Indeed, research has indicated that smokers value future health benefits at a lower rate than non-smokers. For instance smoking and drinking give current pleasure while incurring future (discounted) detrimental health effects. Examples of human behaviour which implicitly discount future health effects abound. 5Īn important reason for discounting future costs and benefits is “time preference,” which refers to the desire to enjoy benefits in the present while deferring any negative effects of doing so. 2 The Department of Health has thus recommended that health related benefits should not be discounted, 3, 4 though more recent advice suggests future health benefits should be discounted but at a very low rate of 1.5%-2%. The main argument against discounting health benefits is that health, unlike wealth, cannot be invested to produce future gains. However, if the averted costs had been discounted (at 6%) then these would have been only £63 917, which alters the study’s results (though not if the discount rate were only 4%).ĭiscounting future costs is uncontroversial and until recently so was the process of discounting health related benefits. As cystic fibrosis screening benefits (£125 000) outweighed the costs (£80 000) it was concluded that screening represented good value for money. 1 This cost was compared with the future excess costs of treating an individual with cystic fibrosis, which was estimated to be £5000 a year over 25 years. For example, an evaluation of cystic fibrosis screening revealed a cost of £80 000 for detecting and terminating one affected pregnancy. This is because the £100 released now, if invested, would produce an extra £6 in a year’s time (with a discount rate of 6%).įailure to discount the future costs in economic evaluations can give misleading results. Therefore, if two healthcare interventions both released £100 in savings but for one we had to wait a year, then, all other things being equal, we would adopt the intervention that saved £100 now. To take into account the opportunity cost of investing now rather than waiting one year we have to discount future costs.
If for some reason £100 of healthcare spending were delayed for one year then (assuming prudent investment) we could expect that in one year’s time we would have £106 for healthcare investment. The reason why current spending incurs an opportunity cost relative to delayed spending is that a monetary investment yields a real rate of return and therefore there is a cost to spending money in the present.įor example, if £100 were invested with a nominal return of 10%, in one year’s time it would be worth £110 if inflation was 4% this would result in a real return of £6 on every £100 invested. Discounting makes current costs and benefits worth more than those occurring in the future because there is an opportunity cost to spending money now and there is desire to enjoy benefits now rather than in the future. Until recently it has been common practice in economic evaluations to “discount” both future costs and benefits, but recently discounting benefits has become controversial.
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