![]() ![]() The study found high elasticities of demand for pharmaceuticals (−0.44), specialist visits (−0.32), MRIs (−0.29) and mental health/substance abuse (−0.26). Health care demand elasticities by type of serviceĭata from an observational study using 171 million person-months from 2008–2014. NOTE: Utilization numbers include both adults and children. SOURCE: Newhouse and the Insurance Experiment Group, 1993, Tables 3.2 and 3.3. Participants with Cost Sharing Visited the Doctor Less Frequently. The Rand experiment determined that healthcare price elasticity was -0.2 (relatively inelastic)įigure 1. There were four basic types of fee-for-service plans: One type offered free care the other three types involved varying levels of cost sharing - 25 percent, 50 percent, or 95 percent co-insurance (the percentage of medical charges that the consumer must pay). ![]() Participants were randomly assigned to one of five different health insurance plans created specifically for the experiment. For the study, RAND recruited 2,750 families encompassing more than 7,700 individuals, all of whom were under the age of 65. The Health Insurance Experiment (HIE) was a large-scale, randomized experiment conducted between 19. Healthcare price elasticity The Health Insurance Experiment If the price increase had no impact at all on the quantity demanded, the drug would be regarded as perfectly inelastic. Accordingly, we say that the demand for life-saving patented drugs is inelastic.īy way of explanation, if a pharmaceutical company were to raise the unit price of an essential medication from $100 to $150 (a 50% increase) and demand decreased from 1,000 units to 950 units (a decrease of less than 5%) as a result, the medication would be considered an inelastic good. Price adjustments will probably have a negligible effect on the demand. On the other hand, if a person requires a life-saving patented medicine, they will need to buy it regardless of the price. We say that the demand for cars is elastic. If the price decreases, more people will be interested in buying that car. If the price of a given car rises, people will consider other models. Intuitively, we would probably agree that the demand for cars is more elastic (i.e., its demand varies more) as prices change, than is the case with patented drugs. From a price elasticity standpoint, all goods are not created equal. ![]()
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