THE CHARGE TO THE COMMITTEE

This report responds to a change in the requirements for economic analysis of major regulations developed by federal agencies. Until recently, agencies were required only to conduct BCAs, assessing both net impacts on the national level and their distribution across different subgroups of concern. In 2003 new government-wide requirements for CEA of major health and safety rules were added, and those are now being implemented by the agencies. The charge of this Committee is to provide advice related to these new requirements.

Background

Federal agencies are directed by executive order (and sometimes by statute) to estimate and report the expected benefits of proposed major regulations in conjunction with their estimated costs.1 For economically significant health and safety rules, these analyses must generally include both a BCA and a CEA. BCA involves estimating the monetary value of benefits (e.g., improvements in human health or in the natural environment), then subtracting regulatory costs (e.g., related to industry compliance) to determine the net benefits of regulatory options. Ideally, the value of benefits is determined from estimates of willingness to pay (WTP) for the risk reductions or other impacts. In contrast, CEA involves dividing regulatory costs by a nonmonetary benefit measure (e.g., number of lives saved, cases of illness avoided, years of life gained, or tons of pollution reduced) to determine the unit costs of achieving the benefits.

When regulations reduce the risks of different kinds of illness or injury, or of both fatal and nonfatal effects, analysts may use measures that reflect impacts on health-related quality of life (HRQL) and longevity as the indicator of effectiveness. These measures are generally referred to as HALYs; the quality-adjusted life year (QALY) is the most common HALY metric. HALY measures convert different types of health effects to a composite unit so that regulatory costs can be compared to a single measure of health-related effectiveness.

Until recently, guidelines for regulatory analysis focused on the conduct of BCA. In 2003, however, the U.S. Office of Management and Budget (OMB) within the Executive Office of the President (EOP) issued Circular A-4, Regulatory Analysis, which instructed executive branch agencies to

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Not all of the activities of regulatory agencies result in regulations subject to requirements for economic analysis. For example, the Food and Drug Administration’s review and approval of new drugs does not involve issuance of regulations and is not subject to requirements for BCA or CEA.



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