Discounting in Economic Evaluations
Discounting in Economic Evaluations
Arthur E. Attema 0 1
Werner B. F. Brouwer 0 1
Karl Claxton 0 1
0 Centre for Health Economics, University of York , York , UK
1 Erasmus School of Health Policy and Management, Erasmus University Rotterdam , P.O. Box 1738, 3000 DR Rotterdam , The Netherlands
Appropriate discounting rules in economic evaluations have received considerable attention in the literature and in national guidelines for economic evaluations. Rightfully so, as discounting can be quite influential on the outcomes of economic evaluations. The most prominent controversies regarding discounting involve the basis for and height of the discount rate, whether costs and effects should be discounted at the same rate, and whether discount rates should decline or stay constant over time. Moreover, the choice for discount rules depends on the decision context one adopts as the most relevant. In this article, we review these issues and debates, and describe and discuss the current discounting recommendations of the countries publishing their national guidelines. We finish the article by proposing a research agenda.
Often, the costs and benefits considered in a health
economic evaluation are not only incurred in the current year,
but materialize beyond the present. For the valuation of
costs and benefits in the context of an economic evaluation,
their timing is relevant because people generally value
future costs and effects less than current costs and effects
and their value diminishes the more distant in the future
they occur. Hence, economic evaluations need to adjust the
value of costs and benefits for the time at which they occur,
a technique known as discounting. While the procedure of
discounting may seem a technical method to some, its
effects on final outcomes may be substantial [
Very few economic evaluations of healthcare
interventions do not require discounting of costs and effects. Even a
one-shot intervention that immediately reduces mortality
will still produce most effects in the future because the
prevented deaths reflect (quality-adjusted) life-years
occurring in future periods. For other interventions, which
are designed to reduce the risk of future health shocks, such
as influenza shots or primary prevention of stroke,
discounting is even more relevant [
]. Hence, in many
interventions the intertemporal nature of economic evaluations
is obvious, which makes the use of discount rates
necessary. Together with the impact of discounting and different
discounting approaches [
], this underlines the importance
of appropriate discounting rules in economic evaluations
However, discounting in economic evaluations is not
straightforward and has proven to be controversial. For
instance, the analyst has to choose a particular discount
model (e.g., constant discounting or hyperbolic
discounting), the height of the discount rate(s) used, and whether to
discount costs and effects at the same rate. These questions
have received quite some attention in the literature.
In this article, we highlight some of these ongoing issues
and describe the current state of affairs. To start with,
Sects. 2.1 and 2.2 provide a brief history of discounting
practices. Section 2.3 continues with a discussion of
normative vs. positive stances, while Sect. 2.4 considers the
sources of discount rates. Section 2.5 describes equity
issues related to discounting, and Sect. 2.6 raises the
problem of double discounting. In Sect. 3, we summarize
the current discounting practice for the countries with
public national guidelines on this matter. Section 4 then
discusses different approaches to discounting practices, and
the article ends with a research agenda in Sect. 5 and a
short conclusion in Sect. 6.
2 Discounting and Different Approaches
2.1 Discounting of Costs and Health Effects: Brief
Some people find it difficult to understand why future costs
and (especially) health should be discounted at all and have
a lower value than current costs and health effects. There
are several reasons to discount future outcomes, one of
which is the presence of opportunity costs. Let us take a
simple example to explain this.
If one has 100 euros now, this could either be consumed
or invested in the most profitable alternative (e.g., in a
riskless government bond). If the net return on such a bond
is 2%, then this means that next year the current 100 euros
has grown to 102 euros. This foregone gain of 2 euros in
case of not investing in the bond is called the ‘opportunity
cost’ and the present value of 102 euros next year is 100
euros today. Similarly, 100 euros next year equals 98.04
euros now. This can be reflected through discounting (with
In the case of health interventions, opportunity costs
reflect the opportunity that the resources required for
healthcare could also have been invested in some other
sector in the economy, which would have yielded a
positive rate of return. The opportunity costs are then taken to
be the return on the next best investment alternative
because this represents the opportunity foregone by
investing in the particular healthcare program [
Other reasons why we might apply discounting in
economic evaluations include pure time preference
(impatience), which is a widely observed empirical phenomenon
], catastrophic risk, and consumption growth (i.e., if one
already has more consumption, additional consumption
leads to fewer utility gains. This is called ‘diminishing
marginal utility’, implying that people will derive more
utility from consumption today than in the future because
they are expected to have a higher consumption level in the
future as a result of economic growth). These factors are
included in the Ramsey equation, which is often applied to
compute social discount rates [
]. This equation derives
the discount rate by considering a pure social time
preference rate, the elasticity of marginal utility (i.e., the rate at
which marginal utility of consumption declines with the
level of consumption) and the growth rate of per capita
]. Discounting future costs in economic
evaluations is currently fairly uncontroversial.
