Free vaccines may require states to spend a third of their health Budget

While Covishield could erode a third of states' health bill if they bear the full cost, approval of the Pfizer jab would double the health spend

India is nearing the roll-out of Covid-19 vaccine after conditional and emergency-use regulatory approvals to two candidates, and states would soon become the primary coordination centres for the administration drives, including prioritisation and logistics.

Till now, no one really knows what cost this quasi-universal vaccination may entail. There is no clarity about the proportion of population that needs to be inoculated, though starting early and moving quickly is the key. 

Assuming that 70 per cent of the population will be inoculated in all states, in line with the level suggested by the World Health Organisation for achieving herd immunity, a primary calculation suggests that the vaccine cost alone would be about 33 per cent of health expenditure of all states together. Mathematically, the vaccine bill would be about a tenth of the fiscal deficit of states put together. 

It has been reported that the frontrunner Covishield vaccine, developed by Oxford University, and tested and being manufactured by Serum Institute of India, will cost close to Rs 1,000 ($14) to private individuals in India, and at a lower cost of Rs 444 (or $6) to governments. State finances for 2018-19 have been used for comparison. Further, the Pfizer-BioNTech vaccine is reported to be costing around $37 per course.

The analysis suggests that while the Oxford-Astrazeneca-SII vaccine could be affordable to individuals and states, administering the Pfizer vaccine through government funding would be a much costlier proposition. Most states would need to spend their entire health Budgets on the vaccine cost alone.

The analysis assumes that states will spend on vaccines on their own, as states’ expenditures already take into account the Central transfers in the form of centrally-sponsored schemes. If the Centre chips in further, the pressure on state finances will ease to that extent.

Most importantly, it assumes rapid vaccination of 70 per cent of population in one financial year. A program spread over two years would halve the financial burden. 

Would vaccine financing put a huge pressure on finances of different states? And theoretically, how costly would the vaccine be for individuals who choose to take it through out of pocket expenditure? 

There is wide variation among states, and the analysis shows that Uttar Pradesh, Bihar, Madhya Pradesh, Jharkhand and West Bengal need to push up their health spending the most. Inoculation costs are more than 70 per cent of health outlays for UP and Bihar, suggesting that their finances will get stretched the most this year. 

These very states are the ones who might need to borrow the most. Inoculation costs reach up to a fifth of their fiscal deficits in 2018-19. 

Northeastern and smaller states spend more per capita on health, the analysis shows. Inoculation costs would be less than 15 per cent of their health budgets. Kerala is an outlier, as despite being a large state, self-funded inoculation would take up only 20 per cent of its health spend. 

This does not include the money required for transportation, storage, lab technicians, and such like. This analysis purely maps the cost of the vaccine according to its price tag. 

An SBI report put the cost to the Government of vaccinating 300 million people would come to around Rs 21,000 – 27,000 crore and vaccinating another 500 million will cost Rs 35,000 - 45,000 crore by 2011. 

“This would mean total cost of around 0.3%-0.4% of GDP,” it said. 

There is a lot of debate and controversy around whether the vaccine is a public good or not, and whether it should be free of cost to all. Anyway, there is a good likelihood that a part of the inoculation would happen through the government channel (free for those who take it up), while the private sector may cater to well-off households willing to pay for better service.

SII has said it would charge a person about Rs 1,000 per vaccine course in private. The price paid for such a vaccine could be more than 10 per cent of monthly income of an average person in northern and northeastern states. But it would be less, at an affordable 5-10 per cent of her monthly income, in most western and southern states. 

But when we move towards another popular vaccine being administered in developed countries, the costs go haywire. Consider the vaccine developed by German firm BioNTech and US Pharma major Pfizer. It has been reported that one course could cost as much as $37. 

Most states would need to spend more than what they spent in the entire year 2018-19 on medical and public health, just on procuring vaccines in 2021-22. For majority of the states, the Pfizer vaccine procurement costs would be more than half their accounted fiscal deficits in 2018-19. 

This makes the messenger RNA-based vaccine a difficult contender for government-led inoculation in India.