Cost-Effectiveness Analysis

Cost-effectiveness analysis and benefit-cost analysis are both forms of economic evaluation that inform public health decisions within and outside of the health care system. Both involve comparing the incremental costs and benefits of alternative interventions. However, in cost-effectiveness analysis, benefits are estimated using natural units, such as life years gained or cases of illness averted, or units that integrate effects on health and longevity, such as quality-adjusted life-years (QALYs) or disability-adjusted life-years (DALYs). In benefit-cost analysis, both health and non-health benefits are estimated in monetary terms.

Cost-effectiveness in a measure of value—how much benefit as achieved for each unit of cost. Affordability is how much you can buy with whatever funds are available. So cost-effectiveness is independent of any budget, whereas affordability is dependent on a budget.

For example, a train pass could be cost-effective if the alternative is driving your own gas-guzzling car, but it might not be affordable if it costs $200 to purchase whereas your car has a full tank of gas at the moment.

No, a budget impact analysis answers the question of affordability—given a budget constraint, are the resources available to purchase it. Cost-effectiveness analysis answers the question of how much benefit is derived for each unit of cost. Something can be cost effective but not affordable, and the reverse. Budget impact analyses are often used in conjunction with cost effectiveness analysis to determine whether something is good value for money and whether the money exists to acquire it.