South Africa can expect an ROI of between 11 to 20 times the cost of COVID-19 vaccines

Globally and at home, the heavy toll taken by the COVID-19 pandemic is evident wherever we look.

We are four weeks into the all-important second phase of our national vaccine rollout and facing the potential of a severe third wave of COVID-19 infections. This is the ideal moment to consider the cost–benefit ratio of the significant financial investment that our country is making on rolling out COVID-19 vaccines. Our analysis demonstrates not only the huge number of lives that will be saved, but importantly also how critical the success of this COVID-19 vaccine rollout is to our economy.

In this analysis, we explore why – aside from the patent health benefits – it is essential and economically sensible for private medical schemes to fund the rollout of vaccines to medical scheme members. I hope to convince you that the speed and success of our national vaccine rollout is fundamental to reinvigorating our economy and, most importantly, to saving lives.

This article is based on research by the Discovery Health’s Health Policy Unit, led by Prof Roseanne Harris, and includes research by and thoughts shared by some of our country’s top economists. My sincere thanks go to each of them:

• RMB’s Chief Economist, Etienne le Roux
• Chief Economist at PwC, Lullu Krugel
• Senior Economist at PwC, Dirk Mostert
• Economist, Chief Executive at Pan-African Investment & Research, Dr Iraj Abedian
• Director and Chief Economist at Econometrix, Dr Azar Jammine

Looming double threat: New COVID-19 viral variants and the third wave of infection

Since the start of the pandemic, Discovery Health has recorded over 215 000 confirmed COVID-19 cases among members of medical schemes under our administration and, tragically, more than 6 500 deaths in the same period, representing a 3% mortality rate (as at 3 June 2021).

Phase 1 of the South African COVID-19 vaccination programme, which kicked off on 17 February 2021, focused on frontline healthcare workers. Phase 2A brings around 10 million vaccine doses to vaccinate the remaining healthcare workers and the elderly – people aged 60 plus, who (as supported by our data) are conclusively at the highest risk of severe manifestations of COVID-19.

As I write this, the country is staring down a double threat: first, the ongoing risk that new COVID-19 viral variants will emerge and prove even more infectious than prior variants. Second, the confirmation of a third wave of COVID-19 infection in South Africa.

Right now, it’s key that we continue to adhere to all non-pharmaceutical interventions, including hygiene and social distancing guidelines and, importantly, do all we can to avoid attending super-spreader events that will catalyse a surge of new infections and amplify the third wave of infections.

Our actions as individuals hold the key to the success of our country’s national vaccine rollout, to mitigating the impact of the above-mentioned threats, and to reigniting our economy. We achieve this by completing our compulsory COVID-19 vaccine registration on the national Electronic Vaccination Data System (EVDS) as soon as we are eligible. If you're a Discovery client, you simply need to register on Discovery's COVID-19 Vaccination Portal to also automatically be registered on the EVDS.

 I urge younger, tech-savvy people to assist elderly loved ones to register for and access their COVID-19 vaccine during the crucial second phase of our national vaccine rollout currently underway.

Results of other countries’ advanced vaccine rollouts, offer every reason for hope

When it comes to overcoming the pandemic, we have good reason to be optimistic about putting our faith in COVID-19 vaccines. The scientifically documented evidence emerging from Israel’s COVID-19 experience shows that even in the aftermath of a severe local COVID-19 outbreak, vaccines had a profound impact in reducing both morbidity and mortality. Israel’s vaccination campaign, which began in December 2020 and initially prioritised adults over 60, has resulted in a precipitous drop in severe COVID-19 disease in at-risk Israeli population groups that have been vaccinated. This is demonstrable and measurable not only against Israel’s historic morbidity and mortality experience, but also in real life against the non-vaccinated (soon-to-be-vaccinated) remainder of the population, living with the same daily exposures.

Recently, and very significantly, we are also witnessing a lower overall COVID-19 infection rate in Israel, with the data pointing towards the possibility of vaccination also mitigating person-to-person spread.

Scale, speed and success of South Africa’s COVID-19 vaccine procurement and rollout has significant implications for our economic recovery

In President Cyril Ramaphosa’s 7 June letter ‘From the desk of the President’ he shared that he would deliver a message of optimism, grounded in fact, at the G7 Summit (11 to 13 June). He would share clear signals that our country is emerging from the devastation wrought by the pandemic – including a strengthening currency, a record trade surplus, and growth in mining, financial services and manufacturing.

