Economics Policy

The Economics of Rapid Antigen Tests

Rapid COVID test

Recently, the Federal Government decided that it does not want to interfere in the market for the private provision of rapid antigen tests in the middle of a pandemic.  

Preserving the right of private businesses to profit during the pandemic at the potential expense of the vulnerable is simply not a great policy.

What are the economics behind this, and what might they be missing?

Rather than assume it is simply a cop-out, it seems it is a naive application of Economics 101. However, the policy is not well thought through.  

The implicit assumption is that there are no significant positive externalities in subsidising the cost of rapid antigen tests. That is the information benefits of knowing whether you have Covid and taking personal responsibility by appropriately isolating to avoid infecting other people are neither insignificant nor irrelevant.

The US National Bureau of Economic Research recently concluded that much of the decline in economic activity in the US associated with Covid-19 came from self-protective behaviour.  As Australia re-opens its economy, this is likely to become a potential handbrake when uncertainty about managing the virus is widespread in the community.  RATs provide a frontline but partial solution to this self-protective behaviour.

Research by the Royal Australian College of General Practitioners suggests there is a case for substituting PCR tests with RATs, and saving public funds.  The benefit comes from earlier knowledge of infection and people isolating earlier, lessening the spread of the virus.

The government’s approach presupposes that rapid antigen tests are a consumer item rather than a public health consumable. A bit like asking people to bring their own oxygen bottles to hospital. Now that is something we have seen elsewhere.

The Australian Chamber of Commerce and Industry recognises the information value of RAT, advocating free rapid testing will improve business and consumer confidence, assisting in reopening the economy after a series of lockdowns and international lock outs.  This will help minimise the extremely disruptive impact of snap closures and held businesses reduce risks to employees, customers and the community. 

The government has argued that it does not want to provide ‘free’ rapid antigen tests. However, that is misleading. Publicly provided tests are paid out of taxation revenues. Either way, we are paying for these tests.

I find it difficult to believe that the Commonwealth cannot secure bulk supplies of these tests and distribute them at less cost than I could purchase one at full retail prices.

Also, it is surprising to me that given the extensive use of rapid antigen tests elsewhere, the Federal Government has not provided more effective leadership on this.

The Australian Competition and Consumer Commission is awake to the risk of price gouging and has indicated it will ‘name and shame’ those that do.

With Covid case numbers soaring again, the test and trace systems are simply not up to the task given volumes. Rapid antigen tests provide a viable alternative to enable people to be informed about their own health status and act accordingly. That has to benefit their families, friends and co-workers and, ultimately, the wider society and economy.

I was thinking that we were all in this together. The Federal Government still needs to catch up. We can’t afford another strollout in a fast-moving medical environment. Time and again, we have seen political processes simply cannot match the pace of this pandemic.

Let’s not think Covid has passed just yet. People are still dying.