Essential and Discretionary Pricing

Essential and Discretionary Pricing
Name
Institution
Essential and Discretionary Pricing
Discretionary pricing takes place when the quantity of service is price elastic e.g. plastic surgery, while Essential pricing takes place when it is price inelastic e.g. care for accident victims.
How they Influence Our Choices
The introduction of insurance has the effect of reducing the prices paid by consumers, which tends to be greater when dealing with price elastic services deemed as discretionary. On the other hand, increasing cost sharing for patient’s results in an elevation of the final price incurred by patients thus reducing uptake of such services. The latter effect is higher for discretionary services and results in a dip in health and insurance costs. In fact, as the economic theory explains, when consumers encounter high-cost sharing they tend to shun the affected services/product.
In comparison to hospital services, those offered by physicians tend to be more sensitive to cost sharing (Davis, 2004). A 60% increase in total spending occurs when there is free care in contrast to the presence of cost sharing. These factors have an impact on low-income individuals or those categorized as high risk since only free care guarantees them access to care while insurance cover reduces the prospects of attaining effective medical services. Consequently, patients in the low-income category suffer adverse effects when there is of loss of insurance coverage.
Cost sharing has also led to a reduction in the uptake of important drugs.

Elastic prices tend to make the consumers quite responsive. For example, small changes leading to an elevation in the demanded quantity. Essential products are income inelastic and changes in price do not have a bearing on their choice. On the contrary discretionary products/services and their choice responds to changes in income. However, it is important to note that the classification of medical services into essential and discretionary is challenging.
Reference
Davis, K. (2004). Consumer-directed health care: Will it improve health system performance? Health Services Research, 39(4), 1219-1234.