Economic Burden of Illness in Canada, 1993

Background

Illness and injury can influence many aspects of a person's life. The complex nature of illness and injury poses a tremendous challenge for cost-of-illness studies, which seek to quantify, in economic terms, the impact of illness and injury on individuals and society.

Before initiating a cost-of-illness study, one must first determine what to consider as costs, what methods to use and what sources of data are available. The study must incorporate an approach to time and a point of view that suit both the available data and the purpose of the analysis.

Definition and Measurement of Costs

Direct costs reflect the value of goods and services for which payment was made and resources used that could have been used for other purposes in the absence of illness.¹ These costs, which are less open to dispute than indirect costs, include the cost of care provided by physicians and other health professionals, care in hospitals and other health care institutions, drugs and appliances, health science research, capital, administration and other health care expenditures. Direct costs also include out-of-pocket expenses to patient and family (e.g. transportation to health providers, moving expenses, additional household help, adaptive equipment or clothing, special diets).

Direct costs initially appear straightforward to calculate using existing secondary data sources. Although total national health expenditures are readily available, detailed systematic information about specific diagnostic categories is not easily found, and even ad hoc data are scarce. Reliable data about out-of-pocket costs to patient and family are even harder to obtain.

Indirect costs represent the value society places on "health" and "life." Indirect costs are more controversial than direct costs since a quantitative valuation, in economic terms, of health and life inevitably places a value on the relative worth of individuals in society. However, to ignore these costs would underestimate the value society places on health and life. There are two main approaches to calculating indirect costs: the human capital and the willingness-to-pay approach.^2,3

The human capital approach considers the value of lost productivity as a result of disability and premature death, using lost earnings as a surrogate for the impact that premature death and disability have on individuals and society. By contrast, the willingness-to-pay approach considers the amount people are willing to pay to keep people alive and healthy; typically willingness-to-pay values are higher than those based on foregone earnings.^4-8

The main criticism of the human capital approach is that it fails to recognize pain and suffering and the psychosocial consequences of illness. It assumes a single measure, present-value dollars, to be an adequate standard for judging the overall impact of illness and injury that affects all aspects of people's lives. Moreover, earnings do not always accurately reflect one's ability to produce, and some groups are thus undervalued: women, the young and the elderly.^1,4,5,6

The willingness-to-pay approach is favoured by many economists on the grounds that the human capital approach does not account for consumer behaviour in purchasing goods and services.⁹ The decision of whether or not a health program should proceed is ultimately driven by the willingness of the program's beneficiaries to incur costs in order to receive the benefits of the program. Preserving the life of an elderly person with no future economic productivity, for example, may be a decision for which a family or society is willing to pay.^10,11

The willingness-to-pay approach can be criticized because it is extremely difficult to place a value on small reductions in the probability of death.^1,4-6 It can also be criticized because it values individual lives based on income distribution, the rich being more able to pay than the poor.

We have chosen to use the human capital approach to estimate indirect costs of illness. It is used most often in cost-benefit and cost-effectiveness analyses because of the availability of reliable statistics, the relative simplicity of calculations and the consistency of results, permitting comparison between diagnostic categories or with other cost-of-illness studies using this approach.^2,3,12

None the less, indirect costs are less reliable indicators than estimates of direct costs that can be calculated directly from usage data. Any estimate of foregone earnings must be based on assumptions about the earnings people with an illness could have had but for their illness. These assumptions are variable and have a substantial effect on the resulting estimation of costs.⁶ Blindly using indirect costs as a guide to setting priorities may lead to resources being directed toward the most productive groups (i.e. wealthy, middle-aged, male) rather than the more vulnerable groups (i.e. poor, elderly, young, female). Such policies would worsen inequalities in health, contrary to social objectives.^10,11

Time Frame: Prevalence Versus Incidence Approach

Two recognized approaches to establishing a time frame are used in cost-of-illness studies: prevalence and incidence.^1,4 Prevalence-based studies examine costs incurred during a given time period, usually one year, regardless of the time of disease onset.¹ By contrast, incidence-based studies represent all the future costs associated with all cases with onset of illness in the base year.¹ When practice patterns and technology do not change over time, both methods yield the same results. However, if changes in practice patterns and technology are anticipated, incidence-based costs will reflect these changes.¹¹

The prevalence approach is better suited to answering policy questions about cost control. For example, policy makers may wish to set targets on total expenditures for a diagnostic category and measure the extent to which the goal was met. The incidence approach, on the other hand, is better suited to decision making about treatment or research strategies as it more realistically reflects the impact of reduced incidence or improved outcomes in the context of future costs.¹³

The incidence approach requires collection of primary data based on knowledge of the likely course of a disease and its duration, i.e. survival rates since onset, type and cost of medical care for the duration of the illness and impact of the illness on employment income and unpaid work.⁸ These data can only be predicted; estimates based on incidence are even more dependent on assumptions than prevalence-based estimates.⁶

We use the prevalence approach in this study for two reasons. First, national economic and health data are readily available from various data sources. Second, results are easier to understand, are more directly related to other data and have a higher confidence level than estimates based on incidence.⁶

We use 1993 as the base year for our cost calculations. Although the premature mortality took place in 1993, some of the productivity loss will be incurred in future years and cannot strictly be allocated to 1993. On the other hand, premature mortality that took place before 1993 and caused productivity loss in 1993 is not considered in this model. A more complex lifetime productivity loss model would take into account all of these factors. However, the results of a more complex model are unlikely to differ significantly from those of the simpler model.

Perspective of Analysis: Society Versus Government

The context in which data will be applied must also be considered in cost-of-illness analysis. Specifically, the impact of lost productivity imposed by injury or illness is viewed quite differently by governments than by society itself.

Disability payments such as Canada Pension Plan (CPP), Quebec Pension Plan (QPP) and workers' compensation, which attempt to compensate for the loss of earnings due to illness or injury, are transfers of funds from society to the individual. From the government's perspective, this shift in funds is a net (direct) cost: if illness did not occur, transfer payments could be used for other purposes.^14-17 The indirect costs of illness and injury (i.e. lost productivity) are thus excluded when viewed from the governmental perspective.

However, from the perspective of society, the cost of illness and injury is not the disability payment itself, but the loss of productivity (i.e. earnings) it seeks to compensate: the transfer payment only shifts the burden of the disability from the individual to society. Including transfer payments in the cost of illness would result in double counting, counting first the individual's loss of productivity and then the redistribution of society's resources that attempts to compensate the individual for that loss.^4,6

We have chosen the societal perspective for the measurement of our costs, including all costs incurred by individuals, by employers, collectively through governments or through shared arrangements between any of these parties. However, we have excluded transfer payments to avoid double counting of indirect costs.

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