Changes in health-related quality of life: a compensating income variation approach

ABSTRACT

This paper investigates the relationship between negative changes in health and life satisfaction, using a sample from the Household, Income and Labour Dynamics of Australia Survey. We use panel data models and estimate the life satisfaction impact of several different changes in health status to calculate the Compensating Income Variation (CIV) of them. Our work innovates with respect to the existing literature by using a more robust CIV method that takes account of the potential measurement error in income. Further, we produce the first set of monetary values for health losses using SF-6D utility values, one of the main measures used to estimate and value health change for economic evaluation. We show that negative changes in SF-6D are significantly associated with a reduction in life satisfaction, and the starting point matters: a drop of 0.1 in SF-6D score is associated with a decrease of 0.12 points in life satisfaction if the starting utility value is 0.8, but the effect is 100% higher if the SF-6D starting point is 0.7. More generally, we find that a 0.1 deterioration in SF-6D has a strong association with life satisfaction and that the CIV value is substantial (over US$ 120,000).

KEYWORDS:

• Life satisfaction
• SF-6D
• Well-being

JEL CLASSIFICATION:

• I10
• I12

Acknowledgments

We are grateful to an anonymous referee for useful comments and suggestions. We are grateful to the participants of the 2017 Health Economics Study Group (University of Birmingham) for their suggestions.

Funding support from the University of Aberdeen is gratefully acknowledged. The Health Economics Research Unit is funded in part by the Chief Scientist Office of the Scottish Government Health and Social Care Directorates.

This paper uses unit record data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey. The HILDA Project was initiated and is funded by the Australian Government Department of Social Services (DSS) and is managed by the Melbourne Institute of Applied Economic and Social Research (Melbourne Institute). The findings and views reported in this paper, however, are those of the author and should not be attributed to either DSS or the Melbourne Institute.

Disclosure statement

No potential conflict of interest was reported by the authors.

Supplementary materials

Supplementary materials for the article can be accessed here.