Mitigating coronavirus by injecting personal cost responsibility

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News that most serious and hospitalizing coronavirus cases involve unvaccinated individuals suggests an ongoing public health challenge: What may be done to encourage more people to take steps to avoid the virus?

One solution, or at least a partial one, is emerging from the private sector. As access to vaccines is no longer a widespread problem, we need to employ more strategic thinking about the incentives behind our policies. Insurance companies and some other businesses understand this and are adjusting accordingly.

In early August, when around 97% of COVID-19 hospitalizations were affecting the unvaccinated, it was reported that 28% of the over-18 population was unvaccinated. Seemingly everyone has an opinion about what should and should not be done. But by simply allowing some reasonable incentives to reenter the picture, more people will realize that avoiding the virus is, after all this time, in their best interest.

So far, leaders have taken what might be termed a kinder, gentler approach. Vaccines for the virus are free to individuals. For those without insurance, emergency room and medical services are provided at public expense. Recent estimates of coronavirus-related hospital costs average $20,000. The number apparently includes all costs, no matter who pays them.

Unfortunately, we may now be experiencing what economists and political scientists call moral hazard.

Moral hazard occurs when the steps taken to deal with the hazard cause it to worsen, not improve. It’s all about human behavior, and that behavior is described in the words of an old country song that goes something like this: “Cousin Jack insured his shack. Now he plays with matches.” If we as a community provide 100% indemnity for the healthcare costs associated with coronavirus, we take away part of the incentive to avoid the virus, especially for people who are not especially worried about any ramifications for their own health. Of course, minimizing moral hazard is why we have deductibles and co-pays in the typical insurance contract. As some might put it, the individual usually has some skin in the game.

But what can be done to address this problem in a way that’s not unkind and uncaring?

One example comes from Delta Airlines, which recently announced a monthly fee of $200 on employees who refuse to be vaccinated. Taking an additional step, the airline indicated that pay protection would be forfeited for unvaccinated staff who miss work because of virus-related illness.

Delta’s decision was strictly about costs and how to control them. Private healthcare insurance prices are based on the incidence of illness within a covered group. Those within the group who are not careful to avoid health-related costs impose their cost on everyone else. Like Cousin Jack, they are fully insured, so now they play with matches.

On a wider scale, according to the Kaiser Family Foundation, most insurance companies are no longer covering an outsized proportion of COVID-19 treatment costs. This creates a financial incentive to avoid the virus that did not fully exist before.

There is far more to the issue and how we should solve it than can be sketched into this short discussion. Perhaps preventive measures should retain their government support, while treatment for those who’ve chosen to forgo prevention should be another story. But there is one thing we can be certain about: When it comes to human behavior, incentives matter. Those who want to see a healthier world had best focus on getting the incentive right.

Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director of the Federal Trade Commission.

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