How to correctly calculate discounted healthcare costs and benefits

Abstract

A feature of a healthcare policy (such as screening) with interventions at specific ages is that when it is introduced, part of the population is too old to participate in the full programme. This fact changes the formulae to be used for cost and benefit discounting in a non-intuitive way. General formulae are derived for the expected discounted costs and benefits of such health promotion policies, for a stationary population. Correct ways to calculate discounted costs and benefits via simulation are also described. The formulae have some surprising properties, for example the relative cost of two health policies does not depend on the discounting rate. They are also relevant to the ongoing debate over the correct discounting rate for benefits. It is shown that when health benefits follow quickly on treatments, varying the discounting rate for health benefits is merely equivalent to rescaling the cash value of a benefit. It is only when benefit follows long after treatment that the problem of choosing an appropriate discount rate for benefits cannot be simplified.

Keywords:

• cost discounting
• medical screening
• renewal process
• stationary population
• simulation