Health Economics Midterm II
The rate of return on an investment in medical education:
is inversely related to the length of time spent in formal schooling.
The Medicare pay-as-you-go system is jeopardized by:
the changing demographics of the U.S. population with an increasing percentage over the age of 65.
The dominant factor affecting medical care delivery and finance in the 1960s was:
the creation of Medicare and Medicaid
One lesson that American policy makers can learn from the health care systems of other countries is:
the importance of having a safety valve.
According to surveys by the Medical Group Management Association, the average family practice physician earned approximately _______ in 2014.
$220,000
In 2010, _____ percent of the U.S. population was over the age of 65. By the year 2030, projections place that percentage at _____.
13; 20
The federal share of Medicaid financing, or federal matching assistance percentage (FMAP), ranges from a minimum of _____ percent in 13 high-income states to _____ percent in Mississippi.
50; 75
The average federal matching assistance percentage across the U.S. received by the typical state is approximately _____ percent of overall Medicaid spending.
60
What percentage of the new drugs introduced in the United States between 1940 and 1990 were discovered by U.S. firms?
60
Which of the following statements is true about the Canadian health care system?
Almost 50,000 Canadians travel abroad each year to avoid waiting lists for services
Which of the following is a true statement about long-term care?
Almost one-half of all nursing home residents are over age 85.
In the 19th century, hospitals had notorious reputations—questionable places to visit, risky places to stay. A number of advances changed all this and led to the transition to the modern hospital system. Which of the following changes had nothing to do with the transition?
An aging population and the increased incidence of chronic illness that followed
Research indicates that Medicaid has a significant impact on enrollee behavior. Which of the following statements is not true?
Because they are not required to pay premiums, Medicaid enrollees have higher savings rates.
Strictly followed, the single-payer model requires a ban on private insurance for all covered medical services. Which country follows this model most closely?
Canada
Which of the following is a unique characteristic of the German health care system?
Certain high-income individuals can choose to opt out of government run insurance altogether and purchase private insurance coverage.
Before entering the debate of whether or not access to medical care is a right, it is important to distinguish between a negative right and a positive right. Which of the following statements is true?
Consider the following situation: Peter has no money. In order for Peter to exercise his right to medical care, the law requires that Paul pay for it. This is an example of medical care as a positive right.
Which of the following statements is the most important reason that medical care markets do not fit the competitive model very well?
Consumers have a difficult time determining prices before the transaction is completed.
Price controls are a common feature in the pharmaceutical industry in most developed countries. Which one of the following statements about price controls is true?
Countries with the most stringent price controls do the least research.
Which of the following statements is true of direct to consumer advertising (DTCA)?
DTCA attracts more patients to consider using the product who might not have known about the drug.
Which of the following is not a common practice of Japanese physicians?
Discharging patients from the hospital after relative short average stays
More than 90 percent of the privately insured, nonelderly population in the U.S. receives group coverage through the workplace. Which one of the following statements is not true about employer-sponsored insurance (ESI) in the U.S.?
Employees will not purchase insurance voluntarily. The employer must be involved.
Which one of the following provisions included in the Affordable Care Act (ACA) was responsible for the largest number of newly insured?
Expansion of Medicaid
Under the Affordable Care Act (ACA), states were required to initiate which one of the following changes in the administration of their respective programs?
Extend eligibility to participants with household incomes less than 138 percent of the federal poverty level.
This study was the catalyst for the early 20th century reform of medical education in the United States. What was it?
Flexner Report
Which country has the largest percentage of its population covered by some form of private insurance?
France
The Japanese health care system most closely resembles the health care system of _____, from which it was copied.
German
Some policy makers would like us to believe several myths about employer-sponsored insurance. Which of the following statement is not a myth, but true?
Like all business expenses, employers pass on the cost of ESI to customers as higher prices and workers as lower wages.
How do individuals spending their own money behave differently than those spending someone else's money?
Individuals spending their own money look for the best value given the price.
