA. This framework suggests that policies should not be pursued if costs exceed benefits, and, if more than one policy provides positive net benefits, the preferred choice is the option with the largest net benefits.
From page 32...
... CEA differs only in that analysts must be careful to exclude those costs that are addressed by the effectiveness measure to avoid double counting. For health care programs, PCEHM recommends that, in the reference case, costs include changes in the use of health care resources, treatmentrelated changes in the use of non-health care resources, changes in the use of informal caregiver time, and changes in the use of patient time due to
From page 33...
... this rate represents the opportunity cost of not engaging in paid work. The Panel's recommendations focus on the use of CEA to assess health care interventions; the analysis of costs in a regulatory CEA involves additional considerations.
From page 34...
... As a result, benefit measurement in regulatory CEAs is likely to rely on integrated HALY measures, such as QALYs, that allow analysts to combine information about various health conditions. These measures provide a common metric for estimating the HRQL impact of different conditions, which includes functioning in domains such as mobility, emotion, social activity, and self-care.
From page 35...
... One key difference is that WTP indicates the extent to which individuals are willing to make trade-offs between different uses of resources, while HALY measures restrict the trade-offs to alternative health states. As discussed in Chapter 3, some commonly used HALY measures assume that the value placed on a given health state in the abstract does not depend on the duration of that health state; that is, regardless of whether the illness or impairment lasts for one day or several years, the index value is the same.
From page 36...
... The one exception is where an option is dominated; that is, at least one other option under consideration is both more effective and less costly. In contrast, the decision criteria for BCA suggest that projects with negative net benefits (costs that exceed benefits)
From page 37...
... CEA is similar to BCA in that it provides a useful framework for collecting, analyzing, organizing, and reporting information on the impacts of regulatory options. It has the advantage of avoiding the need to assign monetary values to health and safety impacts, and thus may be more palatable to those who are uncomfortable with monetization of these types of benefits.17 However, the decision to implement a regulation ultimately involves commitment to a predicted level of expenditure or cost, implicitly assigning a monetary value to the quantified and nonquantified benefits.
From page 38...
... The results of both BCA and CEA can be presented in disaggregate form to indicate the impact on different subgroups of concern. Ultimately, however, decision makers must engage in collective reasoning, consider additional information and the views of the public, and exercise judgment to determine whether the resulting distribution of costs and benefits argues in favor of an option that differs from the approach that provides the largest net benefits or appears most cost-effective across all groups.
From page 39...
... For example, the relationship TABLE 1-1 Comparison of Key Features of BCA and CEA Approach for Valuing Benefits Willingness to Pay Health-Adjusted Life Year Accounts for health-related Yes Yes impacts Accounts for nonhealth Yes Excluded from effect impacts, such as ecological measure, may be included as effects an offset to costs Accounts for altruistic Depends on study design Depends on elicitation values or concerns about method and question impacts on others May be influenced by Yes No income or wealth Consistent with utility Yes Only under restrictive theory assumptions Summary Measure Net Benefits Cost-Effectiveness Ratio Decision criteria The option where benefits Compare the incremental exceed costs by the largest cost-effectiveness of different amount is the most options to determine economically efficient; whether an increase in the options with benefits less effect measure is worth the than costs should not be increase in cost; options that selected are dominated (i.e., have higher costs and lower benefits than others) should not be selected Incorporates assessment of Yes Yes uncertainty Indicates the equity or No, must be assessed separately fairness of the distribution of impacts Indicates the importance No, must be assessed separately of impacts that cannot be measured in quantifiable terms
From page 40...
... Chapter 3 presents criteria for selecting integrated measures and survey instruments, reviews alternative HALY measures and HRQL survey instruments, and describes different strategies to obtain estimates for regulatory CEA. Chapter 4 reviews the aspects of risk regulation that policy makers need to consider that are not reflected in the cost-effectiveness ratios, including ethical issues related generally to CEA as well as those related to the population and risk characteristics that are not fully captured in the effectiveness measures.


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