Many economic evaluations of health policy do not fully consider all significant impacts on living standards. Even when all relevant components of living standards are considered, it is difficult to decide how to weight them. A closely related challenge is putting a dollar value on health outcomes. This results in piecemeal evidence and forces decision-makers to subjectively determine how health is valued relative to income.
This report discusses a novel approach developed by the OECD for evaluating policies based on their effects on aggregate living standards. This “inclusive growth” methodology entails constructing an index of living standards that incorporates income, life expectancy, unemployment rates, and inequality. Unlike many indexes of well-being, the weighting between factors is based on willingness to sacrifice income to achieve a benchmark life expectancy and unemployment rate.