What discount rate does OMB use?
Different health technology assessment bodies use different discount rates. ICER uses 3%. NICE uses 3.5%, but allows for a 1.5% discount rate as an alternative approach in certain circumstances. What does the US’s Office of Management and Budget (OMB) use? A OMB press release from last week recommends that government agencies use:
…2.0% for effects in 2023 to 2079, to 1.1% for effects in 2164 to 2172
How do they justify this discount rate? OMB writes:
The 2003 version of Circular A-4 assumed that regulations have negative effects on investment in productive activities and that this effect therefore called for a higher discount rate than the one based on the real return on government debt (now 2%). That is true for some regulations. But other regulations are beneficial for such investments: for example, regulations that incentivize investment in clean energy sources or semiconductors. In those cases, a discount rate lower than 2% is appropriate.
For health care, the following is particularly relevant:
With respect to aggregate risk, the 2003 version of Circular A-4 assumed that regulations deliver greater net benefits when the factors affecting everyone—the economy, public health, or other conditions—are better, thereby justifying a discount rate higher than the rate based on the real return on government debt because additional resources are less valuable to people who are better off. But for many regulations, the opposite is true, as they are most helpful to people when times are toughest.
Since health care interventions–by definition–help people during the toughest times (i.e., when more people are sick) net benefits become large during more difficult times justifying a lower discount rate.
The differential discounting is in part motivated by the argument in Arrow et al. (2014) who states that “if the discount rates that will be applied in the future are uncertain but positively correlated, and if the analyst can assign probabilities to these discount rates, then the result will be a declining schedule of certainty-equivalent discount rates.
You can read the full OMB press release here.