However, a question that emerges from this practice is
whether health benefits ought to be discounted as well. If
the reasoning holds for money, why should it be valid for
health benefits as well? Some may claim that health is a
unique commodity, which cannot be traded over time and,
hence, it cannot be invested elsewhere at some real rate of
return, like most other resources [
]. However, especially
at a societal level, the level of decision making in common
economic evaluations, one may also argue that healthcare
transforms resources into health and because it is possible
to trade healthcare resources over time, the same should
hold for health [
]. According to this argument, healthcare
resources are ultimately transformed into health, implying
that if healthcare resources are being discounted, then so
should health effects and at the same rate. The tradability
of wealth (consumption) and health is a requirement to link
the discount rate for health effects to the discount rate for
costs. One could say that this tradability is at the heart of
economic evaluations. Not spending money now but saving
it to next year can yield more health then than the amount
can now (ceteris paribus). This also indicates the main
logic behind discounting benefits and costs with the same
discount rate, known as equal discounting. Equal
discounting has been the dominant practice for a long time
and still is now, with the Ramsey equation or opportunity
costs (in the form of riskless returns on government bonds)
as the basis of setting discount rates.
The practice of equal discounting of costs and health
effects based on these arguments was further strengthened
by two influential arguments: the consistency argument of
Weinstein and Stason [
] and the postponement paradox
of Keeler and Cretin [
]. Weinstein and Stason argued
that different discount rates for costs and effects would lead
to undesirable inconsistencies over time. They illustrated
this with two programs that are identical except for their
timing. If one wants these identical programs to receive
equal priority in decision making, this can only be
accomplished by applying the same discount rate to costs
and effects. A crucial assumption in this example, which
did not receive much attention for a long time, was that the
value of health [e.g., quality-adjusted life-years (QALYs)]
would remain stable over time as well. Keeler and Cretin
] demonstrated an interesting paradox when not using
equal discount rates (but rather differential discounting
with a lower rate for health than for costs): the
cost-effectiveness ratio of a given healthcare intervention will
improve with each year it is postponed. Hence, it becomes
optimal to postpone the intervention infinitely because the
cost effectiveness will keep improving the longer the
project is postponed.
These theories and arguments led to a practice in which
equal discounting was the dominant strategy, normally
using a discount rate of 3–6%. It must be noted that, despite
their influence on discounting practice, both arguments do
not appear to be very relevant for actual reimbursement
]. First, the consistency argument is only
valid if the monetary value of health effects, such as
QALYs, is stable over time. In general, this is not to be
expected, rather the value of a QALY is expected to grow
over time [
]. More empirical work to directly establish
the growth rate of the monetary value of a QALY is
encouraged. A growing value of health can be incorporated
straightforwardly in a cost-benefit analysis, but is less
straightforward in a cost-utility analysis (CUA). Hence,
non-differential discounting is harder to defend in a
costbenefit analysis than in a CUA, if the growing value is
already adequately dealt with. Likewise, alternative options
than differential discounting are available in the context of
a CUA as well, for instance by adjusting the threshold for
the timing of effects. In relation to Weinstein and Stason’s
argument, it is worth noting that consistency is not a
demanding requirement and can be achieved under
differential discounting as well [
]. Second, infinite postponing
was never observed in practice, and also not in countries
recommending differential discounting, such as the UK
before 2004 [
] and The Netherlands since 2004 [
While these examples do not refute the theoretical
relevance of the Keeler–Cretin paradox, they do indicate it has
little practical relevance.
Notwithstanding the practical consensus of equal
discounting, discounting remained a matter of debate in the
literature. Some issues, regarding fairness and regarding
the empirical observations about discounting future
consumption and health, are highlighted below. More recently,
new insights emerged that especially challenged the
convention of equal discounting of costs and benefits. These
have the potential of also changing discounting practices
and guidelines, and already have done so in a number of
countries. More insight was also generated on optimal
decision rules and the need to specify the decision context
2.2 Recent Developments
In understanding the recent developments, it must be
emphasized that welfare economic evaluations in health
should take a specific form, i.e., CUAs in which costs are
expressed in a money metric but health benefits in terms of
QALYs. This creates the context of a particular reason for
applying different discount rates for costs and health
effects. The reason for this is fairly straightforward. In a
conventional cost-benefit analysis, both costs and effects
are expressed in monetary terms. If the value of a particular
item is expected to change over time, this can then be
directly reflected in this money value. However, in a CUA
this is not the case for QALYs. As Gravelle and Smith [
Brouwer et al. [
], and Klok et al. [
] argue, the monetary
value of health (that is, the rate at which we exchange
consumption for health, our ‘willingness to pay’ for health)
is expected to grow with increases in income over time.
Note that this challenges one of the core assumptions
underlying the consistency argument made by Weinstein
and Stason [
]. If health becomes more valuable over
time, this has to be accounted for in economic evaluations.
