Partially Different? The Importance of General Equilibrium in Health Economic Evaluations

Both the human capital approach and the friction cost approach are frequently used to quantify the productivity costs associated with illness, disability or death in health economic evaluations. In this paper we argue that these approaches have one major, but common shortcoming: they only capture partial equilibrium (PE) effects and therefore underestimate the true potential productivity costs associated with health conditions. They neglect the sizable, indirect, ripple effects in the economy captured by general equilibrium (GE) models. To demonstrate our point, we compare a traditional PE with a GE approach for the application to nocturia, a condition characterized by the need to frequently wake up at night to urinate. Nocturia is associated with substantial impairment of daytime functioning and work productivity. We employ large-scale United Kingdom (UK) employer-employee survey data to estimate the prevalence and productivity loss. These estimates are then used as shared inputs to drive both approaches. We find that the traditional PE approach underestimates the annual productivity cost of clinically relevant nocturia by around 16%. We propose a generalized GE/PE multiplier to approximate the GE effect for other health conditions. Our findings stress the importance of accounting for sizable GE effects when conducting health economic evaluations.