COVID-19 vaccines won’t be free for long. What will they cost?

The Senate Committee on Health, Education, Labor and Pensions will hold a hearing on March 22 to discuss the pricing of the COVID-19 vaccines. Pfizer and Moderna are preparing to offer their vaccines in the private sector, without the federal government covering the cost. This will be necessary, given that the COVID-19 national and public health emergencies will expire on May 11. This will also shift the cost burden to health insurance companies, or for some people, be an out-of-pocket expense, although Moderna has indicated they will provide their vaccine at no cost to the uninsured and underinsured. 

The federal government has been paying between $15 to $31 per dose for the Pfizer and Moderna vaccines. Both companies have proposed prices between $110 and $130, around four times higher. 

Given all the information available, is this reasonable? Is there in fact a “right price” for these vaccines? 

To answer these questions, there are five additional questions to consider: 

Who funded the vaccines?

The federal government provided funds to make these vaccines possible. This means that the development risks were borne by the government, so that if the venture failed, the companies would not bear any costs. Their only loss was the opportunity cost to develop other products. At the same time, they were guaranteed a market for the vaccines if they were successful. This provided a development effort with little financial risk and significant upside potential, a highly favorable investment environment. This places downward pressure on the vaccine prices, at least in the short term. 

What are the benefits of the vaccines?

The vaccines have proven to be effective in keeping people out of hospitals and alive. They have been far less effective in preventing infections. Each new vaccine update, like the bivalent booster, has provided additional public health benefits. This means that health insurance companies are motivated to make these vaccines available, since it will reduce or eliminate other health care expenses. This places upward pressure on the vaccine prices, until more effective products come to market. 

What is the competition?

Pfizer and Moderna are direct competitors. They also own the market share. Such an oligopoly gives them control over the market, and control over pricing. Of course, larger health providers will negotiate lower prices than the retail sticker price. This occurs with pediatric and adult vaccines, where there is a private sector price and an undisclosed negotiated price. The same phenomena will occur with the COVID-19 vaccines. This means that the retail sticker prices overstate what most insurance companies will pay. This makes any vaccine prices placeholders, rather than firm offers. 

What is the market? 

Many Americans are vaccine fatigued. Over 85 percent of the population five years of age and older have received at least one COVID-19 vaccine dose. However, just around one in six people of this cohort have received the bivalent booster. This is during a time when the vaccines have been available at no cost. If people are required to pay any out-of-pocket cost, interest in future boosters may plummet to near zero. This places downward pressure on the vaccine prices.

What are the risks? 

The COVID-19 pandemic has lasted for nearly three years. Will the time arrive when vaccines will no longer be needed? Will another company develop a more effective vaccine, like a pan-coronavirus vaccine that protects against multiple variants? If vaccines boosters are needed periodically, how will they overlap with the seasonal influenza vaccine? These unknowns mean that the window for Pfizer and Moderna to sell their products remains cloudy in the short-term and highly uncertain over the long-term. This places upward pressures on the prices. 

Pharmaceutical companies justify high prices for their products to recoup research and development costs. They also dogleg these factors across multiple products, so the risk and cost of developing one product are paid out of the profits generated from another product. Some investments also never lead to a marketable product, which make it even more critical to recoup costs from successful products that reach market. All these factors are the basis for why Pfizer and Moderna seek a high price for their COVID-19 vaccines.  

The takeaway from this exercise is that no matter what private sector retail prices are set for the COVID-19 vaccines, the actual price paid will be lower. This means that most people will pay nothing for getting vaccinated and boosted, much like the case today. 

Using the Centers for Disease Control and Prevention (CDC) price list, comparing the government prices and the private sector prices reveals that the private sector prices are no more than double the government prices. Based on these observations, pricing the COVID-19 vaccines in the private sector at two-times the deeply discounted government prices would be well within reason, justifiable and likely to be close to the final price paid.

With the bivalent boosters running between $26 and $31 per dose, not including administrative costs, prices between $50 and $60 per dose make sense. If some of the long-term risk must be built into their prices, an additional $10 per dose is conceivable. If single dose vials are offered rather than multiple dose vials, as is the case today, this convenience packaging can add even more value and put additional upward pressure on the price. 

All vaccines — including the COVID-19 vaccines — are a public good. When vaccine manufacturers enter the vaccine business, they contribute to such efforts. Setting prices on any public good is never easy. In this case, without the enormous safety net provided by the federal government, Pfizer and Moderna would not even have their products to sell. Setting them lower than they would like, lower than the value they provide and higher than the cost of manufacturing them all makes sense. 

Sheldon H. Jacobson, Ph.D., is a professor of computer science at the University of Illinois at Urbana-Champaign. He applies his expertise in data-driven risk-based decision-making to evaluate and inform public policy. He has studied vaccine pricing models for pediatric and influenza vaccines.