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Cost effectiveness analysis (CEA) and cost-utility analysis are increasingly used to compare competing uses for limited health care resources, informing policy decisions at governmental, payer, and clinical levels of the health system. The authors discuss various methodologic choices in CEA and the normative (value) assumptions and implications of those choices. The treatment of adult onset diabetes is used as a simplified case example to illustrate the choice of perspective, cost inclusion and exclusion, benefit measurement and aggregation, and how these and other aspects of CEA can implicitly influence policy decisions with consequences for individuals and groups. CEA can be a valuable source of information, but it is a poor "technologic fix" for the thorny problem of allocating limited health care resources.