Should we ration coronavirus testing by price?

This is making the rounds on Twitter:

Just went to Seattle’s UW Medical Center to ask how much patients are being charged for a coronavirus test. $100-$500 if they have insurance. $1,600 if they don’t.

Put your emotions aside and ask the logical question: since the number of tests falls short of current demand, how should we ration those tests?  I would think we most wish to test potential super-spreaders, so they can self-quarantine or otherwise be isolated or avoided.  A priori, I would expect potential super-spreaders to be those who work in service jobs connected to many other people.  Individuals who suspect they already have the disease are also more likely to be super-spreaders, if only because there is a decent chance they actually do carry the disease.

Now at a price say of $500, you will rule out some of the poor, some of the “frivolous testers” (there are people who will try anything that is new), but you don’t rule out many of the middle class people — or wealthier people — who think they might have the coronavirus.

You end up targeting potential superspreaders by “those who think they have it,” but not by “those who work in service jobs where they come in contact with a lot of people.”

An imperfect solution, but not an entirely bad one either.  It is probably better than random allocation.  And still all of the available tests get used.

How about a government price of zero, combined with rationing?  Of course it depends what the principle of rationing would be.  From other countries, “I came into contact with a traced person” seems to be one standard, noting that the United States has nothing close to Singapore’s surveillance mechanism in this regard.  So you would get a very loose version of that standard, with many flu-laden nervous nellies taking the test, claiming they came in contact with a sick person.

That could perform either better or worse than the market solution.  In Singapore it is probably better than the market solution, but I am not sure for the United States.  My intuition would opt for the market prices, but I admit that is not verified by either model or data.

A separate issue, hard to judge from current information, is whether there is any positive supply elasticity at the higher price.  Of course if there is, that will make the higher price look better, but perhaps other regulatory and pipeline restrictions on testing will mean the higher price won’t matter.

And note that as the supply of tests becomes much greater, as is happening right now, the case for those high market prices becomes much, much weaker.  Zero price and no rationing is where we would like to end up, and I think we will.

I find that this problem, and how you tackle it, is a good test for whether or not you think like an economist consistently.

Comments

Are the rich more likely to get the virus? Maybe while it's coming from travelers, but that effect should soon dissipate.
People with higher income are probably less likely to work in service, dealing with many clients, so that doesn't seem to be a good argument for using prices to ration.

A Chinese woman denied three opportunities to get tested in America but tested positive in Beijing. Odd that the rich capitalist country is rationing while the poorer communist country has ample supplies.

https://www.sixthtone.com/news/1005318/Woman%20Denied%20COVID-19%20Test%20in%20US%20Confirmed%20Positive%20in%20Beijing

Free trade in test kits, of course, and permission to use them.

The block is not technology, nor low supply elasticity; it's just the words: You are not allowed to.

My impression is that the people most likely to get it so far tend to be affluent, popular people: the wives of heads of state, movie stars, ski vacationers, etc.

Strange, and everyone at the country club votes Republican.

Michael Lind (New America think tank) has made the argument that one of the biggest changes in politics is that what were the Country Club Republicans up to the GW Bush Administration now vote overwhelmingly Republican. If you look at what Biden and Sanders are promoting, the policy proposals really benefit the country club types.

In all seriousness, these people probably got earlier exposure than the typical American hence they are getting tested and sick first. That, plus the fact that we all know what Tom Hanks is up too because of the media, not the guy who cleans the office at night.

Steve, The people you mentioned are also most likely to be super spreaders, not because of their income, but because they interact with large numbers of people.

Take the set of super spreaders, and then take the set of wealthy people.
They may intersect, but the set of wealthy people is not within the set of super spreaders.

You should know better.

Shouldn't we auction testing rights to those that most highly value detecting superspreaders, i.e., entities and people that would gain the most by doing less social distancing, if they knew participants did not have the disease. For example, firms that really rely on in-person workers that can't productively work from home could test those workers. Maybe, the $500 price tag already does that, but I'm not sure how the differential pricing between the insured and uninsured does unless people find it particularly valuable to minimize social distance to the uninsured.

The tests' value is to discriminate between diseased and disease-free. So, we should ask who finds it particularly valuable to make such discriminations and among which people?

If my company (hospitality business) could market that all of our employees had been tested and all working were negative, it’s easily be worth $500 a pop.

I would go to your restaurant and hotel if you advertised that you provided paid sick leave.

