Essay A fair approach to discounting future effects: taking a societal perspective Werner Brouwer, Ben van Hout, Frans Rutten Institute for Medical Technology Assessment, Erasmus University Rotterdam, The Netherlands It is recommended that future costs and health effects are discounted at the same rate, usually 5%. In this paper It IS argued that, from a societal perspective, this approach may be inappropriate for health effects. Instead of the discount rate for health on that for costs, it should be based on the real change in the (societal) valuation of health effects over time. Such valuation may change because of increasing life-expectancy and diminishing marginal utility of additional health effects over time. Journal of Health Services REsearch & Policy Vol 5 No 2, 2000: 114-118 © The Royal Society of Medicine Press Ltd 2000 Introduction In economic evaluations, discounting is an issue of considerable debate when health programmes yield costs or health effects in the future. Normally, compar- isons between different health programmes are made by way of cost-effectiveness ratios containing present values of future costs and effects. Correcting costs and effects for the time at which they occur, by weighting them and calculating a present value, is called discounting. However, which discount rates should be used is not an easily answered question, nor whether a constant discount rate should be applied.l-f In recently published guidelines for cost-effectiveness analysis (CEA) ,3,4 the prominent view is that one discount rate should be used for both costs and effects. Discounting future lives saved remains a controversial issue because it is not clear why the value of lives saved in the future should be less than that of those now. This is especially so when dealing with future generations. Finding an appropriate discount rate for health effects is important since the procedure of discounting can alter the results of a CEA considerably. This paper provides a theoretical background for addressing this issue from a societal perspective using a relaxed version of the Rawlsian theory of justice." First, the current views on discounting are discussed. Then, how taking a societal perspective in CEA may be operationalised and how health effects may be discounted from a societal perspective are described. Finally, both a solution for Werner Brouwer PhD, EUR-fellow, Researcher Ben van Hout PhD Assistant Professor, Frans Rutten PhD, Professo;, Institute for Medical Technology Assessment, Erasmus University Rotterdam, PO Box 1738, 3000 DR Rotterdam, The Netherlands. Correspondence to: WB. 114 J Health Serv Res Policy Vol 5 No 2 April 2000 presenting future effects and future research areas are considered. Current views on discounting The procedure of discounting, reflecting a lower weight attached to things that happen in the future than those happening now, can alter the results of an economic evaluation substantially and therefore also alter the subsequent decision-making process.f When costs or effects occur far in the future, the effect of discounting becomes apparent. To illustrate this: discounting future effects with a discount rate of 5% implies that a life-year in 40 years counts as only one-seventh of a life-year gained now (because 1/(1.05)4°=0.149 or about 1/7). Thus, a vaccination programme, with costs this year and health gains in the future, will be seen as less cost- effective than a programme costing the same but yielding the same amount of health effects this year, because the future effects receive less weight. There is, at least at the practical level, a broad consensus that one discount rate (generally 5%) should be used both for costs and effects. 3,4 This has been supported by three economic arguments, all of which can be challenged. First, 'economic theory implies that, in a perfectly competitive, risk-free, tax-free world in which all commodities (including something called 'health') are perfectly divisible - so that individual decision-makers could precisely adapt their consumption of goods and services over time - there would be but one discount rate.,3 In this situation, therefore, the discount rate for costs would be the same as for effects. However, these conditions are clearly not met in reality, especially not in health care. Second, there is the so-called postponing paradox," as explained in Box 1. In the paradox, infinite postponing