The Rising Costs of Influenza Pandemics

THE NEXT SEVERE influenza (flu) pandemic could cause an estimated tens of millions of deaths in the world, with the World Bank Group predicting an economic impact of 4.8 percent of gross domestic product, or $5 trillion.¹ In the last 99 years, there have been four flu pandemics. The types and costs associated with them can be financially devastating to developing countries. As such, government agencies and private organizations around the world are trying to prevent the next severe flu pandemic with better surveillance techniques, transmission reduction and preparedness plans. And, they are developing new financing and insurance plans to help developing countries with the costs of dealing with it.

Unfortunately, as Gregory Hartl, a spokesperson with the World Health Organization (WHO), explains, “One cannot predict beforehand what, where and when a new strain [of flu virus] will appear which will cause the next pandemic, and until we know the strain, we cannot start producing [a] vaccine. Antiviral stocks are limited and expensive. Many countries do not have the ability to detect novel disease outbreaks early, which allows the virus to spread and the disease to ‘take hold’ before a response begins to be mounted.”

Influenza Pandemics

The Centers for Disease Control and Prevention, which tracks historical data on pandemics, summarizes the type of virus and total number of deaths, both in the United States and globally, for the last four flu pandemics:²

The Spanish flu of 1918-1919, an influenza A H1N1 virus, was an especially virulent new strain of influenza in which there were three waves over a two-year period that infected an estimated 500 million people. There were an estimated 50 million to 100 million deaths worldwide, with an estimated 675,000 deaths in the United States.

The Asian flu of 1957-1958, an influenza A H2N2 virus, caused an estimated 1.1 million deaths worldwide and 116,000 deaths in the United States.

The Hong Kong flu of 1968-1969, an influenza A H3N2 virus, was a category 2 influenza pandemic that was caused by an H3N2 strain of the influenza A virus, descended from H2N2 through antigenic shift, a genetic process in which genes from multiple subtypes reassert to form a new virus. It was estimated there were one million deaths worldwide and approximately 100,000 deaths in the United States.

The Swine flu of 2009-2010, an influenza A H1N1 pandemic, was a new strain of H1N1 that resulted when a previous triple reassortment of bird, swine and human flu viruses further combined with a Eurasian pig flu virus. It was estimated there were 284,500 deaths worldwide and 12,469 deaths in the United States.

Research shows that much can be learned from these last four flu pandemics. For one, by implementing or increasing surveillance techniques for avian and swine influenzas, the ability to contain and eradicate the virus in animals is great. Second, by eliminating or reducing the transmission of zoonotic diseases, the risk of a flu pandemic can be greatly reduced or eliminated. And, last, preparation for flu pandemics can greatly lessen the spread of the virus, thereby reducing vaccines and hospital costs to fight the virus.

Costs Associated with Flu Pandemics

The two main areas affected by the costs associated with flu pandemics are health and economies. Flu pandemics average hundreds of thousands of deaths globally and cost money due to lost work hours, lost production and insurance claims. Farmers also suffer from lost incomes, which can have a profound effect on national economies and, to a greater extent, the global economy, or gross domestic product (GDP).

While the costs of the last four flu pandemics are unknown, they varied based on the type of influenza virus, when the virus occurred, where the virus broke out, how fast the virus spread and how many people were infected.

With the passage of time, and as the world’s population increases (the United Nations reports the world population was 7.3 billion in July 2015 and is expected to reach 8.5 billion by 2030),³ it is not a matter of “if” another flu pandemic will happen but “when” it will happen. And when the next pandemic does happen, especially if it is a severe strain, the costs will increase exponentially.

In a paper titled “The Inclusive Cost of Pandemic Influenza Risk,” the National Bureau of Economic Research found that:⁴

• Expected pandemic deaths exceed 700,000 per year worldwide with an associated annual mortality cost of approximately $490 billion. The authors used published figures to estimate expected lost income at $80 billion per year and, hence, the inclusive cost would be $570 billion per year, or 0.7 percent of global income (range 0.4 percent to 1.0 percent).
• For moderately severe pandemics, about 40 percent of inclusive costs result from lost income. For severe pandemics, this fraction declines to 12 percent. The intrinsic cost of elevated mortality becomes completely dominant.
• The estimates of mortality cost as a percent of gross national income range from approximately 1.6 percent in lower-middle-income countries down to 0.3 percent in high-income countries, mostly as a result of much higher pandemic death rates in lower-income environments.
• About 95 percent of the expected costs result from pandemics that would be expected to kill more than seven million people worldwide.

Combating Pandemics and Their Costs

One Health Initiative (OHI). Due to the complexity of the development and transmission of animal viruses to humans, an ever-increasing global population, as well as global traveling and trading, an approach was created to reduce or eradicate novel A influenza viruses. Founded in 2006, OHI globally promotes the concept that human, animal and environmental health are linked. OHI’s mandate is to educate international scientific and medical communities, governments and the public about this concept to encourage interdisciplinary collaboration to advance global health and save millions of lives.

In 2008, OHI created a website that serves as a repository of information pertaining to human, animal and environmental health. Through its website, OHI helps developed and developing countries learn about disease surveillance in animals, mitigate or control zoonotic diseases, understand drivers of antimicrobial resistance and develop pandemic influenza plans. In its approach to surveillance, management and preparedness for influenza pandemics, Laura Kahn, MD, MPH, MPP, FACP, a cofounder of OHI, says, “A One Health approach would conduct surveillance of wild waterfowl to determine what antigenic shifts and drifts are occurring in the virus. This information would give scientists advanced warning as to what might be jumping to domestic birds and humans.”