Maybe we should publicize which hotels and restaurants provide paid sick leave.

E.g., low paid cashiers will probably balk at the $500 price, but their employers will be more likely to pay it.

Why would the employer be more likely to pay it when they don't even pay for their health care in the first place? The idea that your health plan is tied to your workplace is already a friggin' joke in the first place. This whole system is ridiculous. Asia and Europe have already figured this out and can focus 100% on containing this thing while we have endless debates in America. We don't lead anymore. We just tweet. Like Trump. We have become Trump.

Because it will attract more customers (on the margin), why else?

TDS is not an argument nor is touting the supposed virtues of the medical systems of Europe and Asia. The question posed is: There are limited number of tests in the short term, so how you do ration them (even if you suppose that the cost will be covered by taxpayers)?

Will spent $5000 to test our ten workers and they all tested negative generate, say, $10,000 more sales (assuming 50% margin)?

On the other hand if even one of those workers tests positive the store is probably going to have to shut down and teams in white suits will be seen spraying bleach on everything.

Of course with the spread happening quickly, testing is only good for, what, a week?

Come on. This is not TDS at all. We know that if Trump was back in the hotel or casino business he would *say* he was testing his employees, and then not do it.

We knew that was who he was when we elected him.

Trump University.

Speaking of TDS...

One challenge is all the businesses that have already been affected and so are trying to dramatically cut costs. A high end travel company here in Colorado just laid off 100 people.

Even if they marketed themselves as virus-negative, they are only one part of the supply chain and would be delivering people to places with risky public health controls.

Throw in how the oil price war is going to affect a lot of people. Those industries have zero upside to spend $500 a head.

And how will this crisis affect or be affected by Trump's tariffs?

Could this lead to a detente with China or doubling down?

This COVID-19 plus sanctions are destroying Iran. There are hints of mass suffering. Will the international community provide aid, or will Iran lash out more like they did yesterday?

This has the potential to be a very destabilizing event, much worse than the global financial crisis.

Nope doesn't work. You'd have to test the cashier every day since each day is new chance for infection. For a 40 hour work week, that's $2500, more than the low paid cashier is paid to begin with. If you don't test them each day, then your supposed competitive advantage is fake news. Doesn't work.

I'm wondering if large retailers might bite the bullet.

"Should we ration toilet paper by price?"

This should be the headline because it is the more pressing issue. We can't let it sit any longer without staining the backside of every American man, woman, or child.

It's not the most pressing issue; it's the most pressing tissue! :-)

Why the runaway demand for toilet paper?
Because rational buyers do not want to end up paying real scarcity prices for toilet paper, as in Venezuela, or alternatively having to use newspaper paper and run the risk of having fake-news imprinted on their butts.

The USA is rapidly devolving into a 3rd world country. Americans can't even wipe their own asses in the 4th year of the Trump presidency.

+1. My ass was a lot cleaner during the Bush and Obama administrations.

America is literally turning into a sh*thole.

At least no is pooh-poohing the problem anymore.

At least no one is pooh-poohing the problem anymore.

You had it right the first time!

I had a Chinese friend explain that his view of their government and the way things work over there has changed dramatically. More and more Americans are seeing the same in their society. Walmart now offers paid leave, Detroit now offers running water, caps on internet bandwidth are being lifted, you can bring bottles of hand sanitizer on planes, working from home is now actively encouraged, things that were arbitrarily foisted on to ordinary Americans are now giving way. Sometimes it takes a disaster to wake people up to how unthinkingly and unreflective we've become. Please continue to call out arbitrary inflexibility and needless, petty authoritarianism on social media. What a time to be alive.

https://slate.com/news-and-politics/2020/03/coronavirus-tsa-liquid-purell-paid-leave-rules.html

FDR put it so well...the only thing to fear is fear itself...what is the point of testing at this stage?...take precautions go about your life...and don't be afraid to travel...the biggest threats are the exponential growth of authoritarianism and loss of personal freedom...once government's minions see the power they can exert they always want to do it again

Absolutely. All governments will use this episode to increase their control over every aspect of existence. For instance, when the panic subsides there will be a clamor for the adoption of digital currency, which will, in itself, be a good thing in that it will spur the utilization of private alternatives.

The UW claimed during the week they had "extra capacity" for testing, so I guess now we know why.

Yeah, 'cause some government bureaucracies told UW not to use it, repeatedly!

