HLTH 4530 Week 2 Demand Analysis Paper Example

A $150 Copayment at the Emergency Department Door: Which Visits a Regional Plan's Members Will Drop, Which Will Hold Steady and What the RAND Experiment Warns About Both

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Walden University

HLTH 4530: Healthcare Economics From a Population Health Perspective

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Month Day, Year

A $150 Copayment at the Emergency Department Door: Which Visits a Regional Plan's Members Will Drop, Which Will Hold Steady and What the RAND Experiment Warns About Both

The Price Change

A composite regional health plan, Cedar Valley Health Plan, covers about 180,000 working-age members and their children. Starting January 1, it adds a $150 copayment for each emergency department visit, waived if the member is admitted to the hospital. Before the change, members paid nothing at the emergency department beyond their deductible. The plan's stated aim is to move low-acuity visits, such as sore throats and minor sprains, to its urgent care centers and primary care clinics, where the member's copayment is $35.

Demand and Its Responsiveness

The law of demand predicts that when the price a person pays for a service rises, the person will tend to use less of it. Price elasticity is the name for how strongly use responds: if a small rise in price produces a large drop in use, demand is elastic; if use barely changes, demand is inelastic. This paper does not assign a number to the elasticity of emergency care, because it depends on the population, the size of the price change and the alternatives available. It asks instead which kinds of visits are likely to be responsive and which are not.

Demand for medical care is unusual because people do not want care for its own sake. Grossman (1972) modeled health as a stock of capital that people invest in, and medical care as one input to producing health. On that view, the demand for an emergency visit is derived from the demand for health: a person goes to the emergency department because they want to stop a threat to their health or relieve a symptom. How much the $150 matters depends on how urgent that threat feels and what other ways of addressing it are open.

Sorting the Visits

Visits Likely to Be Responsive

Some emergency visits are for conditions that could safely wait for a clinic the next day or be handled at urgent care: a cold, a minor sprain, a rash, a prescription refill, a mild urinary symptom. For these visits, the member has alternatives at a lower price, and the problem can tolerate a delay. Demand for these visits should be relatively elastic. A $150 copayment against a $35 clinic copayment gives members a clear reason to choose the clinic, especially during daytime hours when the clinic is open.

Visits Likely to Hold Steady

Other visits are for conditions where delay is dangerous and no lower-priced alternative can do the job: chest pain, signs of stroke, a serious injury, difficulty breathing. For these, demand should be highly inelastic. A person with crushing chest pain is unlikely to weigh a $150 copayment against their life, and the waiver on admission removes the copayment for many of the sickest patients.

The Uncertain Middle

The difficulty is the large middle group: abdominal pain, a child's high fever at night, a headache unlike any before. These may be serious or minor, and the member cannot tell which before seeing a clinician. A copayment asks a layperson to make a triage decision. Some will correctly stay home with a minor problem; others will stay home with a serious one.

Evidence From a Real Copayment

A study at Kaiser Permanente in northern California tested a similar change. Selby et al. (1996) followed 30,276 members whose emergency department copayment rose to $25 to $35 and compared them with two randomly selected control groups whose coverage did not change. Emergency visits fell by 14.6 percentage points more in the copayment group than in either control group. The decline was small and not significant for conditions classified as "always an emergency," and it grew larger as the presenting condition became less severe. The authors found no suggestion of excess adverse events such as higher mortality or more avoidable hospitalizations, though they noted that their ability to detect such effects was limited.

That pattern matches the sorting above: low-acuity visits fell and true emergencies held steady. Cedar Valley's copayment is much larger in today's dollars, so the response could be larger in both groups.

What the RAND Experiment Adds

The most rigorous evidence on cost sharing comes from RAND's Health Insurance Experiment. Between 1974 and 1982 it placed thousands of families in six U.S. areas, by lottery, into insurance plans whose cost sharing ranged from none to substantial. Aron-Dine et al. (2013), revisiting the experiment three decades later, describe its central finding: people facing higher cost sharing used less medical care than people with free care. That finding supports the plan's expectation that a copayment will reduce use.

The experiment also carries a warning. The reductions in use were not limited to unnecessary care. People with more cost sharing cut back on care judged to be effective as well as on care judged to be less effective, because patients cannot reliably tell the two apart when deciding whether to seek care. For most participants this made little measurable difference to health, but for the poorest and sickest participants, notably those with high blood pressure, free care produced better outcomes. The experiment suggests that a copayment cannot be relied on to remove only the low-value visits.

A Second, More Recent Signal

Wharam et al. (2007) studied 8,724 people whose employers moved them from a traditional HMO to a high-deductible plan. Emergency department visits fell by 10% relative to controls, driven by fewer repeat visits, while first visits did not change significantly. The structure differs from a flat copayment, but the result again shows use falling mostly where people had some discretion.

What the Plan Should Expect

Cedar Valley should expect fewer emergency visits, concentrated among low-acuity conditions, and little change in visits for clear emergencies. It should also expect some reduction in visits for conditions in the uncertain middle, and the RAND evidence suggests that some of those forgone visits will have been useful. Two design features would limit that risk. The waiver on admission already protects the sickest patients. Extending urgent care hours into evenings and weekends would give members a real lower-priced alternative at the times when most low-acuity emergency visits happen, so that the copayment redirects care rather than simply deterring it.

Limits

The plan and its members are composite, so the analysis predicts the direction of change, not its size. The studies cited were done in different decades and settings, and a $150 copayment may weigh much more heavily on lower-income members than on others, which a single elasticity cannot capture.

References

Aron-Dine, A., Einav, L., & Finkelstein, A. (2013). The RAND Health Insurance Experiment, three decades later. Journal of Economic Perspectives, 27(1), 197-222. https://doi.org/10.1257/jep.27.1.197

Grossman, M. (1972). On the concept of health capital and the demand for health. Journal of Political Economy, 80(2), 223-255. https://doi.org/10.1086/259880

Selby, J. V., Fireman, B. H., & Swain, B. E. (1996). Effect of a copayment on use of the emergency department in a health maintenance organization. New England Journal of Medicine, 334(10), 635-641. https://doi.org/10.1056/NEJM199603073341006

Wharam, J. F., Landon, B. E., Galbraith, A. A., Kleinman, K. P., Soumerai, S. B., & Ross-Degnan, D. (2007). Emergency department use and subsequent hospitalizations among members of a high-deductible health plan. JAMA, 297(10), 1093-1102. https://doi.org/10.1001/jama.297.10.1093