Price insensitivity for branded EpiPen

This activity is appropriate for principles of microeconomics classes as well as for health economics classes of any size. Students should have some understanding of monopoly pricing practices and the price elasticity of demand. The institutional knowledge of health insurance markets required is presented in the news article on the topic and need not be known by students beforehand.
The activity will use approximately 15 minutes of class time. The activity is not connected to other activities in the AE library.

Overview

In its current form, this exercise asks student teams to select the most important reason that consumers are insensitive to price changes in the branded EpiPen epinephrine auto-injector based on a before-class reading of a news article along with their understanding of monopoly v. competitive pricing and price elasticity of demand.
The article does mention the facts that generic alternatives might be more difficult to use and also the inertia on the part of prescribers; however, the best answer rests on the small share of the actual cost difference between the EpiPen and the generic epinephrine auto-injector.
The application can easily be modified to require students to present the technical analysis of the monopolist's price and output decisions to defend their answers.

Expected Student Learning Outcomes

Upon successful completion of this exercise, students should be able to explain that most consumers are so price insensitive to changes in the price of medicines because insurers, not consumers, pay virtually all of the price.

Information Given to Students

Why are EpiPen users so insensitive to price changes even after the introduction of much cheaper generic alternatives? (Pick the most important reason.)

A. EpiPen users need the EpiPen to survive an extreme allergic reaction.
B. Generic alternatives are harder to use.
C. Health insurance companies, not the users, pay the price of EpiPens.
D. In the presence of uncertainty regarding drug quality, the EpiPen brand commands top dollar.

I use this exercise to develop broad reasoning skills that lead to a review of market structure analysis, price elasticity of demand concepts, and basic close reading skills. However, with some modification, this exercise could also require students to conduct the analysis of the monopoly v. competitive market structures.
Lots of teams will select answer B, due to the segment of the news article that discusses the ease of use issue. However, one can push those student reporters to explain how a slight difference in usability could be worth the extra hundreds of dollars for the EpiPen. Questions like "what other factors might influence consumers' decisions?" will bring out the information on physician inertia -- much like college professors and textbooks, the physician's recommendation is usually made independent of price considerations -- and, eventually, to the fact that most consumers don't pay or only pay a small portion of the price difference between the branded EpiPen and the generic alternative.
Frank/Bernanke and, presumably, some other principles texts contain a fair amount of analysis of material on the US healthcare market and this application can be a jump-off point to much more discussion of that issue or can be modified to require students to analyze the case with the framework presented in the Frank/Bernanke text.
The appropriate summary comments will, of course, depend on what points the instructor wishes to emphasize. I generally point out that, while ease-of-use considerations might motivate consumers to be willing to pay a bit more for the branded EpiPen, they seem unlikely to motivate hundreds of dollars of extra payment. Instead, the odd institutional structure of the healthcare market in the US explain the issue and that even if something is very costly to other agents in the economy, if the price to users is low, people will use a lot of it. This can be a nice segway to the analysis of externalities, which usually immediately follows the unit in which I use this application.

This problem lends itself easily to becoming a question on a summative individual assessment.

Article on branded EpiPen and generic epinepherine auto-injectors. athenainsight: "Despite woes, EpiPen still dominates the market"