Evaluation of Selected Aspects of the National Medicare Education Program: Final Design Report. 4.4.1 Design Rationale

01/10/2008

CEA is an economic evaluation tool designed to compare the relative costs and effectiveness of different policy mechanisms in achieving an outcome. When alternative policy instruments exist, CEA can be used to identify which policies achieve the largest outcome improvement at the smallest cost.

CEA may identify which major NMEP activities deliver the best outcomes at the lowest cost. The results may help ASPE ascertain the relative efficiency of different NMEP activities and make recommendations that would improve operating efficiency of the NMEP. CEA has been used successfully in several studies of health communication in activities similar to the NMEP ( Hutchinson and Wheeler, 2006Hutchison and Wheeler, 2006).

CEA requires a uniform outcome measures (the objectives of the policy), and data on the cost per outcome for a given policy are compared across several alternatives. The most “cost-effective” policy is the activity that achieves the lowest cost for a comparable improvement in the outcome. Results are expressed in terms of marginal costs (the cost per unit or service “at the margin,” the last unit served). CEA results are also frequently compared with external benchmarks. This is particularly useful if there are no alternative policies or if only one policy can be measured. However, even multiple comparisons can be made, the most “cost-effective” policy may still be assessed as worthwhile or not against some external benchmark. (For example, in health care, $50,000 per quality-adjusted life-year [QALY] is a typical threshold for identifying cost-effective treatments.)

CEA is related to several other forms of economic policy analyses, including cost-benefit analysis (CBA), cost-utility analysis (CUA), and cost analysis. Cost analysis simply involves measuring the costs of a particular policy and is a fundamental input into CEA, CBA, or CUA. CEA involves tying the costs to an observed change in policy outcomes (the effectiveness), but with no other valuation and rescaling. CBA, often confused with CEA, requires that the outcomes of the policy, or the “benefits,” be expressed in dollar terms. CBA is used to identify policies where total benefits exceed total costs, or where the net benefit increase is the largest. However, CBA is likely unsuitable for the NMEP unless an in-depth valuation study of a specific benefit is conducted first. Note that monetizing benefits may be quite difficult for “nonmarket” goods, such as the dollar value of a level of increase in beneficiary knowledge in the NMEP. Finally, CUA is a special form of CEA, used mostly in health care, where outcomes are translated into “utility” levels instead of dollar values using a variety of instruments (Drummond et al., 1997 Drummond et al., 1997).

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