The Value of Life

Forty years of increased health care spending have prompted many initiatives to cut costs – restricting expenses technologies through state licensing laws, stimulating the growth of HMO networks, and more recently, introducing market incentives to health care. “Yet,” according to a recent study by researchers at Harvard University and the University of Michigan, “one of the most important question remains unanswered: What is the value of this medical spending?”[1]

The new study notes that, adjusted for inflation, annual health care spending for each person in America grew from about $700 in 1960 to more than $6,000 in 2000. At least half of that higher cost was the result of more medical care, not just higher prices paid for the care.[2]

What is the value of a human life? “Priceless,” is what most people would say. Society expects hospitals to make care available to everyone regardless of cost. Laws require hospitals to provide services on an equal basis, irrespective of an individual’s ability to pay. Emergency Departments remain open 24 hours a day, caring for all who present themselves. The EMTALA law prevents hospitals from transferring patients for financial reasons – only for reasons related to appropriateness of care.[3]

Yet we all know that government and health insurance payers limit how much they pay for an individual’s emergency visit or hospital stay, even when that individual may need additional tests or services. There are many of examples of payers limiting health care spending. For example, the nation’s second largest health insurer recently announced it will no longer pay for a very popular acid-reflux medicine.[4] And a gubernatorial candidate has promised to cut New York State’s Medicaid spending, in part by closing or downsizing hospitals.[5]

So what is the value health care spending? Or, as the study asks, what is the value of each additional year you or I live as a result of increased medical spending?

Published in the New England Journal of Medicine, the study cites sources that estimate a value of $100,000 - $200,000 for one year of life, called a “statistical life.” The study reports that for each person born between 1960 and 2000 the average cost per year of life expectancy gained was $19,900. For those over 65 years of age, the average cost of each additional year was $84,700 in medical spending. “In general,” the study concludes, “treatments that extend a life for a cost below $100,000 per year are deemed acceptable.”

One unanswered question: how many of the “extra” years are the result of health care spending and how much added longevity is due to public health improvements (seat belts and air bags in autos) or lifestyle changes (fewer tobacco smokers in the overall population)? The researchers estimate that 50% of the additional years of life result from medical care alone. Based on that assumption, the authors assert that “the increased spending (on medical care) has, on average, been worth it.” They go on to say that “even if 25 percent of the gains in longevity were due to medical care, the value of medical care is reasonable.”

That may be reassuring from society’s perspective. But we all know there are many inefficiencies in the health care system. One part of the system ends up paying (or not paying, or over paying) for services that benefit another part of the system. So a good part of the debate about health care spending is really about shifting the cost of care to someone else – to the employer, the insurer, the provider, or the government.

Although it may be reassuring, the study comes with a caution. It reports increases in overall medical costs for the additional years of life expectancy in people over age 65. By the 1990’s each additional year of life cost $145,000 for someone over age 65. It appears that the value of additional medical spending may be approaching its limits.

[1] “The Value of Medical Spending in the United States, 1960–2000,” Cutler, et. al. , The New England Journal of Medicine, August 31, 2006,

[2] This quotation and the other facts and figures are taken from “The Value of Medical Spending,” cited above. You can find this article on the web at this address: http://content.nejm.org/cgi/content/full/355/9/920

[3] In 1986, Congress enacted the Emergency Medical Treatment & Labor Act (EMTALA) to ensure public access to emergency services regardless of ability to pay. See the federal government website: http://www.cms.hhs.gov/EMTALA/

[4] “UnitedHealth Stops Paying for Nexium,” New York Times, September 7, 2006. The story reports that
the country's second-largest health insurer will save it about $150 million.

[5] “Spitzer Says He’s Willing to Close Hospitals to Trim Medical Costs,” New York Times, September 8, 2006.