At some point, evil [being too risk averse to protect oneself rather than the public] becomes sheer stupidity.

Counter-point: the price signal wouldn't distinguish between a regular infected and a super-spreader, since the experience of being infected is the same for both (but not for others, who are not paying for the test).

Mr. Cowen posits that at 500 bucks some of the poor would be priced out. I think the whole weight of this argument turns on the word, 'some'. I was in a China, now Singapore during this whole thing. I think most poor people would be daunted by 500 bucks until they were totally sure they had the problem, at which point they would have already spread the virus widely. I understand the ideas behind having some price to discourage frivolous consumption during an acute time when there aren't enough tests, but I think the financial wealth gap between even medium income and poor is enough to ensure that many poor people who really should get tested will wait far far too long.

At $500, no poor person is going to pay for that test unless they're already in the ICU and don't have a choice.

If Jim is right, then 500 would exclude all poor people, and that isn't going to help stop the spread of a virus.

Multiply $15 * 40 hours. Subtract taxes, which varies by state.

%42 of US workers make $15 or less. (https://fortune.com/2015/04/13/who-makes-15-per-hour/ )

Factor in how little savings most poor folks have (in aggregate, the bottom 20% in the US has negative wealth).

How many cashiers and line cooks at cheap restaurants do you think are going to get tested for $500?

"how you tackle it, is a good test for whether or not you think like an economist consistently."

I'm not sure I want that label, perhaps I'd rather just solve the problem:

You have no way of differentiating super-spreaders from hypochondriacs. You give away the tests FCFS.

The supply is far below the demand so the predictive value of testing is poor anyway (not possible to get a rep sample of pop). So you use them as needed until they're gone.

When I "think like an economist", it seems worth noting that economics recognizes externalities in market transactions.
It may not be worth a poor service worker paying $500 for a test. or even for their employer. After all, they may not incur the cost of spreading among the public or a vulnerable class of clients.
Do we not have a public health motivation for price discrimination by @potential spreading and possible negative external costs?

We are in a rationing situation. Decisions need to be made carefully. And they can be done in conjunction with other decisions, such as closing all places of public accommodation.

Given the shortage, testing for sampling purposes now may be the best way to show people how prevalent the disease is, and thus encourage more cooperation.

" From other countries, “I came into contact with a traced person” seems to be one standard, noting that the United States has nothing close to Singapore’s surveillance mechanism in this regard. "

Well ......... The US does have greater surveillance capacity than Singapore by far but in theory is constrained in how it uses it. If the US government forces the hand of the big tech companies, then it would have a treasure trove of who went where and when. Smartphones, smart watches, and fitness trackers are all networked and collect oodles of data. Let it not come to that. Social distancing, good hygiene, self-quarantining, and testing at the border should be enough without violating the Constitution.

$100 per test and bill sent to Chinese National Bank, Wuhan People’s Republic, 76556, China

+1. Especially when China's foreign ministry has engaged in a propaganda campaign to blame the US military for originating the virus:
https://twitter.com/zlj517/status/1238111898828066823

Thankfully, though showing no symptoms, Trump has been tested, and to the relief of all, has tested negative.

And how can an economic confuse cost and price, not to mention imagining a world of infinite supply without any constraints ? "Zero price and no rationing is where we would like to end up"

How about paying people $20 to get tested? And then require them to isolate if it is positive or go to the hospital if they need to. I can think like an economist and I know exactly what it costs for the US government to come up with a 20 dollar bill. As to why we don't have testing available- it is a disgrace. It isn't as though we didn't have a couple of months of notice.

How much would you pay to avoid contact with someone sick when that meant a 1+% to die yourself. Just being completely selfish, $20 would be a bargain.

This situation is evolving too rapidly for prices to help much. We need a 1000000 fold increase in testing. This is not about the margin.

The irony is that centralized planning works faster in an emergency than markets. There's a reason 100% of the world's militaries is run as a top down command and control organization and not like a prediction market, a Vickrey auction, a blockchain, or whatever nonsense this site will have you believe.

Yes, but, if you have to allocate testing resources, it is a good idea to test super spreaders, but, preferentially, if and only if, they can list the contacts they had, as this provides value.

I assume that they person is sick and will quarantine himself.

If the super spreader cannot identify contacts, then I would post a sign, like if it was at a grocery store, that if you had been in close contact with this person, you should consider yourself exposed and act accordingly.

