Economics - General Experimental

Welfarists vs. Extra-welfarists

Health economists, policy makers, physicians and public health officials all want to maximize the well-being of society. These groups evaluate different medical treatments or public health interventions and then determine if the benefit is worth the cost.

In an opinion piece by Dorte Gyrd-Hansen in Pharmacoeconomics (2005), two schools of thought are examined. Those who are ‘welfarists’ believe that “the output of healthcare should be judge according to the extent to which it contributes to overall welfare (i.e. the [weighted] sum of individual utilities….’extra-welfarists’ do not define the output of healthcare in terms of preferences for health vis-a-vis other goods, but according to its contribution to health itself, i.e. they wish to maximize health as against overall welfare.”

What does this mean in reality?

“From a welfarist theoretic framework, treating a person who copes well with her disease and thus generates a high level of personal utility despite a poor health state will not be as efficient as treating a person who copes poorly. Extra-welfarists would aim at constructing an outcome measure that would produce equal values for the two strategies thus overriding individual preferences.”

Let’s use a chart to compare these two philosophies:

  Welfarist Extra-Welfarist
Focus Output of medical care should be judged against all other goods Output of medical care should be judged against all other types of treatment
Function to maximize u(x,h(m)); s.t.: x+pm=I h(m); s.t. [h(m)-h(0)]/p>C
Individual heterogeniety Different individuals value the same health state differently Assume that everyone values health states similarly
Analysis Cost-benefit analysis (CBA) Cost-effectiveness analysis (CEA)
Advantage Theoretically superior Easier to implement in practice

From the chart we see that welfarists try to maximize [the sum of] individual utilities subject to a budget constraint. Extra-welfarist, try to maximize health which is done by choosing all medical procedures which are more cost-effective than a certain threshold. This threshold, C, is must be chosen by policymakers. Welfarists wisely see that some individuals value health more than others in comparison to other goods. The extra-welfarist assumes all individuals with the same disease are homogeneous. This may seem naive, but in practice, it is very difficult to find each individuals willingness to pay for an increased level of health.

Extra-welfarists often try to elicit willingness-to-pay (WTP) measures for an additional QALY (i.e. quality-adjusted life year). If one applies a single WTP for each QALY, this “will entail overriding individual preferences such as diminishing marginal utility of health and potential differences in the value of increment health across population groups.” If we could rank health on a scale from 0 to 100 where 0 is equivalent to death and 100 is perfect health, economists would argue that under diminishing marginal utility of health that and individual would value an increase in health from 50 to 60 more than they would an increase from 90 to 100.

So is using the extra-welfarist QALY acceptable? While the welfarist camp offers no practical, easily estimable alternative, the do bring out some short comings of using QALYs (e.g., diminishing marginal utility of health, individual heterogeneity in terms of valuation of health against other good). Thus, I think the QALY method is helpful to analyze the benefit of a particular medical treatment, but the cost per QALY should not be the only factor taken into account when analyzing whether or not to adopt a new medical procedure.