Give Vaccines An Incentives Booster Shot

We have gotten stuck in a Catch-22. After a rapid initial rise, the share of the US population fully vaccinated against Covid-19 has stalled around 50% over the past two months (the chart below is in logs).

Meanwhile the Delta variant has unleashed a flood of panicky headlines on “breakthrough cases”, with studies of specific instances intimating that vaccines are no longer effective. My favorite is the Cape Cod outbreak data invoked by the CDC to justify a renewed masks recommendation; taken at face value, those data would suggest not only that vaccinated people can still catch the virus, but that if you do catch the virus, you have a much higher (50% higher) risk of ending up in the hospital if you are vaccinated than if you are not[i]. Another study based on July Minnesota data argues the effectiveness of Pfizer and Moderna vaccines has plummeted.

If we believe these studies are right, the future looks bleak. Either we find better vaccines, or life as we knew it is over and we can resign ourselves to a future of social isolation. Meanwhile we should mask up, lock down, and stop insisting that people get vaccinated.

Outside of these specific, limited-data examples, however, the data tell a very different story: Breakthrough cases are extremely rare: out of 166 million fully vaccinated people, only 0.08% have tested positive for Covid; both deaths (0.001%) and hospitalizations (0.003%) are close to zero (as of mid-August, CDC data). The absolute numbers are about 5,700 hospitalizations and 1,200 deaths; to put them in perspective, the 2018–19 flu season caused over 490,000 hospitalizations and 34,000 deaths. For unvaccinated people, Covid is far more dangerous than the flu; for vaccinated people it is not.

The problem is not the very rare breakthrough cases; it’s the large number of unvaccinated people.

And here comes the Catch-22:

Given that vaccinated people have an extremely low risk of hospitalization or death if the catch the virus, the only rationale for asking vaccinated people to mask up and stay socially distanced is to protect the unvaccinated. But if you were already reluctant to take the vaccine, now you (1) face a lower risk of contagion; and (2) hear the message that vaccines are not effective and masks can protect you just as well (false and false). So you are even less likely to get vaccinated.

How do we get out of this bind? Politically, vaccine mandates seem so far out of the question. And if the government can’t force people to get vaccinated, it shouldn’t expect private employers to do it.

But the government could set better incentives. President Biden has called on states to offer $100 to newly vaccinated people. That seems way too little, and not all states would go for it. Instead, the federal government could offer a $1,000 bonus to get fully vaccinated. For low-medium income individuals, this would provide a meaningful incentive. Above a certain income threshold, the stick might work better than the carrot: the government could impose a 1% healthcare surcharge on taxable income for those who do not provide proof of vaccination or proof that they already contracted Covid and recovered.

How much would this cost? Out of a population of about 333 million, about 166.5 are already vaccinated; about 40 million are aged 9 or younger. This leaves us with about 126.5 million people. At $1,000 each, the bill would come to at most $126.5 billion — lower depending on how many unvaccinated people are in higher income brackets.

Is this a lot? Not for an Administration that measures spending plans in multiple trillions. The government’s American Rescue Plan just expanded the child tax credit by $1,000 per child over the age of six (raising the age limit to 17 years from 16), and $1,600 under the age of six. The cost for just 2021 is estimated at a very comparable $110 billion. Enhanced unemployment benefits last year amounted to an estimated $380 billion, so spending less than half of that seems a reasonable sum to spend to avoid another round of shutdowns.

Does it make sense to bribe people to get vaccinated and penalize them if they don’t? Given that vaccinations have huge positive externalities, absolutely. This is something that governments already do. As a society, we have decided that children are an asset for the future of the country, so we grant child tax credits. We subsidize purchases of electric vehicles to protect the environment. Vaccinations are no different: they save lives, reduce the pressure on health care systems, and avoid costly restrictions on economic activity.

Would these incentives persuade everyone to get vaccinated? No, but they don’t need to. Some people are so scared of the vaccines that no amount of money will make them change their mind. But many, particularly among the young, are probably sitting on the fence, not overly fearful of vaccines but not very frightened of the virus either; a financial incentive could give them a crucial nudge.[ii] In some European countries, simply requiring proof of vaccination to get into a bar or restaurant already seems to be having an impact.

If we can get another 20–25% of the population vaccinated, we could put behind us the risk that a spike in contagion could overwhelm the health care system. At that point, the government could tell the remaining unvaccinated, “You’re on your own. You can choose freely between the risk of getting vaccinated and the risk of not getting vaccinated, but society will no longer go out of its way to protect you from contagion. Your choice, your responsibility.”

To manage this strategy with a minimum of competence, the government should also do a few more things that are incomprehensibly overdue:

None of this is rocket science. It’s science-based common sense. It could be enormously more effective than insisting on masks, which have become mostly a convenient political football. This Administration so far has not shown a particularly good understanding of incentives (enhanced unemployment benefits and taxes just to name a few). Here is a chance to get started, and to improve a Covid management strategy that looks unforgivably incompetent, science-free and with no end in sight.

[i] Of 469 people who tested positive, 346 were vaccinated, of which 4 ended up in hospital = 1.2% of vaccinated infected; 123 were unvaccinated, of which 1 ended up in hospital, or 0.8% of unvaccinated infected. This highlights why we should not rely on very small samples for policy recommendations.

[ii] About 80% of people 65 and older have gotten vaccinated, compared to 43–48% in the 18–39 age brackets.

[This story was first published here:, where you can find more of my blogs and subscribe to the mailing list]

Economics & innovation at; Co-host, M4Edge Tech podcast; Former Chief Economist & head of business innovation strategy at GE.