The Monetary Valuation of Germany’s Environmental Burden of Disease

By: TANJA SREBOTNJAK, Director of the Hixon Center

How much is environmental pollution and degradation making us sick? In many countries, environmental pollution and degradation takes a measurable toll on population health and hence society and economic productivity. A new project that includes contributions by the Hixon Center for Sustainable Environmental Design seeks to assist with estimating the economic cost associated with environmental pollution in Germany.

According to the World Health Organization, Germany’s environmental burden of disease is 132,500 deaths per year. Outdoor air pollution is the biggest threat, contributing an estimated 10,200 deaths. While counting premature deaths is certainly important when assessing environmental attribution, many more people suffer acute and chronic health impairments. Based on the DALY metric (disability-adjusted life years), which takes into account both morbidity and mortality, Germans cope with a loss of 17 DALYs per 1,000 residents per year. For comparison, Switzerland loses 14 DALYs per 1,000 residents per year and Mali squanders 210 DALYs per 1,000 residents per year. Breaking down DALYs by environmental stressor and health impact can help public health officials and policymakers identify interventions that reduce pollution and mitigate its adverse effects. However, interventions cost money and healthcare spending is becoming more quality- and impact-oriented as costs continue to rise.

That is the motivation for a project sponsored by the German Environmental Protection Agency, or “Umweltbundesamt”, which examines methods for the monetary valuation of the country’s environmental burden of disease. The goal is to develop recommendations for the appropriate economic assessment of environmentally attributable healthcare costs and their potential prioritization.

This past summer, William Masters (CMC-’18) and I took an in-depth look at four monetization methods – the Contingent Valuation (CV), the Cost of Illness (COI), the Value of a Statistical Life (VSL), and the Cost of Productivity Lost (CPL) methods – to compare their respective strengths and limitations and how applicable they are to the German context.

In our report, we concluded that the COI method is preferable over the other three, because it is the most robust, comprehensive and appropriate method for estimating the economic burden of disease for environmentally attributable illnesses in Germany. Specifically, COI seeks to estimate all costs: it takes into account the direct costs in both the healthcare and non-healthcare sectors that arise from an illness. Furthermore, it estimates the indirect costs from lost productivity, early retirement, mortality, or caring for another’s illness, as well as the costs associated with absenteeism. The COI method goes even further by estimating the intangible costs of illness and premature death—costs that can be severe and long lasting. The other methods lack at least one of these sources of healthcare costs to society at large.

Considering the comprehensiveness of the COI method, it is correspondingly demanding in its time and data requirements. We, nonetheless, recommend the method to UBA because Germany’s single-payer healthcare system provides a strong and comparatively well integrated data and information resource. Further information on health outcomes and expenditures can be obtained through the system for occupational health care insurance and compensation and social disability disbursements. The structure of Germany’s healthcare system is also conducive to implementing the EQ-5D survey – a standardized instrument for health outcome measurement – to estimate intangible costs.

As William and I conclude in our study, successfully applying a COI approach requires detailed planning. First, any COI study in Germany should issue guidelines to increase the comparability of different health care programs and illnesses, and establish the boundaries and methodological foundations for the estimation of direct, indirect and intangible costs. This is especially relevant for the direct and indirect costs. Without that guidance, the majority of estimates coming from COI studies will not be comparable because of differences in the cost categories considered. Furthermore, the COI study should make use of both the so-called “human capital method” and the “frictional cost method” to estimate the indirect costs of an illness. Although these methods have been viewed as two alternative means to estimate indirect costs, using one over the other leaves certain costs excluded from the illness.