Since its inception, OHI has learned that many emerging zoonotic diseases result either directly or indirectly from meat production and consumption. “In my course, Hogs, Bats, and Ebola: An Introduction to One Health Policy, we discuss the intersection between global health, agriculture, food safety and security, and emerging diseases. They are all tied together. Ultimately, we need to figure out how to sustainably feed ourselves without unleashing deadly diseases,” explains Dr. Kahn.

The International Monetary Fund’s (IMF) Catastrophe Containment and Relief (CCR) Trust. A severe flu pandemic that could cost billions or trillions of dollars in high-income countries would be financially devastating in low-income countries (LICs). To assist LICs with pandemic costs, organizations around the world have established funds to assist them. In February 2015, IMF established the CCR Trust to enhance support for eligible LICs hit by public health disasters, including flu pandemics. According to IMF, “These grants can ease pressures on the members’ balance of payments and create fiscal space to tackle relief and recovery challenges.”⁵

Although flu pandemics are infrequent, IMF’s paper titled “Proposal to Enhance Fund Support for Low-Income Countries Hit by Public Health Disasters,” says, “The rough estimates of the probability of an influenza pandemic event in any given year is between 3 and 4 percent based on the historical observation that there have been 10 to 13 influenza pandemics since 1700 (including three occurrences in the 20th century). However, the probability of a severe pandemic event is more difficult to estimate and is assessed by staff to be very small, around the order of 1 [to] 2 percent.⁶

“A severe pandemic could have substantial economic implications and pose risks to the global financial system. Economic disruptions would arise through high rates of absenteeism, as well as dysfunctions or standstill in transportation, trade, payment systems and major utilities. Sharp declines in consumption and investment, along with financial repercussions, could further exacerbate the crisis.⁶

“Model-based simulations for advanced economies show that a severe pandemic event can plausibly have an economic impact ranging from between 4 percent and 10 percent of GDP. The Congressional Budget Office (CBO, 2006) estimates the impact of a severe and a mild pandemic event in the United States. In a severe scenario, about 90 million people fall sick and two million people die, resulting in a decline in real GDP by about 4 [to] 4½ percentage points. In the mild-pandemic scenario, GDP would decline by about 1 percentage point. A study by Cooper and others (2006) incorporates the effect of trade disruptions and finds that a severe pandemic would reduce annual GDP growth by 6 percentage points, and a mild pandemic would reduce GDP growth by 2 percentage points in the U.S.”⁶

The World Bank Group’s Pandemic Emergency Financing (PEF) Facility. An old instrument applied in a new way could also assist LICs with the cost of flu pandemics: a financing facility that acts like an insurance policy.

The World Bank Group, in collaboration with WHO and other public and private sector partners, launched the PEF Facility in May 2016 with an expectation of being operational by spring 2017. According to the World Bank Group, it has worked closely with WHO to design PEF, which will complement WHO’s Contingency Fund for Emergencies (CFE) and fill a critical gap in the current global financing architecture: “PEF financing is activated once an outbreak reaches a significant level of severity, well after the CFE has disbursed to support early response efforts. The PEF was designed specifically to respond to outbreaks from a defined set of viruses with pandemic potential.”

PEF will offer coverage to all countries eligible for financing from the International Development Association, the World Bank Group’s fund for the poorest countries, in the event an outbreak meets the activation criteria. PEF will also provide funding to qualified international agencies involved in the response to a major outbreak in affected countries.⁷

PEF will also provide much-needed surge funding for response efforts to help prevent rare, high-severity disease outbreaks from becoming deadlier and costlier pandemics. It covers outbreaks of infectious diseases most likely to cause major epidemics, including new orthomyxoviruses (new influenza pandemic virus A, B and C).

PEF provides a maximum of $500 million in insurance and $50 million to $100 million in cash for uninsured risks such as pandemics, including new orthomyxoviruses, to LICs. According to the World Bank Group, this insurance will fill the critical financing gap between the limited funds available at the early stages of an influenza pandemic and the assistance that is mobilized once the outbreak has reached crisis proportions. Maximum coverage under the PEF’s insurance window is $500 million for three years. In addition, PEF includes a replenishable cash window targeted at $50 million to $100 million.

PEF is expected to accelerate and improve outbreak response, save lives and reduce the costs of response. “By providing resources swiftly to countries and international responders to stem an outbreak before it reaches pandemic proportions, the PEF will help save thousands of lives. It will also keep the cost of response in the millions rather than the billions that donors now spend on response and recovery efforts, and the billions, or potentially trillions, lost in GDP from a pandemic,” says the World Bank Group.

Over time, PEF is also expected to create a new market for pandemic insurance that will bring greater discipline and rigor to pandemic preparedness and incentivize better pandemic response planning. PEF will also stimulate efforts by countries and development partners to build better core public health capabilities for disease surveillance and health systems strengthening toward universal health coverage.⁷

Combating Expenses Upfront

The costs of the oldest three flu pandemics were borne several decades ago. When the next flu pandemic does occur, it is going to be much more expensive on all fronts. However, if developed and, specifically, developing countries work on surveillance, transmission reduction and preparedness for the next flu pandemic, with the addition of IMF’s CCR and the World Bank Group’s PEF, developed countries can keep their costs down, and developing countries will not go bankrupt trying to pay for yet another pandemic.