I share his belief that there is reason for hope and emphasise that this is intimately tied to the success of our vaccine rollout.

On 8 June, Stats SA shared that the economy grew by 1.1% in the first quarter of this year, which translates into an annualised growth rate of 4.6%. The main sectors driving this growth have been the finance, mining and trade industries, with the latter in particular benefitting from increased household spending.

It is true that, in 2019, our economy was in recession. That year, the gross domestic product (GDP) grew by only 0.2%. At the same time, many countries the world over faced unstable economic outlooks.

Back in 2019 many local economists shared limited growth prospects for the country in 2020, with projections clustered around 1% to 1.5%. These forecasts could not have predicted the devastating impact that the COVID-19 pandemic would have on global economies and societies.

The pandemic and subsequent lockdowns have understandably dealt a massive blow to South Africa’s economy. Stats SA announced that real GDP had in fact contracted by a massive 7% in 2020.

In a recent economic overview, RMB’s Chief Economist Etienne le Roux shared that at the height of lockdown in the second quarter of 2020 an estimated 55% of the economy was essentially not operational.

 Le Roux explained that the country lost 2.2 million jobs in Q2 2020 alone, and added that although the economy had subsequently bounced back as lockdown restrictions relaxed, only around half of people laid off last year have since been rehired.

 All over the world, countries are grappling with rebuilding their economies in the wake the pandemic. At home, and for now, a return to 2019 GDP levels gives us a short-term goal as we aim higher in the long term and look to enabling economic policies.

 How long before South Africa’s GDP and employment rates return to 2019 levels – and improve?

 Le Roux anticipates that, given the long-term effects of the pandemic on the economy, it will take real GDP around three years to return to pre-COVID 2019 levels. This scenario is contingent on the economy growing by around 4% this year, and by 2% in the subsequent two years – a pace that requires business-friendly reforms to permanently lift business confidence and private sector fixed investment.

 It is against this economic backdrop that we are procuring COVID-19 vaccines for South Africa’s adult population.

South Africa requires between 40 and 50 million doses of vaccines to vaccinate a sufficient portion of the adult population so as to reach population immunity. In excess of this amount of doses has been procured by the Department of Health; however, uncertainty around the delivery dates impacts the country’s ability to ensure and accelerate their rollout.

 The cost of these vaccines is expected to be in the region of R10.3 billion to R13.5 billion.

 This includes the cost of procuring the vaccines from global manufacturers, inbound and local cold-chain and distribution costs, vaccine administration costs and adverse events support.

In April, the National Department of Health also allocated R250 million to the No-Fault Compensation Fund for COVID-19 vaccinations to compensate citizens for severe vaccine-related injuries in 2020 (anticipated to be occur extremely rarely) in line with the contractual requirements from vaccine manufacturers.

Can our economy afford the billions needed to fund and roll out COVID-19 vaccines? Can our economy afford not to?

 Two things are clear:

• A successful COVID-19 vaccine rollout is fundamental to our economic recovery, and
• The speed at which we can roll out vaccines links directly to the speed of our economic recovery. Without a fast vaccination programme, the economy will not recover quickly or adequately. With it, we give ourselves every opportunity for a speedy turnaround.

Three possible paths for economic recovery from now to 2025: Reaching population immunity could yield an ROI of between 11- and 20-fold

Research by B4SA and PwC looked at government-induced lockdown levels, fiscal and monetary policy interventions as well as other external shocks such as the COVID-19 Temporary Employee Relief Scheme (TERS) payments (positive) and ESKOM load shedding (negative) to estimate three possible paths for the South African economy in 2021 and beyond.

Following this methodology, PwC estimates that the South African economy will grow by between 0.8% and 5.2% in 2021. This is a very broad band of forecast growth. However, PwC gives greatest weight to the likelihood of their baseline scenario unfolding, which forecasts growth of 3% in 2021. However, it is too soon to rule out the downside scenario – which takes into account a perfect storm of negative factors that significantly suppress economic growth. Of course, as the year progresses this growth range will become easier to define. For now, growth of between 0.8% to 5.2% remains valid and is also echoed by forecasters and economists in the market at large.

 PwC projects that the time to economic recovery to 2019 levels (i.e. the size of the economy in real terms) could follow any of three scenarios:

1.     Baseline scenario (moderate third wave and population immunity by mid-2022)

Load shedding is at levels similar to those seen in 2019. The implementation of some government economic reforms results in higher consumer and business confidence and investor sentiment. We reach population immunity by mid-2022. We experience a moderate third wave of infections during winter 2021.