One possibility to account for the increasing value of health
is to use differential discounting, in which the discount rate
for health is lowered relative to that of costs to account for
its increasing value.1 This suggestion led to quite some
debate, which highlighted the importance of the
decisionmaking context for setting appropriate discount rules and
As Gravelle and Smith [
] indicated, if the
consumption value of health grows over time, and decision makers
1 Another method is to adjust the value against which incremental
cost-effectiveness ratios are judged (i.e., making it dependent on the
timing of the effects) or by inflating quality-adjusted life-year
estimates to reflect their increased value.
would be interested in maximizing welfare from their
decisions, decision making must account for the growing
value of health. (Note that this is true whether the
underlying social welfare function is welfarist or extra-welfarist
].) If reflected through differential discounting, the rate
for health should be lowered relative to that of costs, by
subtracting the growth rate of the value of health (i.e.,
rh = rc - gv) [
]. The National Institute for Health and
Care Excellence (NICE) guidelines for discounting (6% for
costs and 1.5% for effects) were the first to prescribe
differential discounting, but rather these were changed back to
equal discounting (3.5% each) [
]. Brouwer et al. [
questioned this change, also in light of the Dutch
guidelines, which were changed in the same period to prescribe
differential discounting (4 and 1.5% for costs and effects,
]. Claxton et al. [
] responded and
importantly related the change to the decision context of
NICE in which, they argued, the value of health was less
important than the health opportunity costs of spending.
Gravelle et al. [
] showed that the value remains
important in case one wishes to maximize welfare (defined in a
broad way, so that it could be labeled as welfarist or
]). Finally, Claxton et al. [
] bring together
the two streams of thought and highlight that if a
government wants to specify its discount rates for costs and
effects, and, by result, whether to apply differential
discounting, it has to answer four crucial questions. The first
question is whether their objective is to maximize broader
welfare or purely health from a given budget.2 The second
is whether the healthcare budget is fixed or variable and
whether it is set optimally. Third, one should determine
whether the marginal productivity of healthcare spending
(health opportunity costs) and the consumption value of
health are expected to change over time (and at which rate).
Fourth, the social time preference rates for consumption
and health have to be determined. We now expand these
First, the decision context matters. Some bodies
responsible for allocating healthcare resources, such as
NICE in the UK, can be viewed as agents of a socially
legitimate higher authority. This agent receives funding
from the higher authority with the purpose to attain one or a
number of specific objectives, such as improving health
]. As a result, the healthcare budget can be regarded as
fixed. In that case, any new investment necessarily has to
come at the expense of investments elsewhere in the
2 Note that the latter approach is sometimes equated with the
extrawelfarist approach (e.g. [
]), but wrongfully so. Extra-welfarism
allows other sources of value than individually assessed utilities to
enter an analysis [
]. The issue of societal welfare vs. health
maximization from a given budget is a question of decision context
and appropriate perspective. To put it clearly: extra-welfarists can
care about costs and benefits outside the healthcare sector.
healthcare sector. The opportunity costs will therefore be
equal to the expected health foregone owing to the costs of
the new investment [
]. For this case, Claxton et al. [
demonstrate that differential discounting is necessary if the
marginal productivity of health spending changes over
time; i.e., if less cost-effective treatments are more likely to
get funded over time. Box 1 explains this in more detail.
If the policy maker’s objective is instead to maximize
broader social welfare, the situation gets somewhat more
complicated. Claims may then be made about the
optimality of exogenous budget constraints, and endogenous
budgets can also be taken into account [
]. As shown by
Gravelle et al. [
], maximizing social welfare is
equivalent to maximizing the present consumption value of health
if the healthcare budget is regarded as fixed, and assuming
that all costs fall on the healthcare sector. In addition to the
marginal productivity of health spending, one now also has
to consider the consumption value of health and its
expected growth rate. It can again be shown that the
appropriate discount rate for health effects is lower than
discounting of costs whenever health opportunity costs are
growing over time, similarly as in the previous case where
health was being maximized (see Box 1). The difference is
that both discount rates are lowered by the expected growth
rate of consumption value of health [
]. This difference is
necessary to account for the fact that future costs are less
important than current costs because future costs lead to
less health foregone. Note that this growing value of
consumption can also be dealt with separately from
discounting, for example through increasing monetary thresholds
over time reflecting the consumption value of health.
The final possibility is where there is no exogenous
budget constraint in the healthcare sector. In that case, the
budget is flexible and the resources allocated to healthcare
depend on the number of technologies for which the
consumption value of health gained exceeds the consumption
costs because the marginal costs of accepting new
technologies fall on a wider consumption instead of health [
If one uses an incremental cost-effectiveness ratio (ICER)
and the growth in the consumption value of health is not
accounted for elsewhere, the discount rate of health effects
will be equal to the social time preference rate for
consumption minus the growth rate of the consumption value
of health, whereas the discount rate for costs will simply be
the social time preference rate.
