MICHAEL HICKS: Vaccination mandates could lead to huge cost savings | Opinion
Many business leaders are reluctant to say it publicly, but President Biden’s vaccine tenure is a welcome gift. It offers them and their employees a relatively easy way to avoid what could be an impending health insurance price spike. For businesses that are struggling to hire and keep workers, this should be of particular benefit. It will also help maintain civility in the workplace at a time when it is about to be greatly stressed by the rising health insurance costs brought on by unvaccinated workers and their families.
Faithful readers of this column will know my distaste for many government regulations. It has become so vast and intrusive that companies often find themselves spending time and energy on blatantly silly rules. From professional licenses for interior designers to annually changing standards for commercial fans, there are endless examples of over-regulation. If you’ve ever filled out an OSHA Safety Form for a glass cleaner, you’ll know exactly what I mean.
Government regulation should be limited to the few cases where markets for goods, services and labor fail. Markets don’t normally fail, but the classic example is the idea of an externality. This is when the exchange of a good or service imposes a cost or a benefit on someone who is not involved in buying or selling the item. Pollution is the classic example of a negative externality, where smoke or toxic emissions impose costs on others who do not buy or sell the product. Vaccines are the classic example of a positive externality, where the benefits accrue not only to the manufacturer and recipient of the vaccine, but also to others.
The benefit of the COVID vaccine is an astonishing reduction in hospitalizations and deaths. Few of those vaccinated are hospitalized or die from COVID. Today, with the vaccine available for people 12 years of age and older, hospitalization and death are mostly voluntary as the choice of those who chose not to receive the vaccine. If these people paid the full cost of their health care and burial costs, the argument for a vaccination warrant would diminish. But that’s not how we pay for health care. Plus, overcrowded hospitals impose significant secondary costs on all of us, which I’ll save for another column.
So far, most individuals have dodged the financial cost of COVID-related healthcare expenses. The government has made the vaccine and testing free, and insurers have yet to fully adjust their premiums for the disease. That will change, maybe in the coming weeks. It will be expensive and will affect almost all of us. This should make some wonder how serious the increase in costs will be.
In the past four months, about 1 in 300 unvaccinated adults have been hospitalized for COVID. In contrast, vaccinated adults have a hospitalization rate of about 1 in 10,000. These hospitalizations cost between $ 51,000 and $ 76,000 each. So, over a full 12 month period, we would expect costs for unvaccinated people to vary from around $ 450 to $ 684 per person. It is the share of the total unvaccinated hospitalizations distributed over the unvaccinated population. For the average vaccinated person, the cost is less than $ 25 per year.
Insurance companies are busy finding reasonable ways to incorporate these new costs into health insurance premiums. As the Medicare open enrollment season begins in a few weeks, most US businesses should expect dramatic rate increases. My estimate is that for an unvaccinated family of four, health insurance premiums are likely to be close to $ 2,740 per year. For a vaccinated family of four, the increase can be less than $ 95 per year.
These are “back of the envelope” calculations, but they are within the approximate range of the actual cost differences that can be anticipated between the vaccinated and the unvaccinated. So when CEOs meet with insurers, they are likely to face some grim choices. One option can spread the cost over all employees. Another option will be to charge different rates for vaccinated and unvaccinated. This is akin to the higher health insurance rates paid by smokers. It’s worth thinking about how this might happen in a typical business.
Consider a warehousing business of 300 people, with each employee having three family members on their plan. Now suppose that exactly half of the employees and their families are vaccinated and the other half are not. In this case, if the costs are spread over the entire workforce, the incremental cost per family is $ 1,296 per year in the high cost range. Now suppose that a second plan option is to charge each employee a supplement based on their immunization status. The vaccinated worker will pay less than $ 100 per year more for their family of four, while the unvaccinated worker will pay $ 2,740 per year for their family.
The cost equates to an additional $ 1.32 per hour over a working year, so few employers will want to bear that cost in premiums for health care. I think this makes it very unlikely that most employers will cover this additional cost. This difference will also detail some pretty uncomfortable conversations with workers.
This puts employees in a difficult position, especially when fall is the typical time for employers to choose a new health insurer and for employees to choose their plan. It takes about a month to get both vaccines, so for workers who haven’t been vaccinated, the 2022 health plan adherence season could offer a surprising rate shock. It also puts employers in a difficult position, and this is where President Biden’s vaccine tenure helps. Instead of the unvaccinated minority expressing their frustration with the CEO or owner, they may instead get angry with the president.
In a better world, there would be no need to impose vaccines against a deadly disease that has crippled our economy. Vaccines are a wonder of scientific achievement, free enterprise, and the American spirit. In a better world, Americans would line up to get vaccinated. However, in the world we live in now, Biden’s vaccine mandate gives companies an easy excuse to insist on vaccinations among their workers before facing the certain arithmetic of paying for this pandemic. The wisest leaders in business should be thankful for this vaccination mandate.
Michael J. Hicks, Ph.D., is director of the Center for Business and Economic Research and professor of economics at Ball State University. Contact him at [email protected]