Vaccine Development and ILE

Are you awaiting the Covid-19 vaccine? A little known federal government agency, the Biomedical Advanced Research Development Authority (BARDA) is behind the financing of the current crop of vaccines.  This agency, located within the large bureaucracy that is the Department of Health and Human Services is the one that signed large financial agreements with drug makers and drug manufacturing facilities as part of the so-called “Operation warp Speed”.In December of 2020, Time magazine reported that the U.S. government is on track to spend $12 billion (https://time.com/5921360/operation-warp-speed-vaccine-spending/) on vaccine development.

It has been noted in many articles that vaccine development represents a classic form of the diversion between social costs and benefits and private costs and benefits.  Drug companies have found that vaccines offer little private incentives for wealth creation and cost a tremendous amount of their own resources to develop.  The U.S. government, according to its own records since at least 2005, has stepped in to supplement the private market and provide government financing and demand for vaccines to ensure their ongoing development and supply.  In ILE, we prefer not to talk in terms of private versus social costs.  We would note that a vaccine is an economies of scale good type where there is a high upfront cost of development and a low cost of reproducing the actual good itself.  One question then is who pays the fixed cost versus the marginal cost.  In the case of Covid-19, the US Government has agreed to pay much of the fixed and marginal costs.

ILE would also ask the question “whose interest count”.  The vaccine development has primarily been paid for by the U.S. government and other governments around the world.  With taxpayer financing, the theory is that the vaccine should be free to all with some important exceptions.  Health care providers can still charge a facility fee and that fee may or may not be covered by the government or if that person has private insurance.  There Is a government fund called the provider relief fund. This fund includes payments to health care facilities and a system of payments called “patient protection” for uninsured patients related to Covid-19 testing and vaccination costs.  There is also protection for those under an Affordable Care Act health care plan who must receive free vaccinations for any federally recommended vaccination. Still important groups may be missed and most notably among those are undocumented immigrants who may not eligible for such programs.

In the case of Covid-19 vaccines, the United States has decided that most people should get the vaccine and that the government will provide the funding to ensure this happens.  Again, we see the question is not market versus government but market and government and how we balance the two spheres of influence. In the balancing, we also recognize that government will play an important role in establishing the rules upon the market will operate.