• We return to pre-COVID-19 levels in three years with economic growth tracking at 3% in 2021 and 2.5% from 2022 to 2025.
• Ignoring the economic costs associated with load shedding, the total cost of 56.5 million vaccine doses at R11.6 billion results in a 16.6-fold (R192 728 billion) economic benefit to South Africa’s GDP in 2021.

 2.     Upside scenario (short-lived third wave and population immunity by end 2021)

A fast-paced vaccine rollout allows the country to reach population immunity by December 2021. We experience a mild or short-lived third wave during winter. There are fewer episodes of load shedding and efficient and effective implementation of government economic reforms. Collectively these dynamics result in significantly higher consumer and business confidence and investor sentiment.

• We return to pre-COVID-19 levels in two years with economic growth tracking at 5.2% in 2021 and 3% each year from 2022 to 2025.
• The total cost of 56.5 million vaccine doses at R13.1 billion (higher due to the vaccine mix) results in a 20-fold (R261 731 billion) economic benefit to South Africa’s GDP in 2021. In this scenario vaccine uptake is highest with the most doses rolled out to the adult population.

3.     Downside scenario (severe third wave and population immunity delayed beyond mid-2022)

Load shedding is at levels similar to those seen in 2020. A slow implementation of government economic reforms results in lower consumer and business confidence and investor sentiment. We reach population immunity after mid-2022 and, in line with a slower vaccine rollout, we experience a severe third wave of COVID-19 infection during winter 2021.

• We return to pre-COVID-19 levels in seven years with economic growth tracking at 0.8% in 2021, and 1.5% thereafter.
• Ignoring the economic costs associated with load shedding and monetary and fiscal benefits, the total cost of 56.5 million vaccine doses at R11.2 billion results in a 10.9-fold (R122 382 billion) economic benefit to South Africa’s GDP in 2021.

Assuming 2019 official employment figures at 16.42 million and PwC’s estimation that for every 1% point increase in GDP, jobs increase by 0.8% points (since 2010), the number of those employed returns to pre-COVID-19 levels in either:

• Three years (upside scenario)
•  Four years (baseline scenario)
• Eight years (downside scenario)

However, considering that since 2010 the South African labour force has grown, on average, by 1.8% per annum, it could take over a decade for the unemployment rate to return to pre-COVID-19 levels.

Strong alignment between saving lives and saving livelihoods

It is clear that what really moves the dial on the pace of our economic recovery in the short-term is the speed at which the country can secure sufficient vaccine supply, achieve a successful vaccine rollout and reach population immunity.

While our national COVID-19 vaccine programme is indeed going to cost billions, all scenarios make it clear that both in the immediate and long term the economic benefit of paying for the vaccine programme in full, as well as the return on investment gained, far outweighs the costs incurred – even in case of the most costly vaccine basket (upside scenario).

In the short term, these efforts both mitigate the effects of the third wave of infection experienced and also result in fewer episodes of lockdown, with positive stimulus effects on economic growth. When it comes to vaccination rollout, there is strong alignment between saving lives and saving livelihoods – two inseparable priorities.

Suboptimal levels of immunity associated with slow rollout and low take-up would mean more people are likely to contract COVID-19, and some of these people will experience severe illness or loss of life. This is why we need to rally to get everyone vaccinated, especially those most vulnerable to severe infection.

Another really important reason for accelerating our rollout of COVID-19 vaccines is the inevitable emergence of new COVID-19 viral variants over time. Viruses mutate continuously and the risk of variants increases in line with levels of community transmission and over time. The costs associated with containing new variants also materially increase the cost of containing the pandemic.

Benefits of global vaccine rollout worth billions to top economies, outweighing costs 12-fold

A report commissioned by the Bill and Melinda Gates Foundation and compiled by the Eurasia Group finds that equal access to COVID-19 vaccines has huge value to global economics. This access could generate economic benefits of $466 billion by 2025, to 10 major economies (Canada, France, Germany, Japan, Qatar, South Korea, Sweden, United Arab Emirates, United Kingdom and the United States) that have contributed to the Access to COVID-19 Tools (ACT) Accelerator (a collaboration launched in April by the World Health Organization and its partners to support the development and equitable distribution of COVID-19 tests, treatments and vaccines, and which includes the COVAX initiative). The benefit amounts to more than 12 times the $38 billion estimated total cost of the vaccines.