Which of the following statements about the 2014 Medicaid expansion is not true?
It included a work requirement for able-bodied, working-aged adults without dependents.
The principle of marginal decision-making manifests itself in medical markets in many ways. Which of the following statements is not true?
It was unnecessary to mandate coverage of routine preventive screening with zero out-of-pocket cost because most people already received that benefit.
Several reform options have been discussed by Congress to solve some of the structural problems that plague the program. Which of the following options has received little support?
Limit the coverage for end-of-life care, the most expensive single item in Medicare, to include only essential palliative care.
In order to be a successful price discriminator, a provider must have a degree of market power (depicted by a downward-sloping demand curve) and meet what other condition(s)?
Markets must be segmentable, identifying differences in ability-to-pay.
A competitive environment penalizes the inefficient use of resources. All but one of the following statements addresses why competition is so important for an efficient outcome. Which statement is not true?
More firms competing in a market means more substitutes, so consumers have more options, and their demand is less elastic.
Which of the following would increase the supply of physicians?
More scholarships and grants to cover medical school tuition
Changes caused by the shift from charge-based rates to negotiated rates has had the following results.
Most hospitals experience a gap between the amount they receive from their payers and the amount billed. Receipts may be as low as 20 percent of the billed amount.
Finding a method of resource allocation is essential to any medical care system. Which one of the following statements supports this proposition?
Most people are willing to wait for access to care. Eventually, the resources will be available to provide that care.
Which of the following statements is true about cost shifting in hospitals?
The ability to cost shift depends on a hospital's payer mix
Physicians who agree to accept Medicare's approved payment as full payment are participating providers. Non-participating providers are allowed to balance bill their patients. What does this mean?
Non-participating physicians can bill the patients the difference between their usual fees and the amount Medicare actually pays (not to exceed 15 percent of the allowable fee).
Using the physician-control model to explain hospital behavior leads to which of the following conclusions?
Other medical inputs tend to be overused to maximize physicians' productivity.
Which of the following statements is true concerning the trend in hospital care between inpatient and outpatient services since the mid-1980s?
Outpatient services have been declining while inpatient services have been growing.
Suppose the number of medical school graduates continues to increase over the next decade. Which of the following is true?
Physicians' salaries will rise if the demand for medical services rises more than the supply of physicians rises.
What is the best way to ensure that individuals with pre-existing health conditions have access to affordable insurance coverage?
Place those with pre-existing conditions into separate risk pools, charging them risk-rated premiums, and provide taxpayer financed subsidies to make the coverage affordable.
The observed variations in practice patterns in different regions of the country is the result of all of the following except one.
Practice variations are due to differences in demographics and disease incidence across regions.
In the figure below, D1 depicts the market situation where no insurance is available to assist consumers in purchasing the monopolist's product. The introduction of insurance with an average of 25 percent copay (shown by D2) will have the following effect:
Prices will increase by as much as 400 percent as insurance coverage expands.
Single-payer systems typically apply all of the following practices except one. Which one?
Provide a uniform fee schedule for all services.
The main goal of any healthcare system, sometimes called the Triple Aim, include all but one of the following.
Provide universal insurance coverage
Medical care decisions involve costs as well as benefits. Which of the following statements is true?
Return on investment is important when considering any outlay. Often, a more relevant criterion in medical investment is the opportunity cost of the resources in terms of other beneficial uses of the same resources.
The most costly expansion of Medicaid since its inception is referred to as:
SCHIP
The expanded use of prospective payment in hospitals has changed the nature of competition in that market. Which of the following statements is true?
Savings from prospective payments are substantial and due primarily to fewer hospital admissions and shorter hospital stays.
Medicare and Medicaid were enacted by the Johnson administration in 1965 as amendments to which federal law already in existence?
Social Security Act
Surgical specialists earn more than general/family practice physicians do.Which of the following statements is NOT true regarding this income differential?
Surgeons will always earn more than general practitioners because they are smarter than general practitioners.
