The wrong solution | Value Research Pricing the COVID vaccine has been a matter of much speculation. Here are some popular suggestions and why they are erroneous.
Everyday Economics

The wrong solution

Pricing the COVID vaccine has been a matter of much speculation. Here are some popular suggestions and why they are erroneous.

The wrong solution

Through February and March, eligible Indians, including healthcare workers in hospitals treating COVID patients, were reluctant to get vaccinated, and now there is a scramble to get the jab. What has changed? People's risk assessment for one. Earlier, people felt taking the vaccine was too risky as they had heard of the odd cases of severe reactions to it. On the other hand, the risk of the coronavirus itself seemed to them to be on the decline, with the government constantly talking up recovery cases and underplaying the threat to life. Many senior citizens told me that they were in no hurry to get the shot and would reconsider it a few months later. But now, with the virus leaving no one in doubt about the destruction it is capable of, and the suffering and difficulties of the infected and their loved ones searching for treatment possibilities plainly visible, the threat is immense and undeniable. And vaccines are finally being seen as the saviour they are meant to be. People have figured - belatedly, it could be said - that the risk of not getting vaccinated is greater, leading to a rush for getting the shots.

Vaccine prices have generated a great amount of confusion. There are two categories of prices involved: the prices at which the vaccine doses are procured from the producers and the prices charged to consumers. Many people confuse procurement prices, which can never be zero because making vaccines costs money and someone has to pay up, as consumer prices. There is no justification for making the vaccine producers to foot the bill from their pocket. The government has to pay, whether in the form of per-dose procurement price or investments in R&D, vaccine development, clinical trials and production processes. Merely paying advances for procuring doses, as the Indian government has done, is not sufficient.

A common belief is that rich consumers should be made to pay for their vaccines so that the poor can be vaccinated for free. But pricing vaccines on the ability-to-pay basis is bad policy. Remember, poor people also benefit when a rich person gets vaccinated, since the risk of the virus spreading reduces. The reverse is also true. Unless at least three-fourth of the total population, say experts, gets vaccinated, the vaccine cannot be expected to truly protect against the worst the virus is capable of. That is why rich countries and people have selfish interest in ensuring poor nations and people get vaccinated quickly. Therefore, free vaccination for all, regardless of the ability to pay, works. If, instead, you charge rich people even one rupee for vaccines, here's what it will do.

First, it will complicate management because immediately different categories of stocks will have to be maintained. Different vaccine deployment sites will have to be operated. The logistics, storage, book-keeping everything will get complicated. Second, everyone involved in making, managing, distributing and administering vaccines will want to move more and more vaccine supplies into the non-free category, leaving less and less for the free category. Most of all, poor people may feel less confident about getting vaccinated when they see the rich 'buying' it while something supposedly exactly the same is free for them. There can never really be an equitable distribution of vaccines - so essential to effectively fight the virus - when vaccines are not free for everyone. Is it fair to subsidise vaccines for the rich? Economics is about costs versus benefits and trade-offs. The cost of vaccinating the entire adult population has been estimated at anything between 0.5-0.7 per cent of GDP, which is not an enormous price to pay for mitigating the health and the related economic crises. And this is much less than the toll lockdowns can take on the economy. A month-long lockdown or loss to the economy from the uncontrolled pandemic can cost upwards of 5 per cent of GDP, according to estimates by economists. Economic activity will only begin to normalise once the majority of people are able to return to normal life. Vaccinating bulk of the population is the surest way to achieve that.

Besides, there are many tools to make sure that the rich do eventually pay for vaccines. Putting a price tag is a poor one but a surcharge on income tax can be imposed. A cess can be imposed on products the rich consume exclusively. A hundred other things can be done but putting a price on vaccines only for the rich can hurt the poor, not the rich. Fancy vaccination centres will come up for the rich and they will be provided priority access to vaccine stocks, as is happening in big cities.

The other area of confusion concerns the expectation that the COVID vaccination drive can be rolled out in the way polio inoculation has been in the government's universal immunisation programme. The difference between that and the present challenge of rolling out vaccines for the coronavirus is that these doses are in short supply on a global level.

Many people also erroneously believe that imposing price controls on coronavirus vaccines and medicines and nationalisation of hospitals and vaccine and medicine producers will solve the problem or make it more manageable. Economic controls increase the powers of bureaucrats, and through them of the elites. They deliver nothing for the common people. Will the management and staff at private hospitals be able to continue to deliver the service they have given since last year, which has reduced the burden on government hospitals and healthcare centres, if the government takes them over? Unlikely. Complaints of overcharging or exploiting a national health emergency can be addressed through introducing proper regulation - a long-pending reform. Forcing private enterprises to supply public goods at losses or by taking over their private capital is recipe for disincentivising the private sector and increasing the burden on an already-stretched government healthcare sector.

It is important to make sure that solutions actually ease problems, not exacerbate them. What seems like a logical remedy, especially to the layperson, can be a policy error. In such cases, even good intentions can have bad consequences. That's why technical decisions should be taken by technocrats, not politicians or generalist bureaucrats. India's vaccine crisis shows what happens when sound economics is not applied to policymaking.

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