Welfarism and Extra Welfarism in Healthcare : Which is More Appropriate for Resource Allocation Decisions in Health?

Abstract

As cost of health care is increasing around the world, resource allocation decisions need to be taken on the basis of explicit theoretical concepts. Health economics as an area of study specializes in guiding decision-makers to make correct decisions in allocating health care resources. Cost-benefit analysis and cost-utility analysis are two types of economic evaluation, which are used in taking decisions regarding healthcare. However, they are based on two different theoretical foundations, and so, it is imperative that the correct economic evaluation method is identified. While cost-benefit analysis (CBA) measures both costs and outcomes in monetary terms, cost-utility analysis measures outcomes in terms of a particular metric called quality adjusted life years (QALYs). CBA is based on the idea of welfare economics, while CUA is based on the idea of extra-welfarism. This paper described the theoretical foundation of both these methods and also highlighted the strengths and weaknesses of using both the methods. Finally, the paper concluded by arguing for the usage of extra-welfarist economic concepts in resource allocation decisions in health care.