Coronavirus update: The economic benefits of increased testing and tracing

As global cases of COVID-19 top 40 million and infections in the United States again breach 50,000 per day, the specter of a second wave in Europe and the United States hangs over the domestic economy. This points to significant economic scarring as the country heads into the final weeks of 2020.

The economists David Cutler and Lawrence Summers of Harvard University have pegged the U.S. cost of the coronavirus pandemic at $16 trillion, assuming containment by the fall of 2021. That amounts to 90% of gross domestic product, which will translate to an estimated $200,000 loss for every family of four, according to Cutler’s and Summers’s recent paper in the Journal of the American Medical Association Network.

The $16 trillion cost is comprised of economic losses of $7.5 trillion and health losses of $8.5 trillion, with health losses allocated to death ($4.4 trillion), long-term health impairment ($2.6 trillion) and mental health impairment ($1.5 trillion).

The paper continues: “Output losses of this magnitude are immense. The lost output in the Great Recession was only one-quarter as large. … For this reason, policies that can materially reduce the spread of SARS-CoV-2 have enormous social value.”

The authors say that “increased investment in testing and contact tracing could have economic benefits that are at least 30 times greater than the estimated costs of the investment in these approaches.”

On implementing those programs, “The Rockefeller Foundation estimates that a policy of 30 million tests weekly would require an additional $75 billion in spending during the next year; adding the cost of contact tracing might bring the total to approximately $100 billion.”

Healthy populace leads to healthy economy

At RSM, we have often said that there is no economic recovery until a vaccine is developed and universally distributed. That gives the United States time to consider improvements to our health care system, while providing jobs to those who would make those improvements.

So given the fact that money spent on testing and tracing would have economic benefits that are 30 times the cost, policymakers should consider getting people back to work by having them operate testing facilities while others do the work of tracing the source and outward web of infections.

There is an old saying that “a stich in time saves nine,” which sums up the observation of Cutler and Summers that “the U.S. prioritizes spending on acute treatment, with far less spending on public health services and infrastructure.” Given the stress on the domestic health care system, this imbalance is not sustainable.

Using Texas as an example of the diminished infrastructure, there have been at least 142 closures of acute care hospitals in the state since 1966. This is according to the Texas Organization of Rural & Community Hospitals, an advocacy group, whose figures are shown below.

According to data collected by Becker’s Hospital Review, the predominant causes for hospital closings are the inability to secure financial funding and declining patient volume.

Because many hospitals are operated on a for-profit basis, and because of the population drain on rural areas, hospital revenue streams were diminished and hospitals continued to be closed, even in 2020 when they were needed the most.

And because there is a large segment of the population susceptible to severe consequences of COVID-19 infection because of factors like obesity, asthma, diabetes, age, sex and ethnicity, policymakers should consider a program to provide hospital centers wherever they are lacking. We already have a model for this program, the Rural Electrification Act of 1936, whose cooperatives still operate today, as well as the Veterans Health Administration hospital system.

Because the for-profit model of hospitals has proven to be financially untenable for low-volume situations, policymakers should consider a public utility model for health care, similar to community colleges. These health centers could provide not only acute medical care, but also universal access to the prevention of disease. This model would include facilities for regular checkups and education, and the equivalent of a Whole Foods in each community to provide access to healthy foods needed to combat obesity.

Finally, because an unhealthy population taxes the capacity of social services, it costs more to maintain an ailing population than a healthy one. Furthermore, the ability of the economy to expand is limited by the degradation of the labor force and the otherwise misdirection of public resources to sustain unhealthy lifestyles.

Think of the savings to society from the rules of the road, or the mandate to wear a seat belt or to maintain a safe vehicle. There is no reason we should not attack the biggest costs, particularly if the well-being of society is furthered by sensible preventative action.

We’ve reported before that access to institutions that enhance societal good (such as education and health) is often determined by Zip code, with the lack of access to quality services in these areas correlating to poverty. For this reason, ensuring that access is as much an economic imperative as it is a social imperative. GDP cannot grow if a significant portion of society is less productive or undereducated or unhealthy.

A national pandemic

As the RSM model predicted, 8.3 million Americans have been infected by the novel coronavirus as we enter the second half of October. The rate of new infections has jumped to 55,900 per day in the latest data as shown in the first figure below.

At the current rate of spread, and unless the public adheres to strict social distancing practices, the RSM model forecasts that the total number of U.S. cases will reach 8.6 million in the third week of October and 8.8 million by the end of the month (see the second figure).

The third figure shows that the total number of U.S. deaths attributed to the coronavirus is 223,600, averaging 714 per day. While down from the 2,200 per day at the height of the outbreak in April and 1,000 per day just weeks ago, it remains a sober reminder as we go into the winter months.

State-by-state analysis

The coronavirus is now spreading across the less populous upper Midwest and the northern tier. In Montana, hospitals are nearing capacity across the state, with five major hospitals at more than 90% capacity.

Infections increased in 48 of the 51 states and the District of Columbia in the latest week, which is discouraging news as we enter the colder months and move indoors. Though week-to-week rates can be volatile, the fact that only three states reported fewer cases is certainly cause for concern.

The first figure below shows the spread of the infections in the six states with major metropolitan areas (Massachusetts, New York, New Jersey, Pennsylvania, Illinois and California) where the initial outbreak peaked in April. Cases are rising again, as schools and colleges were reopened and as social interaction moved closer to normal.

The second chart shows the spread of the virus across all the other states, where infections peaked across the South and Southwest in the weeks after the July 4 weekend. The spread moved into the Midwest and Northwest after Labor Day, with the new cases once again approaching their summer peak.

Infections in the six states with major metropolitan centers are rising again at an average rate of 10,700 per day. Infections in all other states are rising at an average rate of 43,800 per day.

Average weekly growth rate

In the following table, we show the state-by-state weekly growth rate of infections since:

• The reopening of local economies around May 1, which was likely to increase the exposure of the public in commercial locations.
• The unofficial opening of summer vacations on the Memorial Day weekend, which increased exposure as we looked for a respite from our isolation.

Because of the inconsistency of reporting among states, and the haphazard spread of the virus, we are looking at the overall spread of the virus in our rankings.

Of the six major states, Pennsylvania shows a 3.1% average weekly growth rate, and California (2.1%) and Illinois (2.0%) are reporting increasing numbers of cases since Memorial Day. While cases in New York, New Jersey and Massachusetts are decreasing, those improvements have decelerated and are cause for alarm as colder months approach.

Overall, 44 states are reporting positive average weekly growth rates since the Memorial Day weekend, as listed in the table below.

For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.