“Individual freedom!” has been the rallying cry of a highly vocal but increasingly small minority of Americans who oppose COVID-19 vaccines. Most of these anti-vaxxers represent the intersection of ignorance, arrogance, and obstinance. But should you require them to get vaccinated if they are your employees? In a free market economy, businesses with vaccinated employees have a competitive advantage over businesses with unvaccinated employees.
COVID infection is costly
A study from the City University of New York found that the average direct medical cost of a symptomatic COVID-19 infection is $3,045. Infections that require hospitalization are considerably more expensive than those that can be managed as an outpatient. A report from CMS found that the Medicare payments for a COVID-19 hospitalization was $24,033 (this does not include co-pays that the individual is responsible for). A study in JAMA Open Network this week found that the average out-of-pocket co-pay for a COVID-19 hospitalization was $3,804. A report from the Kaiser Family Foundation found that the average cost of COVID-19 hospitalization for commercially-insured patients with pre-existing medical conditions is estimated to be $20,292 (commercially-insured patients are younger than Medicare patients, have fewer medical co-morbidities, and tend to have shorter hospital stays – all resulting in lower cost per hospitalization than Medicare patients).
In addition to direct medical costs, there is a cost of lost worker productivity during their infection. Recommendations by the CDC are persons infected with COVID-19 should not return to the workplace for at least 10 days from the onset of symptoms. Those persons who are immunocompromised or who require hospitalization for more severe COVID-19 infections should not return for 20 days. Asymptomatic persons who test positive for COVID-19 should not return to the workplace for 10 days from the date of the COVID-19 test. In total, COVID-19 absenteeism is quite costly to employers.
Unvaccinated employees cost more
Vaccines are effective in preventing COVID-19 infection. Overall, unvaccinated persons are 6.1 times more likely to test positive for COVID-19 than vaccinated persons. That means that unvaccinated persons are 6.1 times more likely to be absent from work for at least 10 days. They are 6.1 times more likely to incur the $3,045 direct medical cost of the average COVID-19 infection. The graph below shows the COVID-19 case rate per 100,000 for vaccinated and unvaccinated Americans of working age.
Vaccines are even more effective in preventing severe infection; most of the people hospitalized for COVID-19 infection are now unvaccinated. The CDC reports that unvaccinated COVID-infected persons are 12 times more likely to require hospitalization than unvaccinated persons. Preliminary data suggest that unvaccinated persons are 20-30 times more likely to require ICU admission for COVID-19 infection than vaccinated persons. The graph below shows hospitalization rates per 100,000 for vaccinated versus unvaccinated persons.
Older unvaccinated workers are even more likely to require hospitalization. The CDC reports that in August 2021, persons age 50-64 were 30 times more likely to require hospitalization if they are unvaccinated versus being vaccinated. Currently, the cost of those hospitalizations is being borne by commercial insurance companies and by Medicare. However, in the future, this will translate to higher health insurance costs and higher Medicare costs. These costs will then be transferred to employees by higher health insurance premiums and higher Medicare payroll taxes
Not only are vaccinated employees more likely to be hospitalized with COVID-19, but they are also more likely to die if they get COVID-19. In August, the overall death rate was 11.3 times higher in unvaccinated than vaccinated persons. Dead employees not only result in the cost of replacing them but they also generate life insurance payouts that then result in higher life insurance premiums for the business. The graph below shows the number of COVID-19 deaths per 100,000 in vaccinated versus unvaccinated people of working age. One implication of this graph is that it is safer for a company to hire a 70-year-old vaccinated employee than to hire a 30-year-old unvaccinated employee from a COVID-19 death risk standpoint.
Unvaccinated workers who are exposed to COVID-19 also incur higher lost productivity costs than vaccinated workers. Recommendations by the CDC are that unvaccinated employees exposed to COVID-19 quarantine at home for 14 days from the date of exposure. However, vaccinated employees do not need to quarantine and can continue to work as long as they wear a mask. These worker absences can be very costly to the employer who continues to pay the worker who is off work (“sick time”) and has to additionally pay someone else to do that worker’s job (often requiring expensive overtime pay). Because of the different quarantine requirements, it is far more costly to the employer if an unvaccinated employee is exposed to COVID-19 than if a vaccinated employee is exposed, even if the employee has no symptoms.
If vaccines save so much money, why don’t we just mandate them?
