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Opinion

Sam Lovick

The next stage must be to let the virus spread

Modelling of the economic costs versus the health benefits shows that Australia should move to quickly relax social distancing measures.

Sam LovickContributor

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Last week, the government released the modelling it uses to inform its pandemic response. It appeared reticent; in press conferences, the government was keen to stress its limitations, its use of overseas assumptions and so on, as if to say: "We are not relying on models to decide what to do". It should not have been.

Disease modelling is one of the best tools we have for shaping our pandemic response. The government's modelling is sound. It aligned closely with ours (I would hope so); we predict 32,000 daily ICU admissions at the peak if we do nothing, the government predicts 35,000. It presents a coherent picture of why we are "flattening the curve" and strong justification for what is being done today.

Modelled measures to flatten the curve. Not based on Australian case data. Source: Federal government

Australia is containing COVID-19 for now but needs to move on to the next phase. That requires an understanding of the costs and benefits of different social distancing measures and how best to change them as the pandemic proceeds. Our modelling sheds light on both, pointing to faster rather than slower relaxation.

I was struck by the announcement that governments are expanding ICU capacity three-fold to 7000 beds. It is worth exploring the implications.

Assuming patients admitted to ICU need eight days of treatment, 25 per cent of patients admitted to ICU will die, and that the case fatality rate for COVID-19 with treatment is about 0.5 per cent, it looks like governments are preparing for a peak of around 44,000 new infections a day, much higher than the number today.

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I am encouraged by this. It signals that governments are contemplating a managed increase in the spread of the disease. As I said in The Australian Financial Review last week, in the absence of a vaccine or a cure, the best policy involves a managed increase in spread so that some degree of herd immunity develops, seeking to protect those most at risk while it does.

How might we achieve this? One policy that is unlikely to work is to try to prevent every death. Why not? Because to do so we would need to eliminate infections entirely. That can only be done with severe and prolonged social distancing at prodigious economic cost (2 per cent of GDP per month for at least 10 months, at least $400 billion).

Even then, as the WHO pointed out on Friday, when measures are finally relaxed there is the risk of a second wave. This policy may make sense if a cure or vaccine is available for the whole community in six months’ time, but not otherwise.

We examined the gradual removal of social distancing measures from now. Schools reopen by the end of April. Work constraints are relaxed in late May and most people return to work. Other community social activities such as sports, cinemas and restaurants resume fully in September.

We chose this order because, as the table shows, school closures are the costliest means of managing the pandemic, work constraints the next most costly. Quarantine of households for 21 days when there is a confirmed case continues until the end of the year, so we need to test. Isolation of the at-risk including over 70s continues until November.

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In this case, 64,000 lives are saved, fewer than those saved from prolonged social distancing but only if there is no second wave. The cost to the economy is 6.4 per cent of GDP ($132 billion), one-third of the cost of retaining strict social distancing until the end of the year. The average cost per life saved is $2.1 million. As the figure shows, at no time do we run out of ICU beds.

The second policy we examined is an accelerated removal of social distancing. Schools open and people return to work immediately. Constraints on community activities are removed at the end of June. Household quarantine and isolation of the at-risk are unchanged.

Some 3000 fewer lives are saved, largely because (as the chart shows) we are short around 500 ICU beds for one month. But the impact on GDP is much smaller at 4.1 per cent ($85 billion). The cost per life saved falls to $1.4 million. The cost of saving those additional 3000 lives is $9 million each, more than society is normally willing to pay. With the economic savings, we could save up to 9000 extra lives once the pandemic is over.

High compliance rates with quarantine and isolation are essential, which we will only get with effective government and social support for those affected. Without it, other measures will need to stay in place, the pandemic in Australia will last longer, cost more, and fewer lives will be saved.

Both scenarios point to a quick relaxation of school closures and workplace constraints once new ICU beds are in place.

This is not “let it rip” herd immunity, but a managed transition to the best outcome, appropriately balancing health and economic imperatives.

Sam Lovick is an independent economist and a former chief economist at CSL.

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