Valuing Health for Regulatory Cost-Effectiveness Analysis (2006) / Chapter Skim
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2 Characteristics of Major Regulations and Current Analytic Practices
2 Characteristics of Major Regulations and Current Analytic Practices
Pages 41-66
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From page 41... ...
Although the government issues thousands of different types of regulations each year, only a few are economically significant health and safety regulations subject to the OMB requirements for benefitcost analysis (BCA) and cost-effectiveness analysis (CEA)
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From page 42... ...
of the Occupational Safety and Health Act of 1970, for example, Congress gave the Secretary of Labor broad regulatory authority to adopt standards "reasonably necessary or appropriate to provide safe or healthful employment." Section 6(b)
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For example, Section 112 of the Clean Air Act set a threshold that certain carcinogenic emissions must be controlled if they produce an incremental risk of cancer of 1 in 1 million over a lifetime. For the most part, the risk exposure thresholds are established by the agencies as part of the regulatory development process.
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Hybrid Requirements The above types of standard-setting requirements may be combined as well as supplemented with other factors for consideration by regulators. For example, Section 112 of the Clean Air Act first requires industries to use maximum achievable control technology standards to reduce toxic emissions, but then requires EPA to promulgate more stringent regulations if excess cancer risks exceed a threshold of 1 in 1 million.
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In the case of SDWA, the 1996 amendments require the assessment of costs and benefits and identify factors that must be addressed. In particular, EPA must consider: · the quantifiable and nonquantifiable health risk reductions associated with controlling the contaminant of concern and any co-occurring contaminants; · the costs of compliance with the control requirements; · the incremental costs and benefits associated with each alternative under consideration; · the effects of the contaminant on the general population and on groups within the population that are likely to be at greater risk of adverse health effects from drinking water contaminants, "such as infants, children, pregnant women, the elderly, and individuals with a history of serious illness"; · the increased health risks, if any, that may result from compliance with the proposed standard, including risks associated with co-occurring contaminants; and · other relevant factors, including the quality of the available information supporting the analysis, the uncertainties in the analysis, and factors relating to the degree and nature of the identified risks (Section 1412(b)
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, the Federal Motor Carrier Safety Administration, and the Consumer Product Safety Commission (CPSC) .1 From January 2000 through June 2004, these agencies finalized 18 economically significant regulations with quantified health and safety impacts, listed in Table 2-1.
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Rulemakings EPA: Office Clean Air Act · New vehicle emissions of Air and · Heavy-duty diesel engines Radiation · Spark ignition engines · Reciprocating internal combustion engines · Nonroad diesel engines EPA: Other Toxic Substances Control Act; · Lead paint abatement offices Safe Drinking Water Act · Arsenic in drinking water FDA Federal Food, Drug, and · Shell egg labeling and storage Cosmetic Act; Public Health · Juice processing Service Act · Trans fat labeling · Dietary supplements containing ephedrine alkaloids · Bar codes for human drug products and blood FSIS Federal Meat Inspection Act; · Listeria control in meat and Poultry Product Inspection Act poultry OSHA Occupational Safety and Health · Ergonomics program Act; Construction Safety Act · Steel erection safety NHTSA Transportation Equity Act for · Occupant crash protection the 21st Century; Transportation (air bags) Recall Enhancement, Accountability, · Tire pressure monitoring and Documentation Act FMCSA Interstate Commerce Commission · Truck driver hours of service Termination Act SOURCE: Robinson (2004)
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Within this framework, agencies have a great amount of discretion when constructing economic analyses. The scope of judicial review over agency decisions is narrow, and courts must not substitute their own judgment for that of the agency, particularly in matters requiring technical expertise.
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NHTSA had the authority to relax the standards but declined to do so, based in part on an agency BCA indicating that the more stringent fuel economy standards produced a total net benefit. The plaintiff filed suit, claiming the agency had failed to assess the impact of additional automobile accident fatalities that were being caused by downsizing cars in response to the stricter standards.
