Some estimates claim that one-quarter of life-time spending on medical care occurs in the last year of an individual’s life. Conventional wisdom says this is inefficient, but a paper by Philipson, Becker, Goldman and Murphy (2010) disagrees. Individuals at the end of their life place very high value on terminal medical care for the following reasons:
- If resources have no value when dead, a self-interested individual would be willing to forego his entire wealth to extend his life.
- The preservation of hope raises the value of life. The authors claim that if a patient is given a death sentence in 6 months, he values those 6 months less than if he knew he would live after that.
- The social value of terminal care is often greater than the private value. Adult children (hopefully) places a high value on extending the life of their elderly parents.
- The value of terminal care may be the same regardless of a patient’s quality of life. QALY estimates of the value of life underestimate the utility the elderly receive from being alive, even in a very frail state.
Source: Philipson, Becker, Goldman and Murphy (2010) Terminal Care and The Value of Life Near Its End, NBER Working Paper #15649.