Recently, it was demonstrated that these issues of
perspective are not irrelevant. Paulden et al. [
] criticized the
new US Panel on Cost-Effectiveness in Health and
Medicine for their recommendations on discounting practice and
the proposed height of the discount rates. They highlight
inconsistencies in the reasoning of the US Panel, but also
indicate that the proposed 3% discount rate for costs and
effects is likely to be too high, especially from a healthcare
Box 1: Discounting in equations
In this box, we introduce notation and show the equations
typically used to derive discount rates. We denote health
effects in each period by ht, costs by ct, and their discount
rates by rh and rc, respectively. The Ramsey equation is
typically given by:
D = d ? exgx,
where D is the discount rate, d is the social time preference
rate, ex is the elasticity of marginal utility (i.e., the rate at
which marginal utility declines in consumption), and gx is the
growth rate of per capita consumption x [
]. The Ramsey
formula is sometimes amended by a factor c reflecting
catastrophic risk, such as in the National Institute of Health
and Care Excellence guidelines [
]. The latter reflects the
risk of some large-scale disaster and is usually taken to be
very small. It follows straightforwardly that the Ramsey
equation is then extended to D = d ? e g
x x ? c. (Note that the
exact meaning and relevance of pure time preference on a
societal level can be debated and it may be claimed it should
be set to zero [
Derivation of discount rates for health costs and effects
The foregone health, Dht, can be estimated by dividing the
costs of the investment, Dct, by the marginal cost
effectiveness of current spending, kt: Dht = Dct/kt. The
marginal cost effectiveness of current spending, kt, is
sometimes called the ‘threshold’ and from the previous
equation it can be shown to be given by kt = Dct/Dht. kt is
supposed to represent the cost effectiveness of the healthcare
being displaced and is measured as a ratio of costs over
effects. These health opportunity costs will grow with
increasing health budgets and shrink with improvements in
marginal productivity [
]. In general, k changes at a growth
rate gk, giving kt?1 = kt(1 ? gk). Claxton et al. [
demonstrate that differential discounting is necessary if the
following conditions hold: rc has to be higher than rh, where
rh is equal to the decision maker’s time preference rate, and rc
approximately equal to rh ? gk. The opposite holds if kt
decreases over time.
In the full framework, in which welfare maximization is the
goal, recognizing potential (suboptimal) fixity of the budget,
in addition to kt, one also has to consider the consumption
value of health, vt (confusingly also sometimes referred to as
the ‘threshold’) and its expected growth rate gv. It can be
shown that the appropriate discount rate for health effects is
equal to dh = rc - gv and the discount rate for costs is
dc = dh ? gk. Hence, the discount rate for effects is given by
the social time preference rate for consumption minus the
growth rate of vt. This reflects the higher valuation of future
health in case of gv [ 0. Costs are discounted at the social
time preference rate for consumption minus gv, plus gk,
which is equal to dh ? gk because of the formula for dh.
2.3 Normative or Positive Approach
In developing discounting guidelines, the relevant authority
has to decide on a number of important normative issues.
The first is whether to use empirical estimates to set an
appropriate discount rate for costs and effects or a
normative framework. In the case of the latter, it has been
argued to use a zero social time preference rate in order not
to discriminate against future generations [
]. It is
clear that such reasoning does not adhere to compelling
economic arguments in favor of a non-zero positive
discount rate. Others have advocated to have a social rate of
time preference lower than the market interest rate because
of market distortions and inefficiencies in intergenerational
If instead a descriptive approach is taken, the question is
how to obtain discount rates. One method is to rely on
empirical estimates of the different components of the
Ramsey equation. Of course, this assumes that all
components in this equation (including pure time preference or
impatience) are considered normatively relevant in the
process of setting social discount rates. The elasticity and
the growth rate of consumption can in principle be derived
from data, but the pure time preference rate of societies and
the catastrophic risk parameter are unobservable and have
to be determined. Another route is to obtain discount rates
from observing how individuals make intertemporal
choices (either individually or societally, and the choice
between these two is highly relevant and influential). This
leads to direct estimates of discount rates. It is needless to
say that any of these approaches require different
normative motivations and are likely to have a large impact on
discounting practices and, ultimately, results from
Even within a specific framework, normative choices
are required, for instance regarding whether to use constant
discounting or some other model. The constant discounting
] is most often used by social planners. This
model is based on discounted utility where costs or utilities
in each period are multiplied with the discount factor of
this period. The discount factor is given by 1=ð1 þ DÞt,
where D is the discount rate that is applied to each period.
Because of compounding, the farther in the future an
outcome occurs, the less weight it gets. Therefore, this model
is also called the exponential discounting model. This can
be justified by pointing to reasons such as time consistency
and simplicity [
]. The alternative option is to use
hyperbolic discounting, which has been shown to explain
individual behavior better [
], but also leads to
inconsistencies over time. For example, one could prefer
Program A over Program B now, but Program B over A in
1 year, even if the options have not changed in any aspect
and no new information has arrived. Should a social
planner follow these time inconsistent preferences or
normatively or paternalistically correct these? Should or can a
social discount rate, which arguably should also consider
and give fair weight to future generations, somehow be an
average of individual discount rates anyhow? Again, this
shows that these normative choices are highly influential
and require explicit attention, also, or perhaps especially, in
dealing with health and healthcare.
Allowing the application of differential discounting of
costs and health effects also has implications for the
practice of economic evaluations. For instance, O’Mahony
et al. [
] discuss how the choice of the starting year (to
which everything is discounted back) may be influential
under differential discounting. This is related to the Keeler
and Cretin paradox. The further the starting year is placed
before the actual start of the program, the more the ICER
will be reduced (if costs are discounted more than effects).