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Although it is similar to earlier guidelines, the Circular provides substantially more detailed information on the criteria for high-quality analysis, imposes certain new requirements, and alters the details of some of the Estimate net benefits Identify regulatory Measure the Assess Consider distribution Determine the and nonregulatory uncertainty and costs and of impacts across sub options and compare need for federal nonquantifiable benefits of groups of concern regulatory action to baseline each option impacts conditions Estimate cost effectiveness FIGURE 2-1 Key Components of OMB Circular A-4
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OMB TABLE 2-3 Key Analytic Requirements of 2003 Office of Management and Budget Guidelines Requirement Guidance Type of analysis Both BCA and CEA Monetary valuation Prefer estimates of willingness to pay from stated or revealed of morbidity preference studies plus any additional economic costs of illness, may use health utility studies Monetary valuation Agency discretion in selecting value of statistical life of mortality estimates, may adjust for income growth or time lag but not age, caution on use of value of statistical life year Effectiveness measures Use integrated measures that combine consideration of for health and safety morbidity and mortality where appropriate, report more than one measure as well as estimates of physical impacts Effects on children Avoid measures that place lower values on benefits accruing and the elderly to these subpopulations, apply CEA when children are affected Cost estimates Include costs and savings related to private-sector compliance, government administration, losses in consumers' or producers' surplus, discomfort or inconvenience, or loss of time in work, leisure, commuting, or travel Discounting Present costs and benefits undiscounted and discounted at both 3 and 7 percent; may consider other rates; intergenerational impacts require special consideration Uncertainty analysis Discuss qualitatively, present sensitivity analysis, and complete probabilistic analysis as appropriate; probabilistic analysis required if impact is greater than $1 billion annually Nonquantified or Highlight in presentation of impacts nonmonetized effects Distributional impacts Quantify impact on different segments of the population when important, including both transfers and total social costs and benefits SOURCE: OMB (2003a)
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· HALY measures may affect the perceived fairness of the analytic approach, for example, if lower values are used for life-extending interventions affecting persons with disabilities. Rather than using different estimates of life expectancy or health-related quality of life (HRQL)
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In addition, each agency adds the economic costs of illness to these monetized HRQL measures when estimating total benefits, although the types of costs included vary across agencies. This reliance on monetized HRQL estimates appears to stem largely from the shortage of stated or revealed preference studies of willingness to pay that address the health effects of concern to these agencies.
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. and focus on the magnitude of the respondent's economic valuation; · the analytic results should be consistent with economic theory using both "internal" (within respondent)
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For example, NHTSA's approach is based on its periodic studies of the national costs of motor vehicle accidents (NHTSA, 1996, 2002a) , and EPA's approach has evolved as a result of its prospective and retrospective studies of the Clean Air Act (EPA, 1997, 1999)
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22 Chronic bronchitis (adults, 26 and over) 5,600 Nonfatal myocardial infarctions (adults, 18 and older)
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. from the available literature or the application of generic HRQL indexes using expert judgment.
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NHTSA has historically conducted CEA based on estimates of "equivalent lives saved," which represent the ratio of the dollar value of injuries (including monetized HRQL impacts and economic costs) to the dollar value of fatalities.
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. This approach adds an estimate of the HRQL impacts of nonfatal cases of myocardial infarction and chronic bronchitis to an estimate of the number of life years lost to preventable mortality.
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BOX 2-5 EPA's Morbidity Inclusive Life Year Approach The EPA's MILY approach sums unadjusted life years gained from averted premature mortality and QALY adjusted gains from averted morbidity. To imple ment this approach, EPA first searched the literature for estimates of the HRQL impacts of cardiac disease following nonfatal myocardial infarction and of chronic bronchitis.
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· The HRQL impacts were then multiplied by the value of a statistical life year (after first subtracting the value of after-tax wages and household production) to determine their dollar value.
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. EPA developed this approach in response to OMB Circular A-4 guidance, which suggests that life years lost to preventable mortality should be based on population averages and not adjusted for disabling or other conditions.
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OMB requires that agencies present information on the time periods within which the undiscounted impacts are likely to occur. OMB recommends that agencies estimate the net present value of benefits and costs using both 3 and 7 percent discount rates.
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In CEA, OMB notes that ratios based on averages can be problematic, and instructs analysts to determine the cost-effectiveness of each option incrementally in comparison with the baseline and with each successively more stringent set of requirements. Assessing Uncertainty and Nonquantified Effects The OMB guidelines advise that, as appropriate, agencies should discuss qualitatively the main uncertainties in the calculations; use sensitivity analysis to assess the effects of changes in the approach on the resulting estimates; and develop formal probabilistic analyses of uncertainty using simulation models and/or expert judgment.
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The responsibility for implementing these programs is delegated largely to executive branch agencies, which develop many regulations each year. Economically significant health and safety regulations that are subject to OMB's requirements for economic analysis are a very small proportion of this total.
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Subsequent chapters consider and make recommendations about the use of HALY measures in regulatory CEA, ethical and other nonquantified information to be considered in developing regulatory policies, and the construction and presentation of CEAs using health-related effectiveness measures. Importantly, the conclusions and recommendations presented throughout address the use of CEA specifically for public policy analysis of interventions affecting the environment, public health, and safety.
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