8.4. Estimating the cost of obesity via the labour market module versus the VSL approach

The impacts measured by the healthcare expenditure and labour market modules reflect de facto healthcare and opportunity costs, respectively. In contrast, the VSL approach models the social cost of any risk factor based on willingness to pay (WTP) surveys. While the Cost of Illness approach focuses more on the objective costs of an illness or disease, the VSL approach implicitly also covers the costs of pain and suffering. Still, in order to conduct a valuation of the full economic welfare impact of illness on households – including the value of reduced health itself – this requires the application of WTP measures. But since these values do not reflect de facto costs, the results from the VSL / WTP approaches should be reported separately from market losses, other indirect costs, and healthcare costs (as is the case in this report).

8.4.1. Cost of illness approach

The economic burden of risk factors and associated diseases can be estimated through a variety of approaches. The comprehensive review of methodologies confirmed that the majority of studies on the economic burden of disease use the Cost of Illness (COI) approach [WHO, 2009 [64]], with origins in the 1960s [Rice, 1967 [50]]. Other economic impacts often modelled as part of the economic burden of diseases are the impact on economic output (as measured by GDP and GDP growth), as well as the social or welfare costs of diseases.

In the COI approach, costs are divided into direct and indirect costs, with the former referring to de facto health-related spending, and the latter to indirect costs occurred in the labour market. The sum of the direct and indirect costs constitutes the cost of illness for the particular disease or risk factor.

Direct costs refer to actual payments made directly in relation to the disease in questions. In contrast, indirect costs of diseases are those for which resources are lost without a direct payment being made.

For the indirect costs represented in this report, the human capital approach (HCA) is used to estimate the economic loss of productivity from paid and unpaid work, losses due to absenteeism and presenteeism, early retirement, and premature mortality. HCA can be used to calculate losses occurring over one year or over a lifetime of the population in the study, by estimating the present day value of the loss of future streams of productive capacity.

8.4.2. Value of statistical life approach

Non-market impacts, and the social costs of diseases, cannot easily be estimated via conventional economic equilibrium approaches. In order the estimate the economic impact of a chronic condition via the VSL approach, one estimates a person’s willingness to accept a premium for risky occupations via wage regressions, or, a person’s willingness to pay (WTP) for the reduction of risks via revealed preference price regressions. The monetary value that a person assigns to his/her own life can be inferred from the parameter estimates in these regressions.

A main advantage of VSL is that it delivers a single number that, if multiplied by the number of cases, can be interpreted as the total statistical value of the loss due to an illness.

One major criticism of the VSL approach is that it often assigns a higher value of life to those willing to pay more – often those in higher SES strata, thus signalling higher worth of life among higher earners. In cross-country analyses, it is therefore suggested to vary the VSL values only at the country level.