Hence, there may be an incentive to expedite the discount
year to make a treatment’s ICER appear more favorable.
This can only be avoided by prescribing a fixed rule for
setting the discount year, for instance by making it equal to
the year of treatment initiation [
]. A second related
practical problem is that ICERs decrease when future
cohorts are added to a model with differential discounting
]. This is especially relevant for economic
evaluations of vaccinations with indirect effects stretching far into
the future. If cost-effectiveness analyses with different
numbers of future cohorts have to be analyzed, their
comparability will be compromised . Consequently,
O’Mahony et al. [
] recommend countries with a
differential discounting policy to also report outcomes for equal
discounting at rates of 3 and 5%, to clearly define the
simulated cohorts (including their ages at the onset of the
intervention), and to always report the discount year and
intervention year. This avoids strategic behavior in setting
the discount year, initiation year, and number of cohorts.
The justification of the choice of the relevant time horizon
is therefore important. However, we should note that the
problem of comparability of multiple cohorts has at present
not yet been fully resolved.3
In addition, care should be taken to avoid that
differential discounting is applied in selective cases, as has been
recommended by NICE for ‘‘treatment effects are both
substantial in restoring health and sustained over a very
long period (normally at least 30 years)’’ [
]. As shown
by O’Mahony and Paulden [
], this may lead to
inconsistencies and strategic behavior to ensure more favorable
cost-effectiveness ratios for specific drugs or treatments.
Any differentiation in discounting practices should be
clearly normatively justified, relevant to the policy
question the economic evaluation should address, and
3 We thank an anonymous referee for this observation.
2.4 Sources of Discount Rates
In attempts to come to empirical estimates of discount
rates, two broad streams can be distinguished. The first
stream attempts to find empirical estimates of the
arguments in normative theory, such as the elements included
in the Ramsey equation or those observing policy
tradeoffs between current and future health. The empirical basis
for rc is currently often linked to the cost of borrowing,
which can explain the lower discount rates now than in
older guidelines, when both nominal and real government
borrowing costs were considerably higher. Arguably, such
research is still relatively scarce, also in the field of health
economics and, therefore, encouraged. Accurate estimates
of the relevant elements in the decision rule, including for
the consumption value of health (v), the marginal
productivity of current spending (k), and how these evolve over
time, remain crucial.
The second stream involves measuring time preference
in individuals to inform social discount rates. The
underlying notion is that social discount rates could, or perhaps
even should, be somehow based on individual time
preferences. (Note that understanding individual time
preference to understand individual behavior is important in
itself.) Such an approach may be considered problematic
both for normative reasons (can/should social time
preference be based on individual time preference?) and
practical reasons because individual time preference for
health can be relatively high, often involve time
inconsistent hyperbolic discount functions [
], and its application
in social decisions may thus lead to undesirable outcomes.
Some have suggested using ‘two-stage discounting’,
where the stream of health benefits in an individual is
discounted using some appropriate individual rate/function
of time preference back to the start of the stream for that
individual, but differences in timing of individuals’ net
present values are discounted using a social discount rate to
the start of the intervention [
]. This thus applies
individual rates to individual streams of health and the social
discount rate to adjust for their timing. The social discount
rate can then be different (often lower) than the individual
discount rate [
]. Such a procedure does justice to the fact
that individual time preferences may be considered
relevant for calculating the net present value of an individual
health stream. At the same time, it acknowledges the
relevance of social time preference when comparing and
aggregating across individuals. However, not only might
one argue that in social decision making the social value
attached to future health may be more important than the
involved individual’s value, the procedure moreover does
not solve other issues. Most notably, it also combines the
need for sound empirical estimates for individual and
social time preferences.
As with other choices, besides issues of efficiency, issues
of equity play an important role in the context of
discounting, especially when it comes to health and
healthcare. Choices for discount procedures and rates have equity
implications as well as efficiency implications. For
instance, if the time horizon of an economic evaluation is
(very) long, then the compounding nature of constant
discounting has the effect of leaving a close to zero weight for
future generations, which has been argued to be an
undesirable and unfair feature of constant discounting
2, 25, 36
]. This is especially relevant in environmental
economics, where the time horizon of investments tends to
be very long, but it is also important in health economics.
For example, interventions against infectious diseases that
involve herd protection may span a multitude of cohorts
]. One might argue that there still is a need to further
explore the equity-efficiency trade-off in the context of
discounting in the area of healthcare. Sometimes, a
discount rate that decreases over time is proposed, as perhaps
a pragmatic approach, in order to prevent the very distant
future from receiving virtually no weight at all [
resembles hyperbolic discounting in the sense that lower
discount rates are applied to more distant time periods.
While this diminishes the problem of a low weight to future
generations, the normative underpinning of the procedure
and applied rates remains important. One possibility could
be that over longer time horizons, the uncertainty about the
estimated parameters (e.g., in a Ramsey equation) becomes
larger, which could be reflected in lowering the rate [
However, one should be aware that not all equity
considerations can best be reflected in discounting procedures,
especially regarding non-renewable resources. In general,
explicit consideration of equity issues seems warranted.
