Covid Vaccines: Carrot and Stick

State and local governments have been offering incentives like lottery tickets, and $100 in cash or gift cards to encourage people to get vaccinated for Covid-19.  That has been the carrot. A growing number of employers are now brandishing the stick.

Large corporations like Goldman Sachs, Amgen, Walt Disney, Microsoft, Tyson Foods, and United Airlines have told their employees to get vaccinated or stay home. That pressure is only going to escalate after the Food and Drug Administration gave full approval to Pfizer’s and BioNTech's Covid-19 vaccine vaccine on Monday.

Delta Air Lines is trying something different. CEO Ed Bastian told employees today that as of  Nov. 1, unvaccinated employees enrolled in the company’s healthcare plan would be subject to a $200 monthly surcharge. 

“This surcharge will be necessary to address the financial risk the decision to not vaccinate is creating for our company,”  Bastian said in his staff memo, noting that the average hospital stay for Covid has cost the company $50,000 a person.  All of those employees who were hospitalized were not fully vaccinated, Bastian noted.  

Currently 75% of the airline’s workforce is vaccinated.  (His memo, by the way, is also an example of how Delta studiously avoids using the D-word for the predominant Covid variant, prefering to refer to the scientifically correct B.1.617.2 variant instead.)

We may hear from other companies in the weeks to come about their own financial risks from unvaccinated workers. In its annual report on the healthcare trends for employers this June, PwC projected that costs would rise 6.5% in 2022, as Covid-related expenses persist. That's lower than 7% estimated for this year, but slightly higher than what the trend was in the years between 2016 and 2020.

Delta Air Lines’ move also highlights the question of whether the unvaccinated broadly will be subject to higher insurance premiums. 

In a recent opinion piece for our sister site MarketWatch, two economists Kosali Simon and Sharon Tennyson  discussed this issue, noting that health insurers are  limited by law in their ability to use health factors  in pricing plans—except when it comes to smokers.

Yet in a New York Times op-ed article earlier this month,  Elisabeth Rosenthal, the editor in chief of Kaiser Health News, and Glenn Kramon, a lecturer at the Stanford Graduate School of Business (and in full disclosure, a former editor of mine), argued that is sufficient precedent:  

The Affordable Care Act allows insurers to charge smokers up to 50 percent more than what nonsmokers pay for some types of health plans. Four-fifths of states follow that protocol, though most employer-based plans do not do so...

 The logic behind the policies is that the offenders’ behavior can hurt others and costs society a lot of money. If people decide not to get vaccinated and contract bad cases of Covid, they are not only exposing others in their workplace or neighborhoods; the tens or hundreds of thousands spent on their care could mean higher premiums for others as well in their insurance plans next year.