It's the opposite with dentists. Teeth cleaning with insurance: $200. Without insurance: $90. Similar experience with other dental procedures.

No mention of the American woman who got a 10,000 dollar bill for not being tested? And who was ttested again, with a negative result?

American health care rations nothing by price, even not testing.

What if the true cost of testing were refunded entirely to those who tested positive and doubled to those who tested negative? This policy would be intended to take into account the relative hardships expected to be endured while aligning incentives to come forward for good reasons (i.e., when truly sick) but not for bad reasons (e.g., paranoia) given the limited number of testing kits. Of course, there is nothing magical about zero cost to the COVID-sick and double the cost to the COVID-healthy. In principle, the former could be subsidized beyond breakeven and the latter could be charged even more than double. But the general approach has some merit.

Can't we have a mixed system like most healthcare systems? I have doubts that the market will correctly allocate vaccines to where they have the greatest utility, which in this case is socialized. Protection from coronavirus is a public good, because its non-rival and non-excludable.

I do think though there is enormous opportunity for profit attracts capital to solve the crisis. So some of the capacity could be auctioned out, not exactly sure what amount though.

It’s interesting in that getting tested generates positive externalities, particularly if you are positive. You now will avoid other people and stop spreading the disease. So if you are positive, the government / other people should pay you.

And pay for the inconveniences of quarantine. Taiwan dies something like that with regards to paying much of your quarantine expenses.

In viral pandemic
How to ration a coronavirus screening test depends on the sensitivity and specificity of the test.

The Coasean solution is for superspreaders to be paid large amounts to get tested - they can credibly threaten to cause huge losses

Ahhh so just ask Alexa to list all the super-spreaders.

I'm not an expert here but my impression is that 'super spreaders' are mostly unaware. They may be people who just have a quirk that their body sheds a lot of virus but they show no symptoms and appear healthy to others. Do you have some type of test to tell who those people are ahead of time? Presumably they will differ from virus to virus as well.

Their job and commute?

I'm not sure that's the key. A person might walk around their block each day visiting a coffee shop, small store and nothing else. On the other hand a person might shake hands with dozens of people a day but be astute about washing his hands, not touching his face and catching nothing.

I suspect 'super spreaders' are a unique combination of people who don't show symptoms but also produce and shed a lot of virus. There are also 'super spreading events'. For example, there was a Biogen conference in Boston at a hotel with about 200 people. Someone had it now 70 people do, doubling the state's total in one shot. This probably wasn't due to patient zero being some unique 'super spreader' but a combination of the wrong people all in the wrong place at the wrong time.

There really is no point here. Mass testing is needed, testing should be almost as easy as taking your blood sugar. Absent that tests are almost useless except to give us daily body counts.

If you want to price testing, I think the price should be manslaughter charges for those in the administration responsible. Let's see how that incentivizes people.

There is a story in the NYT about which occupations face the most Covid risk: https://www.nytimes.com/interactive/2020/03/15/business/economy/coronavirus-worker-risk.html?action=click&module=Top%20Stories&pgtype=Homepage

Within this group are a set of super spreaders, but, not all of them are, such as airline clean up crew, because they do not have outbound links to others, although they do receive inbound links from diseased customers.

If you look at this set of occupations, you would want to test those occupations which have the most outbound links--persons who come in contact with non-infected persons, if they are infected.

If you are interested in this subject, look up Prof. Matthew O Jackson's book, Social and Economic Networks; a far less technical book is his recent book: The Human Network--well reviewed and a really good book.

To make markets work, we often presume the presence of information.

Information can make markets work.

So, here are some suggestions on how we can make markets work in the prevention of the spread of Covid 19

Restaurants and other possible places of transmission through contact should advertise they provide paid sick leave to their employees, or that they screen them before starting work.

People will stay away from firms which do not provide that information.

Second, if an outward public facing employee does test positive, the firm agrees to provide a notice that an employee has tested positive (show the picture of the employee) and make the disclosure.

Threw the last idea in there just for the fun of it because no employer will make that disclosure to the customer.

Caveat emptor.

But, every employer should be motivated to disclose that they provide paid sick leave to their employees, and be rewarded with additional customers for doing so.

Would an epidemiologist think like an economist? O
Perhaps neither would be prepared for making choices in unpleasant circumstance and with limited resources.

Think like an infantry commander?

