Economic Evaluation of Health-care Programmes: Is CEA Better than CBA?

It has been noted earlier that during the same period that the contingent valuation (CV) method evolved and became the most commonly used method of valuing environmental projects, the development in health economics was instead been towards cost–effectiveness analysis (CEA). Recently there has been a growing interest in the use of CEA, where QALYs (quality-adjusted life-years) are used as a measure of effectiveness, as the method of evaluation for environmental projects. The purpose of this paper is to answer the question – is CEA a superior method to CBA (both theoretically and empirically) to provide information to decision makers for use in decisions on resource allocation in health. The paper deals with the following topics: the underlying theoretical foundation for CEA; is CEA free of income distribution considerations?; is QALY a superior measure to WTP?; the usefulness of incremental CE ratio (ICER) to determine resource allocation. The paper concludes that there is neither theoretical nor practical support for the claim about the superiority of CEA.