Does it make economic sense for medical schemes to fund COVID-19 vaccines?

Discovery Health has conducted an in-depth analysis into funding COVID-19 vaccines for the members of 19 schemes we administer.

This analysis and resultant projections show that it is not only affordable but also economically viable to support the rollout of vaccines.

 Here’s why.

We have used our evolving understanding of the costs associated with the vaccine rollout for the private sector to conduct our economic analysis. Our assumptions are based on scheme members’ actual experience of COVID-19 illness from March 2020 to February 2021, and estimates of vaccine cost, efficacy and uptake.

We project that funding the rollout of vaccines to members of all Discovery Health-administered schemes will cost around R1.2 billion to R1.4 billion (based on the Department of Health’s pricing per dose and depending on take-up rates and vaccine mix), but these costs could reduce as global supply improves.

• These weighted averages assume a mix of single- and double-dose vaccines.
• Keep in mind that funding for COVID-19 vaccinations falls under Prescribed Minimum Benefits and so must be covered at cost, in full, for all medical scheme members.

These projections include the costs of the vaccines themselves as well as the costs associated with cold chain integrity and logistics, and costs related to giving people their COVID-19 vaccination (vaccine administration).

Resultant savings far outweigh the costs of treating COVID-19 in the member base

Let’s compare the total cost of R1.4 billion of funding vaccines to the costs incurred for the funding of care for a medical scheme member who contracts COVID-19 – currently averaging between R11 500 and R70 000 per episode per age group. Costs are highest in scheme members above the age of 60 and in those under the age of 60 who have chronic conditions.

Based on vaccine efficacy data, we assume that those scheme members who are vaccinated against COVID-19 will experience a reduction in infections and serious illness in line with published evidence. Further, given that the number of scheme members who contract COVID-19 is known for this historic period, we can calculate the savings in respect of those scheme members who are vaccinated against COVID-19 on the basis that they should experience up to a 94% drop in the risk of experiencing severe disease requiring hospitalisation, as well as a close to 70% reduction in out-of-hospital costs.

These improvements in a vaccinated scheme population are expected to yield net cost savings after allowing for the cost of vaccines for schemes administered by Discovery Health of around R2 billion (depending on the ultimate cost per vaccine dose administered). All in all, savings far outweigh the costs of treating COVID-19 in the member base let alone the extensive societal and economic benefits associated with the vaccine programme.

All factors considered, the outlook remains positive

It is vital that the vaccination programme continues to be a collaborative effort between the public and private sector. Given the broader health and economic benefit of population immunity, medical scheme members will benefit directly from vaccine access as well as indirectly from the benefits of a vaccine rollout to the general population. We have seen high levels of public and private cooperation in the planning to date and inspiring commitment from all role players to getting the programme rolling.

 Of course, these cost savings will vary according to the actual take-up rate as we move through the phases of the national vaccine rollout, as well as the actual reduction in the severity of disease and level of hospital admissions experienced. We need to address the myths and misperceptions that drive vaccine hesitancy. We have a collective responsibility to ensure that we are properly informed. The rapidly changing data and sheer volume of information can make this challenging as we try and separate the reliable information from the fake news. We have set up the Discovery Health COVID-19 information portal as a resource of current and reliable information.

 Our projections might also be impacted by the third wave coinciding with the start of schemes funding COVID-19 vaccines. Our data also shows that one in three people who experienced COVID-19 in the first wave in 2020 were susceptible to reinfection in the second wave and this informs our expectations of infection rates in the current and any future waves of infection.

However, the outlook remains positive if we can accelerate the vaccine rollout targeting high take-up in people most at-risk of severe infections. Our data strongly supports that most at-risk are people over the of 60 and that a rapid, age-based rollout is the most efficient way to reach those in at-risk groups.

Looking forward, speed is of the essence in vaccine rollout

?Going forward, as we continue through phase 2 of our national vaccine rollout, the best-case scenario for medical schemes continues to be one in which there are adequate vaccines available to cover at-risk lives before midwinter.

No one would dispute that COVID-19 has had a devastating impact on our economy and society. However, the speed at which we succeed in our national vaccine rollout – particularly in reaching those who are most at risk of serious COVID-19 illness – and reach population immunity is the key to stimulating economic recovery and putting the worst behind us. This surely is our collective and most urgent strategic national responsibility.