You have to tell people to do things knowing that some of them will die, but aiming for the lowest number, while reaching the objective.

I would say pass on testing anyone who distances, or isolates, or quarantines voluntarily. Concentrate all effort on people who either by necessity or foolishness are still out there as potential vectors.

Test those stupid French street protesters.

Holey Smokes,

"Was told we aren’t allowed to do flu swabs anymore in clinic. “But if it’s positive, we know it isn’t COVID.” Nope. Still not allowed to because puts us at risk to do an NP swab. “But they are here- made it past screening so we are already at risk”

It is in a Twitter thread where people (patients and health care workers) talk about seeing a lot of people with flu-like symptoms who are negative for flu.

So the risk question expands. You have more tests available. Do you have more bunny suits as well?

I might start by reserving a large flow of test kits for medical staff. Also, following the post above, for people researching vaccines and cures.

Thereafter? Currently, being tested is a matter of political "pull" I suppose - Trudeau's wife would be an example, the wife of the head of a Texan university another.

The economic argument will need to be subtler than usual: my life might best be protected by you having the test, not me. That's a feature of this sort of public health problem, isn't it? Thinking of it as just a heap of private health problems is a case of missing the point.

Well it's kind of important to know if a political figure or their family have it. They are very much potential super spreaders.

What are we up to, half a dozen cases coming out of Mar-a-Lago?

On other celebrities, we just hear about them. Right?

Maybe the wife of a bus driver tested positive or negative, and it didn't get a headline, because that's our world.

No conspiracy theory that a secret government is scheduling tests is necessary.

Infection of higher political figures is complicated by the fact that they enjoy the protection of security apparatus, members of which have families, go shopping, attend church services, and so on. They also have large staffs that do those same things. Maybe all political personalities should be isolated for the foreseeable future.

Not one comment about the appalling political and social impact of a pricing approach. Social solidarity is the core currency of the virus era. Using pricing would destroy it utterly. Unbelievable. Talk about fiddling while Rome burns,

It is kind of a given that economics destroys social solidarity ;-)

Coronavirus should inspire a US health sector reform:

“Health sector, thou are prohibited from discriminating in price, access or quality, between insured and uninsured.”

As is all get the short end of the stick of non-transparent deals between insurance companies and health sectors

https://teawithft.blogspot.com/2009/06/but-there-is-minimum-minimorum-reform.html

It’s strange that everyone failed at answering the original question.

Epidemiological simulations have studied this. First responders and super-spreaders make ideal targets.
Same with cure,vaccine and ICU beds.

I saw this a few days ago, and thought I saw it immediately debunked. Maybe it's true, or somewhat "truthy," but I'm skeptical....

https://www.insurance.wa.gov/health-insurance-and-coronavirus-covid-19-frequently-asked-questions

"Commissioner Kreidler has ordered all health plans regulated by his office to cover testing for COVID-19 and the associated office visit and lab testing without copays or deductibles. His emergency order is in effect from March 5-May 4, 2020. State-regulated health plans include individual health plans, small employer health plans and some large employer plans. His order does not apply to employer plans that are self-funded, Medicaid, Medicare, federal employee health plans or health plans for members of the military or veterans. If you are unsure what type of health plan you have, contact your employer's HR department. We estimate there are 1.2 million people in state-regulated health plans in Washington state."

Tests are pure externalities. Why should a person want to be tested ? Either he has the virus or doesn't, he cannot do anything about it. If he develops symptoms, he will seek cures, whatever the disease is (flu, coronavirus, other). If he has no symptoms, why should he bother ?

If this is what thinking like an economist is like, I hope economists are absolutely banned from all decision-making in public health matters.

Tyler, you are either a troll or proof that studying economics destroys basic human decency. In either case, you will never see me again at this blog. Your opinions are shit, and you are failing at being a decent person.

Economists should play more video games. The answer depends on whether you allow the government to capitalize the health and morale of its citizenry or not. Current accounting convention does not allow this, but anyone running a state who doesn't do such accounting is a basically a looter. Video games usually require accounting for health, morale and capabilities as well as for cash on hand. Anyone who focuses only on acquiring gold will be out of the game in short order. In many ways, the fantasy worlds of video games with their orcs and paladins are more realistic than the worlds of our economic dogmas.

This is like those street auctions where some guy holds a gun to your had and says your money or your life. Insert economist joke here.

Simple: check for symptoms, particularly fever.

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