2.3.1 Human capital approach

The human capital approach is the most commonly used method for estimating the value of human life and the costs of illnesses. Viewing humans as productive actors, this approach estimates the current value of a human life as the discounted future expected income.

In estimating the socioeconomic costs of illnesses, this approach posits patients as productive actors and applies specific discount rates to the income they would have earned through their labor in order to estimate their losses of working hours and resulting losses in productivity. This method equates the costs of death and illnesses to the losses of future total income that patients could have earned had they remained healthy. This approach's focus on the losses of labor productivity caused by individuals' illnesses reveals the opportunity costs of illnesses and death.

This approach is favored because the data it requires for estimating costs are relatively readily available and the outcomes of the analysis are relatively less influenced by the researcher's bias or subjective interpretation. Moreover, this approach translates the direct costs (e.g., costs of healthcare service) and indirect costs (e.g., losses of productivity) incurred by illnesses into losses of future income, estimated on the basis of the patients' current income level. However, this approach may be discriminatory, in effect, against certain underproductive groups, such as students, housewives, and seniors. Some also criticize the approach for its implied ethic, i.e., that the value of human life can be measured on the basis of a person's ability to earn income. Finally, the approach also runs the risk of underestimating the intangible costs of illnesses, such as declines in quality of life and psychological suffering.

The human capital approach is the approach most commonly taken by the majority of studies. Compared to the WTP approach, the human capital approach is less time-consuming, more cost-effective, and better suited to ensuring the objectivity of analysis results, as it excludes the researcher's bias. Most importantly, it clearly quantifies losses of productivity due to illnesses based on patients' income levels.

#### 2.3.2 Willingness-to-pay approach

Also known as the contingent valuation method, the WTP approach estimates the economic value of something that is not easily converted into a monetary sum by surveying how much people would be willing to pay for it. COI studies adopting this approach ask survey participants how much they would be willing to pay to maintain or improve their health. This approach acknowledges the very commonsensical assumption that people's preferences for things that are not easily monetized can be used to estimate the economic values of those things. However, as this approach requires people to estimate the economic values of things that they are not used to monetizing, the answers given by survey participants may not be a reliable measure of the true value of those things. The questions used to survey people's willingness to pay can be either open-ended or close-ended. Open-ended questions ask participants to state the maximum amounts of money they would be willing to pay, while close-ended questions provide a few options from which participants

Methodology of Estimating Socioeconomic Burden of Disease Using National Health Insurance… DOI: http://dx.doi.org/10.5772/intechopen.89895

may choose. Close-ended questions can be further divided into questions that apply bidding games and that use the dichotomous choice method. Questions using bidding games identify the maximum amounts people would be willing to pay by presenting them with a series of specific amounts of money and asking them whether they would be willing to pay such amounts. Questions that use the dichotomous choice method, on the other hand, present participants with two options of monetary sums at each time and proceed to the next pair of options depending on which of the preceding options the participants chose. The dichotomous choice method imposes relatively less cognitive burden on participants in deciding the economic values of certain things and allows them to arrive at a decision even in the absence of in-depth knowledge of the market situation. However, the answers that participants choose through this method may be merely the amounts of money they view as acceptable to pay, and not the maximum amounts of money they would be willing to pay. In applying this method, it is also difficult for the researcher to decide the proper intervals between the figures to be presented, meaning that it may take quite a long time for the researcher to identify the final amount of money that participants would actually be willing to pay.

The table below provides a summary of the differences between the human capital approach and the WTP approach (Table 2).
