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What is the price of life?

Money and health have always had a difficult relationship

At first glance "what is the price of life?" seems like an unfeeling question. Life is precious. How can we put a price on life? As an economist working in the health sector it is a question I have to think about. Whether we intend to or not, we regularly price life. For insurance purposes, working out what should be paid out if someone dies. In healthcare budget setting, when governments decide that no more than “$X” should be spent on treatment. Putting a price on life even comes up in transport when agencies determine whether or not to invest in safety measures. It doesn't feel right to put it so bluntly, but putting a price on life happens all the time. Pricing life is critical for getting value for money in health.

The price of life is a question I have been thinking about a lot more recently with coronavirus. In New Zealand, we are now in pandemic lockdown level 4, which basically means everyone except non-essential workers has to stay at home. The economy has crashed through the floor as a result. How much of the economy are we willing to sacrifice to combat this disease? Is flattening the curve actually cost-effective? I started considering this early on in this post on the fickle nature of the economy which cited United Nations estimates suggesting coronavirus could cost $1 trillion to the global economy. In this blog post I further advance on this topic.

First off, what is life actually worth? Treasury's cost-benefit analysis tool provides some answers to this question in New Zealand. An estimate from PHARMAC suggests they were willing to pay ~$27,000 for one year of life at full quality in 2017. The Ministry of Transport placed the statistical value of a life at ~$4.2 million. It is worth noting that these numbers serve different purposes. PHARMAC's number indicates what it actually paid for medical interventions that increase life length or quality within the budget allowed. PHARMAC negotiates hard to get good bang for buck. The Ministry of Transport's number is the social cost of a fatal crash and from what I understand a decision tool. So the numbers are used in very different ways.

Of course if I was to ask you "your money or your life?" I am sure you would give me a much higher number than PHARMAC or the Ministry of Transport. This is important as it reflects the inelastic demand we have for saving our own lives, or the lives of loved ones. From a broader societal perspective of course we end up at a different, much lower number.

Doctor telling her patient that she has a very high medical bill

If we can put a price on life and pay to increase life (or avoid loss of life), you can argue that we shouldn't incur any cost to save lives during coronavirus. I don't believe in the "we can't let the cure be worse than the disease" bullshit. I think that line is used to deflect and is a symptom of political weakness. Restrictions are sensible, but if coronavirus starts to hurt the economy too much we should relax lockdown restrictions. That doesn't mean it is either complete lockdown or total freedom. There are many levels of social distancing. Taking a step back on restrictions to give the economy a leg up after the crisis is worth considering.

We need to draw the line somewhere. Trade-offs are an important consideration. More money through reduced damage to the economy from alleviating lockdown restrictions, or more life. Governments can't indefinitely sacrifice the economy to save lives.

Sure $4.2 million per life or $27k per year may not be the right number. You could suggest we have a duty to help those in front of us who we know are in danger like the elderly or those with asthma, therefore we should be willing incur extra costs to fight this thing. The point is that there is actually a number and the answer to the question "what should we do to stop coronavirus?" is not "whatever it takes".

Coronavirus is a different beast. No government can prepare adequately for a one in a hundred year pandemic. The amount of latent health system capacity to cater for that would be outrageous. The spending to achieve this and maintain it would be insane.

Health is a bottomless pit. It was before coronavirus and it will be when coronavirus is long gone. You could spend half of a government's national budget on health and still have health need. You can always make arguments for more spending. Always. Someone will still need this or that medicine. Someone will still need surgery. Even if all sick people were treated with with the existing best-in-class medical interventions, there is the long list of medical innovations which we can spend even more on. It. Never. Stops. And you can make this argument about other sectors as well.

Drawing the line is critical for both fiscal discipline and value for money purposes. If we can't spend indefinitely on health and have to budget, then we need to think about how we can get value for money out of that budget and prioritise. That is just good practice. Relaxing fiscal discipline because we need to save lives is a recipe for transferring wealth to the individuals and companies willing to cash in on the inelastic demand.

Where does coronavirus sit against our priorities? The virus has moved fast meaning we haven't really had adequate time to answer this question, and governments have had to use their judgement. Right now governments are probably listening to doctors more so than economists. That makes sense given this is a health crisis. When we sit back and reflect on our pandemic response, I have little doubt that the primary measure we use to determine if it was successful will be the number of lives saved - as it should be. I also hope that we factor in the broader spending and hit to the economy so we know what we missed out on and can balance appropriately in the future.


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