Purpose: We developed a framework which answers two fundamental questions on willingness-to-pay (WTP): for a particular disease, how much is a health purchaser (e.g., a government, a health insurance system, or a private health insurer) willing to pay (1) for one unit of health (WTP for health)? and (2) for expanding the consumption level of a related medical intervention by one percent (WTP for expansion)? The WTP for health can be used to determine the medical guidelines and the price of newly-developed medical technologies such that the health purchasers find them worthwhile to be included in their offered health plans. The WTP for expansion can be employed by health providers in determining the optimal investment level in expanding a medical intervention through opening new facilities, advertisement, etc.
Method: We proposed a game-theoretic framework in which the health purchaser and the population enter into a two-move game. The health purchaser makes the first move by offering a contract (i.e., the set of medical interventions and the corresponding coinsurance rates) and then, having observed the contract and her health status, each individual decides which medical alternative to undergo. By mapping the equilibrium of this game to the observed health purchaser’s contract and the consumption level of each intervention, we estimate the WTP for health and the WTP for expansion.
Results: We applied the proposed framework to Colorectal Cancer (CRC) screening tests for the 2005 U.S. population considering Colonoscopy, Sigmoidoscopy, and Fecal Occult Blood Test (FOBT). For CRC screening tests, we estimate the WTP for health to be $9,950 per QALY, and the WTP for expanding Colonoscopy to be $45.40 per percent of increase in Colonoscopy consumption, per person. The framework also predicts that both FOBT and Sigmoidoscopy will soon leave the market, as also conjectured by previous studies.
Conclusions: For CRC screening tests, the medical guidelines and new screening tests should demand less WTP for health than $9,950 per QALY to be implemented by the health insurance system, given the current consumption levels of the CRC screening tests in the U.S. Also, the insurance system is willing to pay up to $45.40 per person for any action (such as opening a new Colonoscopy suite, educating the population, etc.) that increases the Colonoscopy consumption by one percent.
Candidate for the Lee B. Lusted Student Prize Competition