Administration Devalues the Elderly

The elderly frequently suffer the consequences of a lifetime's exposure to industrial contaminants, including heart or lung failure from smog and soot, and cancer from toxic chemicals. Tens of thousands die prematurely every year as a result.

Over the years, we have made significant strides in addressing these problems, and improving the quality of life for our seniors, through strong regulatory protections. Yet the Bush administration has recently taken steps that could halt this progress.

Specifically, OMB's Office of Information and Regulatory Affairs (OIRA), under the leadership of John Graham, has proposed new agency-wide guidance on cost-benefit analysis [1], which has emerged as the heart of the administration's regulatory decision-making. This proposed guidance, which is now open for public comment, promotes analytical methods to monetize human life that systematically bias the process against regulation aimed at preventing cancer or other diseases of old age, which have long latency periods.

Two separate, but connected, assumptions underlie this bias. First, a life saved today is worth more than a life saved tomorrow. And second, the elderly are worth less to society because they have fewer years left to live.

Analytically, the first assumption is carried out through a process known as "discounting." The further in the future a "statistical life" is saved as a result of regulatory action today, the more it will be discounted from its "present value," and the less likely the action will pass a cost-benefit test. Think of this as interest in reverse. (The Center for Progressive Regulation [2] allows you to observe the implications of this approach through its discounting calculator [3].)

The second assumption is accomplished by placing value on "life years" as opposed to number of lives saved, the more common measurement used by agencies over the years. This naturally skews decision-making against protections for the elderly, who have fewer life years remaining. Moreover, life years saved in the future are discounted just like "statistical lives," further skewing results. OIRA's proposed guidance, discussed in detail here [4], advises that agencies show analytical results using both life years and statistical lives, applying two separate discount rates (7 and 3 percent).

This tendency to undervalue the elderly was on plain display in the development of EPA's recent rule to prevent air pollution from snowmobiles, which annually discharge about 530,000 tons of carbon monoxide and 200,000 tons of hydrocarbons. After OIRA's review of EPA's original proposal, Graham issued a post-review letter [5] demanding a more "refined" cost-benefit analysis for the final rule. For EPA, this meant yielding to OIRA's preferred assumptions.

In the agency's final analysis, the lives of those over 70 are valued at 63 percent of those under 70 -- $2.3 million compared to $3.7 million. This was not the result of discounting or life years, but rather a straightforward determination that the elderly are worth less. This conclusion derived from a 1982 British study by Michael Jones-Lee, who recently told the Miami Herald [6], "I certainly wouldn't argue for my 1982 figure." Discounting and the use of life years compound this bias further. EPA continues, "For populations over the age 65, we then develop a [Value of Statistical Life Year] from the age-adjusted base [Value of Statistical Life] of $2.3 million. Given an assumed remaining life expectancy of 10 years, this gives a VSLY of $258,000, assuming a 3 percent discount rate."

Such analytical methods inevitably make strong regulatory action appear less appealing, especially when it's aimed at addressing future harm. Indeed, in finalizing the snowmobile rule, EPA weakened its already timid proposal under pressure from OIRA, as detailed here [7]. Yet the logic underlying discounting and the use of life years remains highly questionable.

Economists originally developed the concept of discounting to evaluate and compare financial investments that produce future income, and in this context, it makes perfect sense. A dollar today is worth more than a dollar one year from now because you can put it in the bank (or otherwise invest it) and accumulate interest. If you deposited $100 today, next year you would have $103 at a 3 percent interest rate. Thus, $103 next year has a present value of $100 today.

In regulatory decision-making, this same logic is applied in valuing human lives. Yet to state what should be obvious, valuing a financial investment is fundamentally different than a human life, which cannot be put in a bank and accumulate interest. In this context, discounting can lead to some rather startling conclusions.

For instance, "At OMB's 7 percent discount rate, saving the entire population of the United States one century from now becomes equivalent, in cost-benefit terms, to saving about 658,000 people today," according to recent congressional testimony [8] by Georgetown Law Professor Lisa Heinzerling. OIRA's proposed guidance also requires "cost-effectiveness analysis," which compares the ratio of costs to units of benefits (i.e., lives saved). This too is subject to discounting, as Heinzerling elaborated: "Suppose EPA proposed a regulation that would save 100 people from a type of cancer that has a latency period of 20 years ... Through the 'magic' of discounting at OMB's preferred rate of 7 percent, these 100 lives would be converted to 25.84 lives."

Likewise, the use of life years rests on shaky ground -- both logically and morally. This choice, in effect, rations our regulatory protections based on age, elevating life-saving measures aimed at the young over those that protect the elderly. Yet in reality, there is no need for such a tradeoff; nothing is stopping the government from protecting both young and old. Moreover, there is no good evidence that the elderly value their lives any less than the young, or are any less willing to pay for regulatory benefits. The same can be said for society as a whole, which generally recognizes a special obligation to our seniors. Unfortunately, when it comes to regulatory action, this does not appear to be the case for the Bush administration.