Vaccine misinformation has permeated the American public and has spilled over into American politics. Intuitively, one would have thought that Republicans would have been more pro-vaccine than Democrats given that Republicans historically were aligned with business and were in favor of policies that reduce business costs. Furthermore, Republicans historically opposed legislation that places constraints on the free market. Paradoxically, during the COVID-19 pandemic, Republicans have fought against vaccinations that could have lowered costs to businesses. Republicans have also introduced legislation that would prevent individual businesses from requiring employee vaccinations – even when businesses believe that having 100% employee vaccination can give them a free market competitive advantage over other businesses. As a consequence, when it comes to COVID-19 legislation, Chambers of Commerce have been aligning themselves with Democrats rather than their normal alignment with Republicans.
Most Americans are already vaccinated. As of this week, 66% of us have received at least one dose of a COVID-19 vaccine. Because many children are not eligible to be vaccinated, a better metric is the percent of adults who are vaccinated – currently 79% of Americans over age 18 have received a vaccine and 96% of Americans over age 65 have received a vaccine. The people who are vaccinated are not the ones who are vocally protesting against vaccine mandates – it is the minority of Americans who are not vaccinated that are making all of the noise. They are also the ones who are filling up our hospitals, increasing costs to employers, and increasing costs to Medicare and insurance companies. Getting these Americans vaccinated is not just good for our country’s health but it is good for our nation’s businesses. So, how to best get them vaccinated?
The mandate versus the nudge
A mandate is a directive requiring an employee to do something. A nudge is a more subtle means of influencing employee behavior without imposing a mandate. An example of a nudge applied to COVID-19 would be to make it easy for employees to get vaccinated by giving them paid time off work to get vaccinated. A nudge can be as simple as providing education about COVID-19 and vaccines in the workplace. Some employers use the nudge of paying their employees to get vaccinated and in Ohio, we have a free tuition lottery that vaccinated teenagers are automatically enrolled in. Public shaming can be a powerful nudge, for example requiring unvaccinated employees to wear masks at work but allowing vaccinated employees to work mask-free, making it clear to all who is and is not vaccinated. But perhaps one of the most effective nudges is to transfer the costs of COVID-19 to unvaccinated employees.
This was the approach taken by Delta Airlines which increased insurance premiums by $200 for unvaccinated employees. So far, 90% of Delta employees are now vaccinated and Delta projects that 95% will be vaccinated within the next month. On the other hand, United Airlines mandated vaccination and currently has 96% of its employees vaccinated with 3% having a medical/religious exemption to vaccination and only 1% of employees refusing vaccination. American Airlines and Southwest Airlines are also mandating vaccinations but their company policies are being stymied by a Texas law prohibiting businesses with headquarters in Texas from requiring vaccinations. This represents a fascinating social experiment: whether the mandate is more effective than the nudge. Over the next year, we will have an answer to this question and future economic analysis will show us which is the most cost-effective: the Delta Airlines strategy or the United Airlines strategy.
The difference between a mandate and a nudge is that a mandate eliminates choice but choice is inherent in a nudge. As a species, Americans rebel when being told what to do and are passionate about having the freedom of choice. In the song Growing Up, Bruce Springsteen said this better than anyone when he sang: When they said “sit down”, I stood up. The nudge can influence us to change our behavior without requiring us to change our behavior. But there are situations when the mandate is essential, for example, in the military on the battlefield.
When is the mandate better?
The danger of a vaccine nudge is that it may not be effective and if the business needs all of its employees to be vaccinated in order to be competitive, relying on the nudge could put the business at a competitive disadvantage. As an example, elective orthopedic hip replacement surgeries are very lucrative and are mostly performed in people over age 65. These older people have COVID phobia (which is why 96% of them have received a vaccine). The hospital that boasts that all front-line employees are vaccinated will be at a competitive advantage to attract people needing a hip replacement surgery compared to a hospital with unvaccinated nurses and doctors.
Many, if not most, businesses actually welcome legislated vaccine mandates. When the mandates come from the government, then the employer does not have to take responsibility for the mandate and can tell employees “Hey, this requirement is from the government, I’m just the messenger…”. Furthermore, with government mandates, a business does not need to worry about losing employees to its competition over vaccine requirements. If only one restaurant in town mandates vaccinations, there is a danger that the serving staff may quit and go work for a different restaurant rather than get vaccinated but if the State Health Department mandates that all restaurant employees in the state get vaccinated, then those serving staff will be unable to get a job anywhere if they remain unvaccinated.
In states with a high percentage of the population vaccinated, it is easier for employers to mandate vaccination because the pool of unvaccinated employees is relatively small to begin with. The implication is that if you have employees who quit rather than getting vaccinated, there will be ample other workers out there who are vaccinated and who you can hire to replace them. Thus, it is safer for a business owner in California to mandate vaccinations than for a business owner in West Virginia. The graphic below shows the geographic variation in vaccination status.
