Cost of Environmental-Related Health Effects A Plan for Continuing Study (1981) / Chapter Skim
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Chapter 4: Costs of Health Effects
Chapter 4: Costs of Health Effects
Pages 77-104
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From page 77... ...
other related direct and indirect costs (5) costs attributable to pain and suffering (6)
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From page 78... ...
We use the term, "output accounting," to emphasize its basis in the measurement of lost output and its similarities to national income accounting. (National income accounting is the description of the sources and uses of the outputs of the economic system.
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From page 79... ...
The output-accounting approach measures the effects of illness and other health losses on this flow: some of the single output is diverted to various forms of medical care and' therefore, is lost (direct costs) , and some of it is lost because persons capable of producing the output die of a disease or are impaired by it (indirect costs)
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From page 80... ...
In output accounting, an average loss of wages by age and sex is assumed. In the same way that these average losses are used in output accounting, we may hope to find an average willingness-to-pay for some suitably defined group of similar individuals, for instance, those of a given age and sex.
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From page 81... ...
It can be argued that any reasonable reweighting of the dollar values of different individuals would make little difference to the calculated health costs. The reason is that air- and water-borne pollution affect individuals of all incomes.
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From page 82... ...
The indirect costs are the sum of the costs of time lost from work by those too ill to work, and the present discounted value of earnings lost to mortality. More specifically, the last item finds average earnings for the identifiable group (usually defined by age and sex)
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From page 83... ...
The combination of financial strain and psychosocial problems is especially devastating. A particular disease may bring about personal catastrophes that are not reflected in the direct and indirect economic costs usually estimated for that disease, although some of these costs may increase direct and indirect costs classified under some other disease category.
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From page 84... ...
95-623, taxes and transfer payments, such as public aid, disability payments, and similar items, are not costs of disease and should not be added to direct and indirect economic costs. Indirect costs are based on forgone future before-tax earnings, so lost tax payments to the government will already have been counted.
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From page 85... ...
Direct and Indirect Costs It is possible with existing data and methods to calculate national estimates of certain direct and indirect economic costs of disease for the broad three digit International Classification of Diseases (ICD) categories, such as neoplasms, diseases of the circulatory system, diseases of the digestive system, and so on.2 It is also possible to disaggregate some of these costs into more specific disease categories; for example, expenditures for short-term hospital care for neoplasms can be itemized by selected cancer sites 10.
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From page 86... ...
With the simplifying assumption that conventionally measured direct costs approximate net direct costs for non-fatal cases, a correction need only be applied to the fatalities. If, in addition, a particular fatal disease accounts for only a small part of total national medical expenditures for all individuals, the change in net direct costs resulting from a change in the disease incidence can be further simplified, as follows.
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From page 87... ...
But the economic benefits may be reflected in the savings of indirect costs, rather than direct costs. Use of total direct costs rather than net direct costs would exaggerate the savings in medical expenditures that could be realized by elimination of some diseases, because elimination of diseases that incur low direct costs may result in people dying later of diseases that involve much greater medical expenditures.
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From page 88... ...
The problem of allocating costs is further complicated by a significant proportion of coding errors in abstracts of hospital data. The Institute of Medicine has completed three studies of the reliability of data on hospital utilization, including hospital data compiled by private abstracting cervices, 14 information obtained as a by-product of the Medicare administrative record-keeping system,15 and data collected by the National Hospital Discharge Survey (NHDS)
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From page 89... ...
There is also a lack of data on variation of physicians' fees among hospital surgical procedures. As a result, the known total of expenditures is allocated among different diagnoses mainly according to the number of physician visits and proportion of hospital discharges with surgery, implicitly assuming an equal charge for every visit and for each surgical procedure.
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From page 90... ...
Morbidity and mortality -- by causing persons to lose time from work and other productive activities, forcing them out of the labor force completely, or bringing about premature death -- destroy labor, which is a valuable economic resource. Disease thus creates an undeniable loss to individuals and society, and it is this loss that indirect costs attempt to describe.
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From page 91... ...
This classification of discounted future earnings controls for a significant portion of the variation in projected earnings using only readily available data. Although age, race, and sex usually can be determined for a specified group, such as those dying of cancer, current records likely to be used in assessing the health effects of environmental hazards would not necessarily provide information on education and occupation, important variables that would enable more precise estimates of indirect costs.
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From page 92... ...
Other Related Direct and Indirect Costs Some non-health sector costs, discussed earlier, can be estimated, but, given the data available, not necessarily for specific diseases. Although not a complete evaluation, a recent study found that non-health sector costs add at least 12 percent to total direct and indirect economic costs.20 These costs are large and an important component of costs originating in illness and disease.
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From page 93... ...
Expenditures for various types of medical care, such as hospital and physician services, and earnings lost because of morbidity and mortality can be estimated for a specific disease. Direct and indirect costs can be calculated for all of-the ma jar three-digit -93
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From page 94... ...
For instance, expenditures for short-term hospital care and physicians' services for neoplasms have been disaggregated for selected cancer sitesl° and expenditures for individual digestive diseases are available.27 It is clear that, given the nature of the samples, hospital care can be disaggregated while maintaining statistical reliability to a greater extent than can physicians' services. Determining the portion of the total economic costs of disease that is attributable to environmental hazards is difficult because of the paucity of knowledge about the effects of the environment on health.
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From page 95... ...
Premature death from one disease will mean that an individual forgoes medical care expenses of some kind that would have been incurred subsequent to death had the person not had the fatal disease. As in the prevalence approach, the appropriate measure of net direct costs in the incidence approach includes expenses of subsequent diseases originating from the antecedent disease that is of interest and excludes, in the case of a fatal disease, the direct costs of nonrelated diseases that would have been incurred over the remaining lifetime.
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From page 96... ...
The costs of disease to this population, if estimated by an output-accounting approach, would be markedly understated, because the indirect costs (discounted future earnings) of those no longer in the labor force are zero.
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From page 97... ...
The lower figures probably underestimate values for the general population because they are based on compensation paid to workers accepting especially risky jobs. Workers in risky jobs would tend to be those who value risk of death less highly than others, so the compensation they accept for risk is probably less than the compensation a randomly selected individual would demand for comparable risk.
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From page 98... ...
The nature and severity of the morbidity attributable to environmental agents is highly variable. Health effects may range from minor throat irritation to permanently disabling lung disease.
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From page 99... ...
Progress in assessing costs of specific health effects will be facilitated if, after identifying the diseases caused by environmental agents and symptoms caused or exacerbated by them, the ongoing study performs or supports surveys to assess wi llingness-to-pay to avoid the health effects. Health effects of concern might include various acute respiratory complaints, angina, _99_
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From page 100... ...
Conclusion Both the output-accounting method of estimating costs of illness and disease by direct and indirect costs and the willingness-to-pay approach seek to quantify in monetary terms aspects of the burden of Prices imputed to product characteristics rather than to the products themselves. In this case, the hedonic prices of risk of death and other health effects are sought.
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From page 101... ...
Lessened direct and indirect costs are among the benefits to be derived from reductions in environmental hazards. Willingness-to-pay values are measures of the monetary values attached by individuals to changes in welfare that would accompany changes in the probability that a particular event, such as death from a specific disease, would occur.
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From page 102... ...
Report B3 Revised, Georgetown University Public Services Laboratory, Washington, D.C. January 19, 1978.
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From page 103... ...
Georgetown University Public Services Laboratory, January 25, 1978.
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From page 104... ...
The incidence and economic costs of coronary heart disease. Paper prepared for the Insurance Institute for Highway Safety by Policy Analysis, Inc., Brookline, MA, August 1978.
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