Another example of equity implications of different
discount rules is that under differential discounting, with
effects discounted at a lower rate than costs, programs that
run longer may be advantaged over those that run shorter,
ceteris paribus, given that ICERs improve over time. Such
procedures have equity implications that are important to
consider. If the justification for differential discounting is
found in the growing value of health, this may imply more
weight to generations that are richer and, hence, already
have more possibilities to produce health.
In any circumstance, it needs to be clear that any choice
regarding the mode of discounting as well as specific
discount rates will lead to issues of efficiency as well as
distributional consequences. The equity implications of
different discounting rules (within and across generations)
deserve more attention.
2.6 Double Discounting
Another issue that has not received sufficient attention in
the literature is that of double discounting. As noted before,
health effects are typically expressed in terms of QALYs.
The QALY weights attached to specific health states are
normally derived through elicitation techniques that have
some time component, which respondents need to consider.
For instance, the popular time trade-off (TTO) method
typically asks respondents to trade-off a longer period of
time (often 10 years) in an imperfect health state to a
shorter period in perfect health. It has been shown that
respondents, as would be expected, have a time preference
for health [
]. In a TTO exercise, this discounting causes a
downward bias on the utilities of health states elicited by
means of a TTO task [
]; people give up relatively many
years because they do not attach full weight to future years.
This implies that the utilities derived are already
discounted in a way that was relevant from an individual
perspective in the elicitation exercise (which may be
different from what is appropriate from a social perspective
and relevant in the context of an economic evaluation, e.g.,
in terms of a time horizon). Currently, these utilities that
are ‘distorted’ by individual discounting are used,
uncorrected, in economic evaluations. In those evaluations, they
are then ‘again’ discounted using some standard discount
rate. It is clear that this results in double discounting of
]. Procedures are available that can be used to
correct TTO values for discounting [
38, 41, 42
]. To date,
this correction seems not to be used in practice.
3 Current Practice and National Guidelines
3.1 National Guidance
National guidelines for discounting in health economic
evaluations differ between countries and over time. Table 1
provides an overview of the current guidelines of countries
that provide a recommendation for discount rates.4 The
table shows that most guidelines recommend discounting
costs and effects at the same rate, without clear justifications.
However, there is considerable variation between countries,
with discount rates varying between 0 and 5%. The
guidelines are also subject to change. For example, the UK used to
have discount rates of 6% for costs and 1.5% for effects until
2004, but now has 3.5% for both costs and effects [
national guidelines currently recommend differential
discounting, those in Belgium, The Netherlands, Poland, and
4 Some other countries (e.g., Czech Republic, Denmark, Slovenia)
only prescribe to discount future outcomes, but give no
recommendations about the discount rate.
Differential discounting: avoid a too strong penalization of
interventions that generate most of their benefits in the
future (e.g., screening and vaccination programs)
Costs: allow the comparison with previous economic
Prefers consistency in the discount rate above a fluctuating
Effects: awaiting further evidence, and to remain consistent
with previous guidelines
Long-term cost of borrowing for Canadian provinces
Based on the calculated mean of the base rate for four
quarters within a respective year, over the last 3 years
(reflecting the Croatian trend in the base rate and discount
rate over the last 3 years)
Based on the present international long-term equity market
Based on the Ramsey equation with domestic empirical data
Based on guidelines from the Department of Finance
Same discount rate on the basis of theoretical foundations,
3% because this is in line with the cost opportunity and
more appropriate for comparing to the different existing
Costs: based on current returns on obligations and the
Effects: based on the literature, and on the fact that the value
of health is increasing
Social rate of time preference is the most relevant approach,
as it reflects society preferences. This requires the use of
the 5-y, average, real risk-free, long-term government bond
Same rate because of Weinstein and Stason’s [
] and Keeler
and Cretin’s [
] arguments, and because no or lower
discounting of effects would be unfair to current patients
vs. future patients
Recommended by the Ministry of Finance for public projects
with a moderate systematic risk, currently at 4% per year
Based on a real long-term market interest rate and because
most other countries use it. Open for differential
discounting, if justified
sens. discount rates that have to be included in a sensitivity analysis
Russia. The table also shows that 5% is the most common
discount rate, followed by 3%. These rates are high, and we
argue below why lower discount rates currently may be
considered to be more appropriate.
Most countries explicitly recommend sensitivity
analyses with specified alternative discount rates (including no
discounting) that accompany the base-case analysis to
examine whether the results of the economic evaluation are
affected by the choice of the discount rate and procedure.
Furthermore, Spain and Sweden, which suggest the same
discount rate for costs and effects in the base-case analysis,
recommend the use of differential discounting in sensitivity
analyses. The UK recommends a rate of 3.5% for costs and
effects, which comprises a catastrophic risk rate of 1%, an
expected income growth rate of 2%, and a pure time
preference rate of 0.5% [
]. This discount rate is
progressively lowered toward 1% for costs and effects
occurring more than 30 years ahead [
peculiarity is the special case made by NICE for therapies with
long-term benefits, where differential discounting is
recommended with a lower discount rate for health effects of
1.5%. Although this exception may have some merits, this
decision has been heavily criticized for being ambiguous,
inconsistent, and unjustified [
]. It is unclear to what
extent this declining discounting rule is applied in practice.
