BUSI 629 Week 2 Discussion Board Forum 2 Example

Discussion Board Forum 2: Demand and Price Elasticity in Health Care

BUSI 629 Economic Analysis in Healthcare, Discussion Board Forum 2

Thread by [Student Name]

The pharmacy, its patients and the classmates are composites; the textbook and the peer-reviewed sources cited are real.

A pharmacist at our hospital's outpatient pharmacy told me about a retired bus driver who used to split his insulin doses in the fall, when his Medicare drug plan's coverage gap pushed his costs above $100 a month. Since the $35 monthly cap took effect in 2023, he fills every month and no longer rations. His story raises a question this week's chapters help answer: how much does the price a patient pays change the amount of a medicine they use? Lee (2015) explains that the law of demand predicts people buy less of a good when its price rises and more when it falls, and that price elasticity of demand measures how strongly quantity responds, by comparing the proportional shift in quantity with the proportional shift in price that caused it. When the absolute value is below one, demand is inelastic: quantity changes proportionally less than price.

Insulin seems like the textbook case of inelastic demand. People with type 1 diabetes cannot live without it, so one might expect them to buy the same amount at almost any price. Lee (2015) notes, however, that insurance changes the price patients face, and that elasticity depends on the share of income a good consumes and the availability of substitutes. For a retiree spending a meaningful share of a fixed income on insulin, rationing is a substitute, a dangerous one, and price can matter more than the clinical need suggests. Before the cap, Medicare's drug benefit also made the price change during the year, low early, higher in the coverage gap and lower again in catastrophic coverage, so the same patient faced several prices for the same vial. That variability is itself a burden, because a patient cannot plan for a cost that jumps in September.

The evidence from the cap supports both views. Myerson et al. (2026) studied 2,860,394 Medicare Part D insulin users from 2021 through 2023. After the cap, almost no fills exceeded $35, and the average cost per 30-day supply fell from $22.95 to $18.16, a 21% reduction, while the range of costs a patient faced over the year narrowed by almost half. For the full group, fills, adherence and persistence did not increase. For patients who had faced high costs before the cap, however, 30-day fills rose 8%, from 10.4 to 11.2 a year, the share of days covered by basal insulin rose from 59.7% to 62.4% and persistence rose 13%. A study from Finland offers a useful comparison: Verho and Harju (2025) found that drug spending rose 17% at the threshold where out-of-pocket costs drop and estimated an average price elasticity of -0.17, with the largest responses for drugs taken as needed rather than daily.

Both studies also measured responses over short periods, a year or less, and longer-term effects on health, such as fewer diabetic emergencies, would take more time to appear. Read together, these studies suggest that average demand for essential drugs is inelastic, but averages hide the patients for whom price is decisive. A health plan or hospital pharmacy that sets copays based only on average elasticity will underestimate how much cost sharing harms its highest-cost patients. The same reasoning applies to our hospital's own pricing decisions, from parking fees for dialysis patients to copays in our employee health plan, where an average response can hide a group that is pushed out of care. For our pharmacy, the practical step is to identify patients whose drug costs are high relative to their income, enroll them in manufacturer assistance or our charity program and track whether their refill rates change. Inelastic on average is not the same as inelastic for everyone, and the exceptions are often the sickest patients.

Reply to Grace

Grace, your thread argued that low-income patients must be far more sensitive to price than average, so cost-sharing studies of insured middle-income patients understate the harm to the poor. Your intuition fits a point Lee (2015) makes, that elasticity rises when a purchase takes a larger share of income, but one recent study complicates it. Lavetti et al. (2023) linked Utah all-payer claims to hospital discharge data and used the Affordable Care Act's cost-sharing reductions, which set plan generosity by income, as a natural experiment among low-income Marketplace enrollees. Enrollees facing lower cost sharing spent more on care, and the authors estimated a demand elasticity of total spending of about -0.12, similar to estimates for higher-income populations. Cost-sharing subsidies also substantially lowered out-of-pocket spending, which supports their role in making care affordable for families living close to the poverty line. The finding suggests that low-income patients respond to price about as much as others in percentage terms, but because each dollar is a larger share of their income, the same response may involve harder choices, such as delaying a refill rather than a vacation. Your instinct is still valuable, because what differs by income may be the consequence of the response rather than its size. I would suggest your argument focus less on elasticity and more on burden, measuring out-of-pocket costs as a share of income. That measure captures hardship even when the elasticity looks ordinary, and it would point your hospital's financial assistance toward the patients most likely to skip care. The Utah study looked at total spending rather than specific services, so it cannot tell you whether low-income patients cut useful or wasteful care. Pairing an affordability measure with data on missed refills or skipped follow-up visits for chronic disease would show whether the cost burden is turning into worse health.

Reply to Tomas

Tomas, your thread proposed that your health plan raise coinsurance for its higher-income Medicare Advantage members to reduce low-value visits, and you expected little harm because demand for routine care is inelastic. A recent Japanese study offers evidence on both sides of your claim. Kusama et al. (2026) examined a 2022 reform that doubled coinsurance from 10% to 20% for higher-income adults aged 75 and older, comparing 22,013 affected people with 104,461 who kept 10% coinsurance. Expenditures fell modestly right after the reform, by about 8% for physician visits and 5% for prescriptions, with no significant change for dental visits, and the estimated elasticities were highly inelastic: -0.137 for physician visits, -0.079 for prescriptions and -0.047 for dental care. Those results support your view that spending responds only slightly, and they come from a large, well-designed comparison with a clear control group of more than 100,000 older adults. Lee (2015) cautions, though, that a small average response says nothing about which visits were dropped. Coinsurance is a blunt tool, because it raises the price of every visit equally, and patients may cut useful care, such as a follow-up for high blood pressure, as readily as low-value care. I would suggest pairing any increase with exemptions for chronic disease visits and medications, and monitoring hospitalizations for conditions that good primary care usually prevents. That way the plan captures savings without pushing members away from the care that keeps them out of the hospital. It is also worth noting that the Japanese reform applied only to higher-income adults, and the plan's members may differ in health and income from that group. A small, time-limited pilot in one region, with careful tracking of avoidable admissions, would test whether the Japanese results hold for your own members before the change spreads to everyone in the plan.

References

Kusama, T., Tamada, Y., Hoshi-Harada, M., Osaka, K., & Takeuchi, K. (2026). Impacts of cost-sharing rate increment on the expenditure of outpatient care among older adults: Quasi-experimental study of cost-sharing reform in Japan. BMC Health Services Research, 26(1). https://doi.org/10.1186/s12913-026-14387-4

Lavetti, K., DeLeire, T., & Ziebarth, N. R. (2023). How do low-income enrollees in the Affordable Care Act marketplaces respond to cost-sharing? Journal of Risk and Insurance, 90(1), 155-183. https://doi.org/10.1111/jori.12416

Lee, R. H. (2015). Economics for healthcare managers (3rd ed.). Health Administration Press.

Myerson, R., Kim, N. H., Romley, J., Qato, D. M., Cao, Y., Trish, E., Peters, A. L., & Goldman, D. (2026). Insulin costs and use by Medicare beneficiaries after the Inflation Reduction Act out-of-pocket cap. JAMA, 336(1), 25-34. https://doi.org/10.1001/jama.2026.5975

Verho, J., & Harju, J. (2025). Copayments for prescription drugs: The drivers of demand responses. Health Economics, 34(6), 1160-1170. https://doi.org/10.1002/hec.4955