Changes in health-related quality of life: a compensating income variation approach

This paper investigates the relationship between negative changes in health and life satisfaction, using a sample from the Household, Income and Labour Dynamics of Australia Survey. We use panel data models and estimate the life satisfaction impact of several different changes in health status to calculate the Compensating Income Variation (CIV) of them. Our work innovates with respect to the existing literature by using a more robust CIV method that takes account of the potential measurement error in income. Further, we produce the first set of monetary values for health losses using SF-6D utility values, one of the main measures used to estimate and value health change for economic evaluation. We show that negative changes in SF-6D are significantly associated with a reduction in life satisfaction, and the starting point matters: a drop of 0.1 in SF-6D score is associated with a decrease of 0.12 points in life satisfaction if the starting utility value is 0.8, but the effect is 100% higher if the SF-6D starting point is 0.7. More generally, we find that a 0.1 deterioration in SF-6D has a strong association with life satisfaction and that the CIV value is substantial (over US$ 120,000).