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Valuing intangible costs of substance abuse in monetary terms. Claude Jeanrenaud, Sonia Pellegrini IRER, University of Neuchâtel Neuchâtel October 25 th , 2003. Purpose. (1) Defining the notion of « intangible costs »

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Valuing intangible costs of substance abuse in monetary terms

Claude Jeanrenaud, Sonia Pellegrini IRER, University of Neuchâtel


October 25th, 2003


(1) Defining the notion of « intangible costs »

(2) Discussing some of the methodological questions that arise when valuing the intangible costs of addictive products

Tangible vs. intangible costs

Substance abuse generate:

  • Tangibles costs :

  • forgone production

  • material costs

Intangible costs :

change in health-related quality of life (HRQOL),excluding any direct and indirect costs

Both the tangible and the intangible costs affect the well-being

Can intangible costs be ignored?

  • Ignoring this component because we don’t know how to measure it leads to a gross under-estimation of the consequences of substance abuse

  • When both tangible and intangible costs are valued, the latter constitute a considerable part of the total costs:

    • Violent crime : 82.6%

    • Multiple sclerosis: 89.9%

    • Smoking : 50.0%

    • Alcohol abuse : 66.2%

Valuing intangible costs

  • Intangible costs are the monetary (or income) equivalent of the loss of health per se

  • Most studies only value direct and indirect costs(tangible costs)

  • Intangible costs are said to be difficult or impossible to assess

  • Missing markets : one cannot rely on market prices to place a value on changes in HRQOL

Some methodological issues

  • A preference- or non preference-based approach ?

  • A restricted or a global approach ?

  • A disaggregated or an all-inclusive approach?

  • A one-step or two steps procedure?

  • Survey design

Preference-based (willingness-to-pay approach)

  • The conversion of natural units in monetary terms is based on preferences

  • People are asked how they would trade health against money

  • Income equivalent of a reduced HRQOL

  • Method : contingent (CV) survey

Income equivalent of a reduced HRQOL

  • CV method : allows us to learn how people value health

  • People are asked to state :

  • the maximum amount of the income they would accept to forgo to avoid a deterioration of their health state (keeping their well-being constant)

Non preference-based (short cut)

The analyst decides how much people would pay to avoid drug harm (hypothesis)

  • Bernasconi (1993) : for each drug user, there is at least a member of the household who would accept to sacrifice all his assets.

  • Collins & Lapsley (1996): The value of the goods that the deceased would have consumed plus a lump sum amount for each year of life lost provide a lower bound for the intangible costs

Restricted or global approach?

  • Both the HC and the WTP methods can be used in a global or restricted perspective:

  • Human capital :

    • global if used to value all aspects of substance use or abuse

    • restrictive if used to value only part of the burden (resources costs)

  • WTP approach :

    • global if used to value all health and non-health implications

    • restricted if use to value intangible costs only

WTP : global perspective

  • WTP global perspective: applied to assess all the costs borne by the community, i.e. tangible and intangible:

  • Difficulties :

    • The stated value depends on which costs are carried by the social security system

    • It doesn’t reflect the total cost for the community

WTP : restricted perspective

  • WTP restricted : applied to assess the intangible costs only

  • Difficulties :

    • The questionnaire must be carefully designed so that the respondent does not take possible losses in future income or out-of-pocket payments when stating his WTP

    • Is it sufficient to tell the respondents not to do it ?

Alcohol abuse is a complex problem

  • Alcohol abuse has many health implications : Abusers face a higher risk for more than 60 diagnoses groups

  • Excessive alcohol consumption also has behavioral and psycho-social consequences

  • How to include all these effects in the cost estimate ?

Valuing each effect separately and summing them up

  • Procedure:

  • Identify the adverse health effects related to excessive alcohol consumption

  • Value the health implications of the most significant alcohol-related diseases

  • Problems:

  • The risks for the different alcohol-related diseases are not independent

  • Risk of overestimation (embedding effect, budget constraint)

Valuing a profile

  • Procedure:

  • Specify a life time profile for (typical) excessive drinkers

  • Value the change in HRQOL using a CV survey

  • Problems :

  • What is a representative abuser ?

  • How to attach a probability to each profile ?

From health metrics to money metrics

  • One-step conversion

    • Change in health state (natural units) is converted directly in monetary units

    • CV survey (profile or specific diagnoses)

  • Two-step conversion

    • Change in health state (natural units) is converted in utility units (QALY or DALY)

    • Utility weights are assessed through a time-trade-off or a standard gamble survey

    • Use an estimate of the income equivalent of a QALY or use some standard value

Ex ante or ex post approach

  • Ex ante : WTP for a risk reduction

  • Ex post : WTP of a (potential or real patient) for retrieving perfect health

  • WTP is higher when ex ante approach is used

Surveyed population : real patients or potential patients

  • Real patients have a better knowledge of the health implications of the illness on their well-being

  • Potential patients tend to overstate the consequences of a specific disease (ex: potential patients would prefer to die, real patients prefer to live with the disease)

What should the respondent consider : a change in his own health state or in that of someone else ?

  • Sometimes, the respondents cannot imagine to be at risk. Example: a scenario in which an abstinent must imagine to be an alcoholic.

  • Alternative scenario : the respondent express his WTP to provide a treatment for a member of his family or a close friend.