Understanding Quality Adjusted Life Years (QALY) and Cost Effectiveness Analysis – How Much Does a Healthy Year of Your Life Cost?

Cost-Effectivness Analysis

How much do you think a healthy year of your life cost? It is a ridiculous question, isn’t it? Yes, I know it is hard to put a price on your life. Furthermore, I would answer differently if I were a 23-year-old, full of life and have an average 60 years more to live or if I were a 78 year old with heart conditions.

Economists have to find some way to put values on health since they have to compare one health intervention to another. The objective is to evaluate the costs and consequences (benefits, potential complications and safety issues) of a health intervention, so they can find ways to maximize the benefits, given limited health care resources. So, in order to put all health outcomes, from prolongation of life, pain reduction to prevention of diseases into the same frame of reference, health economists invent the concept of a quality-adjusted life-year (QALY) to facilitate cost-effectiveness analysis.

What is Quality-Adjusted Life-Year (QALY) ?

QALYs were developed in the 1960s to facilitate cost-effectiveness analysis (CEA). One of the earliest works using QALY was Klarman and colleagues, who analyzed chronic renal disease in 1968.

Quality-adjusted life-year represents the morbidity of diseases by a scale of 0 to 1.0, representing the extremes of death and full health. For instance, if you have diabetes and foot amputation due to diabetic complications, your quality of life will be reduced by 35%. In other words, your quality-adjusted life-year would be only 0.65.

You may say your quality of life would be reduced by 50% not 35%. Health economists account for the variations in individual’s judgment of how a certain condition affects his or her quality of life by conducting surveys.

In earlier days of quality-adjusted life-year, in each cost-effectiveness analysis, health economists must collect data on quality-adjusted life-year on the disease(s) that they investigated. Sometimes, they need to use the so-called “expert opinions” if there is no data available. To avoid this rather arbitrary method and inconsistencies between different cost-effectiveness studies, the Panel on Cost-Effectiveness in Health Medicine (PCEHM) (organized by the US Public Health Service) recommended establishing a national catalogue of preference weights that could be used by cost-effectiveness researchers. The catalogue will be built from a sample that represents the U.S. population.

QALY Using the EQ-5D Index System

In 2006, the building of such catalogue was completed. You can now search for your favorite value of QALY at https://www.ohsu.edu/epc/mdm/calculator.htm using the EQ-5D Index Score Calculator. There are other health status measures used to create QALYs include the Health Utilities Index (HUI) the Quality of Well-Being Scale (QWB) and the Health and Activity Limitation Index (HALex). But it seems that EQ-5D is the one most frequently used right now.

The EQ-5D index is a 5-item descriptive system. It quantifies 5 dimensions of health status: morbidity, pain and discomfort, anxiety/depression, self-care and usual activities. Each dimension is accessed at 3 levels, namely, no problem, some problems and extreme problems. The EQ-5D is adjusted for other factors including age, gender, race, ethnicity and income.

So if you had colon cancer and you are a 65 year old white female, your EQ-5D index for quality-adjusted life-year is 0.93. That is if you live 1 year with colon cancer, it is only worth 93% of a year with full health and no diseases. If you have two conditions at the same time, let’s say, colon cancer and neurotic disorder, your EQ-5D index is 0.79.

Now, you know what a QALY is, how much do you think a quality-adjusted life-year costs? There is no consensus, but it is generally accepted in the community of health economists that a health intervention would be cost-effective if it costs less than $50,000 per QALY. This figure of $50,000 per QALY has been around for decades, so it may change soon in the future.


PreferenceBased EQ5D Index Scores for Chronic Conditions in the United States PW Sullivan, V Ghushchyan – Medical Decision Making, 2006 – mdm.sagepub.com

Klarman HE, Francis JO, Rosenthal GD. 1968. Cost-effectiveness analysis applied to the treatment of chronic renal disease. Med. Care 6:48–54

HALY S AND QALY S AND DALY S, OHMY: Similarities and Differences in Summary Measures of Population, MR Gold, D Stevenson, DG Fryback – Annual Reviews in Public Health, 2002 – Annual Reviews

This post is part of the series: Health economics – The Primer

This series of articles will introduce readers to the emerging field of health economics. We will review how health economics influence decision making process in health care and the basic tools used in health economics.
  1. The Role of Health Economics
  2. Cost of Health Care
  3. Classification of Health Economic Analyses
  4. Health Economics Research: Cost Utility Analysis And More
  5. How Much Does a Healthy Year of Your Life Cost?