Regulatory Policy

The Vaccine Rollout and COVID Déjà Vu

Naomi Hassebroek receives her second COVID-19 vaccine at NYC Health+Hospitals Gotham Health Sydenham in New York City, March 29, 2021. (Caitlin Ochs/Reuters)
The public-health community doesn’t understand that incentives — not words — will drive demand for vaccines.

The recent claim by public-health officials such as Dr. Birx that much of COVID-19 could have been prevented by better government policies points to the fact that the public-health profession lacks a basic understanding of how incentives affect disease prevention and control. Indeed, watching many aspects of the response to COVID-19 has been something of a series of déjà-vu experiences for public-health economists.

The recent war of words over some of the population’s lack of demand for vaccines during its rollout is illustrative of the issues. As opposed to focusing on incentives, the public-health community is obsessed with words and messaging. They questioned whether President Trump supported the vaccines that his own Operation Warp Speed enabled, which of course he clarified he did. Never mind that before the election, Joe Biden had raised doubts about the safety of vaccines approved by the Trump administration.

However, in the end, incentives, not words, will drive the demand (or lack thereof) for a vaccine during its rollout. The demand for vaccines depends on whether the benefit from reduced infection risk outweighs the full cost of being inoculated, including the attendant side effects and time and transportation costs involved. Therefore, demand will fall during a vaccine rollout as the risk of infection falls, but the various costs of inoculation will remain the same. This falling demand is likely to be more evident in the case of COVID as early vaccine rationing covered high-risk, and therefore high-demand, individuals.

You don’t need conspiracy theories or misinformation to explain why we may not reach the high vaccination rates the public-health community wants for herd immunity. The later stages of the COVID-vaccine rollout will involve (mainly younger) people weighing the small probability of (for most) a flu-like infection against the uncertainty about — and lack of evidence on — long-term side effects of a vaccine yet to be definitively approved by the FDA. Indeed, the flu-like side effects associated with taking the vaccine are not substantially different from the COVID-19 disease for many. In this connection, it’s worth noting that less than half of the adult population, primarily the high-risk demographic, take the opportunity to receive regular flu vaccines, and that’s with well-proven vaccines and an absence of side effects. Many of those planning not to take a COVID shot raise side-effects concerns.

The recent American Rescue Plan Act was a missed opportunity to confront the impact of the rollout itself on lowering future demand. It only allocated a few percentage points of the funding to the rollout, which is currently by far the most important issue for the economy.

The public-health community’s ignorance of the role that incentives can play in establishing an appropriate response to a disease predates COVID. Indeed, in response to this shortcoming, the field of economic epidemiology emerged decades ago to address how incentives drive disease occurrence and what those incentives imply for the effects and value of government intervention. The experiences with COVID mirror many major past lessons of this field.

The first is that the course of an epidemic disease is often driven by incentives in the private sector rather than by government policy. This is obvious for noncommunicable diseases, such as, say, obesity, but is also the case for communicable ones — despite what the policy debates across the world would suggest.

The second is that government prevention — e.g., regulations and subsidies for preventive behavior — often have limited impact. With COVID, vastly different policies have led to largely similar outcomes. Indeed, states with the greatest public intervention have suffered the largest COVID losses on a per-capita basis.

The old-school, or, to use Biden’s term, “Neanderthal,” rationale for these public policies when it comes to communicable diseases is based on externalities. In other words, preventing one person’s communicable disease confers benefits to others (by reducing the disease’s spread), which, therefore, justifies government intervention. However, to better understand the impact of government policies on the course of a disease, it’s necessary to look at how they interact with private initiatives.

In the short run, steps taken by the state may have much less of an effect than often thought. Individuals typically react more rapidly than governments do. Governments can lock you down, but so can you, and more quickly — and that matters. President Reagan’s late response to HIV — or President Obama’s to H1N1 — are extreme illustrations of government lagging behind the private sector, but the same was true for early COVID mandates. For example, restaurant attendance was already down on average by about 85 percent in early 2020 by the time some states banned it. Recent research at the University of Chicago confirms this overall pattern.

This lack of policy impact is often true in the long run, too. Because more disease incentivizes individuals to protect themselves more, we see disease cycles such as that for COVID. Prevention falls off as the risk of infection subsides, and a rise in cases then follows. New outbreaks prompt people to take more care, and cases fall again. But this implies that if government policy drives down cases temporarily, as, say, was the case with the March 2020 federal guidance, private prevention measures slip, leading to the disease’s reemergence as we have seen with the multiple COVID waves in the U.S. The impact of public prevention has less of an effect than might be hoped because of the way that it “crowds out” private prevention.

The third lesson that COVID illustrates is that the incentives that encourage a focus on prevention against the disease often mean that the losses arising from prevention greatly exceed the losses due to reduced health from the disease. At the height of the pandemic in 2020, economists quantified the total loss, both from the disease directly and from the preventive measures taken to combat it. They found that about 80 percent of the total loss stemmed from prevention, because of the consequent forgone economic activity. Policy needs therefore to be focused on the total loss; the economic science on this suggests that the U.S. actually did better than countries that were often held up as role models at the time.

The fourth lesson stems from the third and ultimately drove Operation Warp Speed. It is that medical innovation is often the cheapest form of prevention and therefore the key to lowering the total loss dominated by prevention-measure-induced loss. For example, the successful drugs for HIV or bariatric surgery for obesity are much cheaper forms of disease prevention than changing the demand for reproduction and food, hard-wired into us by evolution.

Likewise, forgoing economic activity has put a high price on prevention of COVID across the globe, but this cost has now been reduced to the cost of vaccine production. Medical R&D spending in the tens of billions is again turning out to be a cheaper alternative to prevent disease than behavioral change costing trillions in economic losses across the world.

Indeed, all the world’s proponents of socialized medicine, which includes most of the public-health community, are now lining up to get access to the vaccines that U.S. capitalism delivered. Though medical discoveries come from across the world, the more market-based pricing in the U.S. is responsible for about 70 percent of the global returns on the decades of past R&D investments that through cumulative innovation have led to the COVID vaccines.

In summary, public-health experts, unlike economists, have no expertise in how incentives drive the course of a disease and the damage it causes, or how such incentives affect government intervention. Nor do they appear to have the expertise how to quantitatively evaluate the impact of such intervention on the total cost (disease plus prevention) of the disease. We have seen this lack of knowledge painfully play out during the COVID-19 pandemic during which the public-health profession has been pretty much reduced to counting cases and stressing prevention when infections rise. This falls far short of what we should be entitled to expect from experts. Next time around we can surely do better.

Tomas J. Philipson is a professor at the University of Chicago. He served as a member and acting chairman of President Trump’s Council of Economic Advisers from 2017 to 2020.

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