Cost-Benefit Analysis

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Cost-Benefit Analysis (CBA)

What is cost-benefit analysis?

Cost-benefit analysis is a way to compare the costs and benefits of an intervention, where both are expressed in monetary units.

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Both CBA and cost-effectiveness analysis (CEA) include health outcomes. However, CBA places a monetary value on health outcomes so that both costs and benefits are in monetary units (such as dollars).

What inputs are included?

  • Costs including those of implementing an intervention.
  • Benefits including those resulting from an intervention, such as medical costs averted, productivity gains, and the monetized value of health improvements.

What output does a cost-effectiveness analysis provide?

CBA provides the net benefits (benefits minus costs) of an intervention.

Cost-Benefit Analysis Example1:

The example provides the results from a CBA of an intervention to reduce trans fats in the food supply.

Monetary Valuation. The analysis estimates that the following benefits are worth $40 billion: Direct medical costs averted. Valuation of quality of life gained due to non-fatal heart attacks averted. Valuation of life years gained due to fatal heart attacks averted. Next, the analysis estimates that costs to the industry and consumers are $6 billion.
Benefits- Costs = Net Benefits

Image showing how cost benefit analysis expresses costs and benefits in monetary units. The units are then weighed against each other on a scale. Benefits minus costs equals net benefits.

The table demonstrates that the intervention could generate $134 billion in net economic benefits.

For additional information, please see the examples used in the CDC Introduction to Economic Evaluation in Public Healthexternal icon online training.

How can decision makers use this information?

CBA’s estimated net benefit offers a sense of the economic value provided to society by an intervention.

Decision makers can also use CBA to compare health and non-health interventions because both costs and benefits are expressed in monetary units. For example, CBA could be used to compare health and environmental interventions.


Resources

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CDC Introduction to Economic Evaluationexternal icon
Course providing a broad overview of economic evaluation methods with illustrative examples from public health

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HHS Guidelines for Regulatory Impact Analysispdf iconexternal icon
Provides guidance on methods, data and best practices for regulatory impact analyses for HHS agencies

References

  1. Memorandum from R Bruns to M Honigfort, June 11, 2015. http://www.hpm.com/pdf/blog/Reference_46_Estimate_of_Cost_and_Benefits_PHOs.pdfpdf iconexternal icon