Health Economics

  • As a way of doing normative economics extra-welfarism is an alternative to conventional welfarism. Conventionally, it is assumed that utility is the maximand, that sources of utility are goods and services, and that social welfare is derivable from (and only from) individual utilities, and that these utilities depend upon people's preferences. Thus, health care constitutes the goods and services that may (amongst other things) enhance health. Health, in turn, is a source of utility, both directly and through the effects good health has on one's capacity to enjoy other goods and services.

    Extra-welfarism has regard to a potentially wider range of attributes than people's consumption of goods and services and might, for example, include changes in consumption or work patterns as direct sources of utility or disutility; or other states and changes in them (for example, being divorced or getting divorced), being 'educated', participating in decisions, sharing sorrows, overcoming difficulties, feeling that one 'belongs', being 'private'. Extra-welfarism is 'extra' not only in enabling the consideration of other things that contribute to human flourishing beyond goods and services and the utility to be had from them, but also the effects on people of the processes and transitions of life. A further distinctive feature is that, in extra-welfarism, the source of the valuation of these attributes may not be (or may not exclusively be) people's preferences. The moral authority of extra-welfarism is not asserted a priori, but derives from a legitimate authority such as ministers of health, education or housing. The role of economists under extra-welfarism is thus relatively modest compared with standard welfarism and is less overtly political (and 'liberal'). Extra-welfarism has not to date been explicitly applied in several policy arenas to which it appears well-suited (for example, education, one of whose functions entails the change and development of preferences, seems a natural target) and has been principally used in health policy analysis.

    In health economics, extra-welfarism commonly postulates health it self as the maximand of the health care sector, rather than the individ ual utility to which it may give rise. One specific advantage of the approach is that objectives cast in terms of ' health gain ' are commonly set by policy-makers, and this approach fits well with the social decisions approach in cost-benefit analysis. Another is that it makes no heroic assumptions about the ability of sick people to make rational utility-maximizing decisions on their own behalf, though it certainly assumes that collective decision-making is improved by the use of 'rational' processes like cost-effectiveness analysis. Yet another is that indicators of value such as willingness to pay may be judged to be too contaminated by abilities to pay and imperfections in the agency relationship to be relied upon in the construction of health care priorities and the allocation of health care resources. A final claimed advantage is that the method has proved valuable in laying bare the kind of value judgments that necessarily inhere in any concept of 'health'.

    There is no scientifically 'correct' choice to be made between welfa- rism and extra-welfarism (though the ways in which costs and benefits are considered might vary radically between them). One's choice between them depends principally on either a direct value judgment or on a judgment about what is the most helpful way of setting up a problem in a particular circumstance. For example, if the agency on whose behalf some research is being undertaken wishes to discover the cost-effectiveness of a new diagnostic procedure, and that agency has clearly espoused 'health' as its maximand, it may be most appropriate to adopt an extra-welfarist approach, taking health gain as the maximand and considering pragmatically any other factors deemed significant by the research clients (such as 'ease of implementation', short-term 'impact on waiting times', 'political acceptability' and the costs of achieving political acceptability).

    The quality-adjusted life-year (QALY) is the most common entity chosen as maximand under extra-welfarism. In this context, however, it is probably best not to view the QALY as an index of (in some sense, average) preferences for health but as a representation of a collectively determined outcome measure explicitly posited by an authoritative agency, that is, an agency deemed to be a sufficient authority for the value judgments that are embodied in a QALY. These value judgments may, of course, accord a high place to respecting people's preferences and, if preferences turn out to be all, then the two approaches amount to the same.