The guidelines also give some motivation for their
discounting requirements. For instance, the Pharmaceutical
Management Agency of New Zealand [
] assumes the
threshold stays constant over time and uses the consistency
argument and Keeler–Cretin paradox to advocate
discounting costs and effects at the same rate. In addition, they
argue that the discount rate should represent the social rate
of time preference and that this can be determined from the
long-term government bond rate. They require the
inclusion of discount rates of 0 and 5% in sensitivity analyses to
compute the impact of discounting (0%) and to enable
comparison with analyses in other countries (5%). The
Canadian Agency for Drugs and Technologies in Health
also argues for the use of a social discount rate and
therefore recently lowered its prescribed discount rate from
5 to 1.5% for both costs and effects, reflecting recent
empirical evidence on the long-term cost of borrowing for
Canadian provinces, adjusted for inflation. This agency’s
guidelines suggest to explore the impact of non-constant
discounting only in non-reference case analyses [
general, the justification provided for applied discount rates
and rules appears to be limited, also in relation to the wider
guidelines and decision-making context.
3.2 Current Practice
A systematic review showed that discounting practice in
economic evaluations carried out between 1992 and 1998
did not always comply with national guidelines [
Ninety percent of the reviewed studies used the same
discount rate for costs and effects, but these included many
studies (28%) that did not discount future outcomes at all.
Among studies using a positive discount rate, 5% for both
costs and effects was the most prominent. Hence, as for
other subjects, it is possible that the practice of discounting
in published studies deviates from guidelines. Differences
in discounting rules and rates in the guidelines and practice
may not only misinform decision makers, but also hamper
the comparability of study results.
4 Discussion of Different Approaches to Discounting
4.1 Height of Discount Rates
Claxton et al. [
] argue that it is very unlikely that the
discount rate will be equal to the social time preference rate
for consumption, even when the marginal productivity of
health spending will remain constant. This is because it is
very plausible that the consumption value of health will
grow over time, justifying a lower discount rate than the
social time preference rate for both health and costs.
Several studies claim that this discount rate is lower for the UK
than the currently prescribed 3.5% [
5, 15, 23, 68
countries shown in Table 1 are not expected to differ
enormously with regard to the components of the discount
rates as described in Sect. 2, implying that their prescribed
discount rates are also likely to be too high; in particular,
the countries where 5% discounting of costs and effects is
currently recommended. For example, Paulden and
Claxton  advocate a discount rate of 1 or 1.5% for NICE if
the health opportunity costs (k) are not expected to grow
over relevant time horizons. Likewise, the currently
prescribed discount rate of 4% for costs in The Netherlands
may also be considered to be too high. Given the
assumption of an optimal budget, this would imply a
growth rate of both the health opportunity costs (k) and the
consumption value of health (v) of approximately 4
1.5% = 2.5%, which, also in light of economic
developments over the last years, appears to be quite high. Note
that this remark is not a dismissal of the principle of
differential discounting, but an observation regarding its
current operationalization. (An alternative could be to use a
3% for costs and 1.5% for effects, implying a lower
discount rate for costs and a lower growth rate of the value of
health of 1.5%.) This stresses the need for more empirical
research. Moreover, in general, a trade-off needs to be
made between stability and comparability of discount rates
over time (which enhances comparability of the results of
economic evaluations and avoids continuous changes in
methods) and a reflection of realistic estimates of societal
discount rates needs to be performed. More research is
required to provide a solid justification of the growth rates
and the assumption of an optimal budget (growth).
Because the previous parts of this article showed that
time preferences are an important component of the
discount rate, it is necessary to elicit these empirically with
robust methods. Much work is required, which may involve
estimates directly relevant for social time preference and
estimates at an individual level. In relation to the latter,
several attempts have been made in the literature to
measure health-related time preferences, and to compare them
to time preferences for money. These studies have used a
wide variety of methods and samples, and showed a lot of
heterogeneity, with average discount rates varying between
0 and 45% [
]. As mentioned above, given that
experimental elicitations of time preference for health
outcomes tend to provide much variability and high
average discount rates (partly because the variety of different
methods used), one may question whether such data in
individual preferences can be meaningfully used in
informing societal decisions, which also have a normative
component and need to consider future generations .
The alternative approach, estimating the elements
relevant to establish a social time preference rate, may involve
an estimation of the Ramsey equation or a time preference
derivation from health budget allocations in subsequent
periods, as suggested by Paulden and Claxton [
Recently, Paulden et al. [
] reported on estimates for
Canada, informing new Canadian guidelines.