Similarly, within each state, there are regional variations in vaccination rates that can affect the worker pool and thus the willingness of a business to invoke a vaccine mandate. For example, in Ohio, it is more feasible for a restaurant owner in Delaware County, where 68% of the population has received a vaccine, to mandate employee vaccinations than in Holmes County, where only 15% of the population has received a vaccine. The restaurant owner in Holmes County will have a difficult time finding vaccinated applicants to replace unvaccinated workers who quit because of a vaccine mandate. In the graphic below, Delaware County is the darkest shade county in the middle of the state whereas Holmes County is the lightest shade county.
Another situation where vaccine mandates may be preferable is when mandates can mitigate personal injury litigation. Ever since COVID-19 vaccines have been available to all adults, there is a risk of getting sued if a customer becomes ill or dies from a COVID infection acquired at a business. In many situations, causality can be hard to prove. For example, it can be hard for a customer to conclusively prove that he acquired COVID-19 from an infected bartender at the pub that the customer was in for 45 minutes one evening. However, hospitals may be uniquely vulnerable since patients hospitalized for several days with non-COVID-19 conditions are as a group more susceptible to having severe COVID infections and hospitals have robust epidemiology measures in place that can effectively trace disease contacts. In the future, a hospital will likely be held responsible in civil court for patients who become infected from an exposure to an unvaccinated nurse with COVID-19.
When is the nudge better?
The danger of a vaccine mandate is that some recalcitrant anti-vaxxer employees may decide to quit. For many businesses, this may actually be a good thing if those individuals have a history of being disruptive or otherwise being problem employees in the past. But in other businesses, a large number of employees quitting because of a vaccine mandate can lead to worker shortages, reduced business production, and unfavorable public relations. The wise employer will find out which employees are unlikely to get vaccinated before the employer roles out a vaccine mandate. Strategically timing a vaccine mandate after researching employee vaccination status may provide the company with a rare opportunity to eliminate undesirable employees without having to deal with a protracted human resources battle over alleged unlawful job termination.
In some businesses, particularly those with a small number of employees, relentless education will eventually sway all but the most rabid anti-vaxxers. Once all of the existing employees are vaccinated, then the business can adopt a proof of vaccination requirement for all new employees, thus getting the benefits of the mandate without losing any employees.
Sometimes, the incremental nudge can be highly effective. With the incremental nudge, employee choice is preserved but over time, the consequences of choosing to be unvaccinated become incrementally more onerous for the employee. An example is as follows:
- Step 1: Education about COVID-19 vaccination in the workplace
- Step 2: Paid time off to get vaccinated and recover from any vaccine-related side effects
- Step 3: Pay an incentive of $100 to every vaccinated employee
- Step 4: Requirement that unvaccinated employees wear masks at work but vaccinated employees are not required to wear masks
- Step 5: Requirement that unvaccinated employees get weekly COVID-19 nasopharyngeal swab tests
- Step 6: Requirement that unvaccinated employees get daily COVID-19 nasopharyngeal swab tests
- Step 7: Increase health insurance premiums for unvaccinated employees by $500 per year
- Step 8: Increase life insurance premiums for unvaccinated employees by $500 per year
- Step 9: Mandate vaccination
By the time the employer reaches step 8, only the most hardened anti-vaxxers will remain unvaccinated. This will be a relatively small percentage of employees and will mostly be disruptive employees that the employer would like to have an excuse to get rid of anyway. Therefore, step 9 could be mandating vaccinations and then terminating those few remaining unvaccinated employees. This allows the employer to time the mandate strategically in order to selectively cull the employment roster.
The future is right around the corner
In the very near future, there will be two kinds of people: those who are vaccinated against COVID-19 and those who either have had or will have COVID-19 infection. This pandemic is different than the SARS, MERS, and Ebola outbreaks – in those outbreaks, the virus was able to be contained locally until no new infections occurred. COVID-19 today is too widespread throughout the world and has long past the time when it could be locally contained. This pandemic is also different from the 1918 influenza pandemic and the 2009 H1N1 pandemic – in those pandemics, the inciting virus eventually disappeared and was replaced by other, less deadly strains of the virus. COVID-19 does not show any signs of going away or being replaced by a less deadly coronavirus.
Thus, it appears that COVID-19 is going to be with us for a long time and unless all nations can mount a universally successful vaccination campaign, as was done with polio, COVID-19 may be with us indefinitely. But it is clear that vaccination is the only way out of a perpetual pandemic. The good news is that the number of unvaccinated people is dwindling as the tolerance of the vaccinated for those who are unvaccinated also dwindles.
October 20, 2021