4.2 Constant or Hyperbolic Discounting
Considering estimates of individual time preference, there
is also considerable experimental evidence rejecting
constant discounting of health effects [
], although some
studies report a better fit of constant discounting than of
hyperbolic discounting [
]. While the descriptive
validity of hyperbolic discounting in elicitations of time
preferences for health among the general public is
generally found to be higher than that of constant discounting,
almost all guidelines prescribe the use of constant discount
rates. This is likely to reflect a difference between
individual and social discount rates. Interestingly, the French
and UK’s guidelines do recommend declining discount
rates for projects that span time horizons of more than
30 years. Although the reason for this declining rate may
be different at the social rather than individual level (e.g.,
increasing uncertainty regarding the relevant parameters in
the long term), it may be worthwhile to investigate its
underpinning and practical operationalization further.
5 Research Agenda
In this section, we emphasize a number of topics that require
particular attention in future research on appropriate
discounting policies in health economic evaluations. First, it is
clear that discounting rules should be consistent with the
decision context and framework adopted for the full
economic evaluation. The explication (and formalization) of the
decision framework and discounting rules provides direction
for future research, both in a normative and empirical sense.
In that context, wider debates, for instance on how to express
the outcomes of an economic evaluation, e.g., in terms of net
effects on health or consumption (costs), will help to more
clearly address the relevant issues regarding discounting. It
can also help in separating time preference from changes in
consumption, the consumption value of health (v) or
opportunity costs of healthcare spending (k) over time. From the
overview of national guidelines, it becomes clear that the
underpinning of discounting rules, as well as their relation to
the broader guidelines, are not well developed.
Second, solid estimations of the health opportunity
costs, k, the consumption value of health, v, and their
evolution over time (i.e., their growth rates) are lacking,
but essential to properly assess the health and welfare
effects of healthcare interventions with long-term
consequences. More empirical work is needed to obtain these
estimates, especially given their pivotal role in determining
discount rates. At the same time, we should strive for
stability and comparability over time, which can be
achieved by altering the prescribed discount rates
occasionally instead of frequently.
Third, more empirical work is needed on (implied)
policy makers’ discount rates because most empirical
estimates have been obtained with students or the general
public. We have discussed that these estimates differ
widely between and within studies, and, hence, careful
experimental studies eliciting time preferences of policy
makers should also be undertaken, next to studies deriving
their social time preference from observed behaviors. In
terms of individual and social rates of time preference,
forms of two-stage discounting could be investigated
further, both empirically as well as normatively.
Fourth, more research is required on equity
considerations and discounting rules, which are particularly relevant
for interventions with long-lasting consequences,
potentially affecting multiple generations. In this article, we
highlighted that discounting policies can be modified to
give more weight to future generations, but such policies
require better normative and empirical underpinning.
Fifth, it is important to obtain improved correction
mechanisms for the effects of double discounting
1, 38, 40
], and to start implementing these mechanisms
when discounting QALYs in economic evaluations.
Otherwise, effects will be underestimated, especially in
economic evaluations of interventions with long-term
consequences, such as prevention programs.
Sixth, if a country’s national guidelines prescribe
differential discounting, one has to be aware of the possibility
of strategic behavior in the choice of the analytical horizon
]. We therefore advocate future studies to formulate
rules to determine these horizons in the case of differential
Finally, reporting of economic evaluations remains an
important issue. Besides the above-mentioned manner in
which end results are expressed, clear reporting on how
discounting was executed and why remains pivotal, also in
comparing (results of) studies.
In this study, we have summarized the theoretical
foundations of discounting in health economic evaluations and
presented the most recent national guidelines for
discounting practice. We also discussed the major challenges
in setting discounting policy, including the need for
explicit discounting rules, the use of equal vs. differential
discounting, the role of intergenerational equity, and how
to deal with double discounting, multiple cohorts, and
long-term time horizons. In addition, we stressed the
importance of obtaining more accurate empirical
measurements of the growth rates of the consumption value of
health and marginal productivity of the healthcare sector.
Our review of national guidelines made clear that equal
discounting of costs and effects is the dominant practice.
This is typically done without any justification or based on
theoretical grounds without practical relevance or
evidence. We argued to be more cautious in this practice, in
particular when the value of health (and the marginal
productivity of the healthcare sector) is expected to change
over time. Furthermore, the level of the currently used
discount rates seems relatively high in many countries in
light of current economic developments. The trade-off
between stability of methods and discount rates, their
applicability over longer time horizons, and their empirical
basis need more explicit attention. Finally, we put forward
a research agenda with topics that deserve special attention
in the search for improved discounting guidelines.
Author contributions WB had the initial idea of this study. AA
reviewed the national guidelines and wrote the first draft of the paper.
WB commented on this draft and added several parts. KC commented
and elaborated on the final draft.
Compliance with Ethical Standards
Funding No sources of funding were received for the preparation of
Conflict of interest Arthur E. Attema, Werner B.F. Brouwer, and
Karl Claxton have no conflicts of interest directly relevant to the
content of this article.
Open Access This article is distributed under the terms of the
Creative Commons Attribution-NonCommercial 4.0 International
License (http://creativecommons.org/licenses/by-nc/4.0/), which
permits any noncommercial use, distribution, and reproduction in any
medium, provided you give appropriate credit to the original
author(s) and the source, provide a link to the Creative Commons
license, and indicate if changes were made.
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