The Affordable Care Act incorporated many of the features of one of the countries featured in this chapter: mandatory age-rated premiums sold in health insurance marketplaces by private insurance companies, income-based subsidies to make policies more affordable, and a tiered system of plans offering different provider networks, deductibles, and copays. Which country?
Switzerland
Starting salaries for female OB/GYNs are higher than those of male OB/GYNs. What is the best explanation for this?
The demand for female OB/GYNs is greater than the demand for male OB/GYNs.
Even though the efficient use of resources enhances social welfare, it may not always be optimal from society's perspective. Why is this statement true?
The ethical use of resources can be just as important as their efficient use.
Relative to other developed countries, Germany has been successful in controlling excess health care spending. Which of the following has not been one of the major contributing factors?
The fact that Germans see their physicians less often, consume fewer prescription drugs, have lower hospital admission rates than their counterparts in other highly developed countries, and spend more time in the hospital
Which one of the following statements is true about the Affordable Care Act?
The final version of the ACA passed without a single Republican voting for its passage.
A hospital receives a large donation and wants to use the funds to buy a new CT scanner. What is included in the opportunity cost of the new CT scanner?
The foregone benefits of a new CT scanner if the funds are diverted to its purchase.
How is the issue of the "free rider" relevant to the discussion of whether access to medical care is a fundamental right?
The free rider argument is based on the idea that access to medical care should be free and available to everyone.
Medicaid payment rates to physicians are significantly below those paid by private insurers. Using the results of a Merritt Hawkins (2014) survey, how do these lower payment rates affect physician access for enrollees?
The greater the supply of physicians, the more likely they are to accept new Medicaid patients.
The French respect individual freedoms even as they accept collective action to reach important national goals of social solidarity and equality. What has been the major cost of a government-run system in France?
The high out-of-pocket spending, with over 80 percent of the population purchasing supplementary private insurance
What is the most significant cost of attending medical school?
The income foregone
Which of the following statements is true about the Medicaid program?
The majority of total outlays are for the elderly and disabled.
Each year, the Medicare trustees issue a report on the health of the program. According to the 2016 report, which of the following statements is true?
The net present value of future Medicare obligations that are currently unfunded will require Congress to appropriate funds beyond current law approaching $60 trillion dollars, over 300 percent of current GDP.
Policy makers often use taxes and subsidies to address market failure in medical care. A good example of this policy is the tax exemption to encourage employers to offer insurance to their workers. Which statement is true about this tax policy?
The policy has resulted in employees demanding more than the optimal level of insurance coverage.
Finkelstein and McKnight (2008) provide an empirical estimate of the benefits to seniors of the 1965 introduction of Medicare. Which of the following statements is true concerning the results of this study?
The real impact of the introduction of Medicare was on the reduction in out-of-pocket health care spending for households faced with catastrophic events (those in the top 25 percent of spenders).
Medical care spending escalates as an individual reaches old age. Which of the following statements is true regarding medical care spending and the elderly?
The real reason for the increase in medical spending among the elderly is the increase in chronic illnesses as we age and the multiplicity of services available to treat those illnesses.
Which of the following statements about the distribution of physicians among specialties is true in the United States?
There are twice as many specialists as there are generalists.
In order for consumers to make cost-conscious decisions, all of the following conditions are essential. Which one is not?
They must be able to eliminate the uncertainty of their decision and choose the best outcome.
Government regulators sometimes set the price of a drug at its marginal cost of production without including a fair share of the global joint cost of research and development. Which of the following statements is true about this practice?
This practice is a classic example of free riding.
Individuals on opposite sides of the political spectrum typically voice opposite viewpoints on universal access and universal coverage. What is the difference between the two concepts?
Universal access usually requires mandatory participation; universal coverage is a voluntary system.
Markets allocate resources efficiently when Adam Smith's "invisible hand" is allowed to work freely. Which of the following statements is true?
Unrestrained, competitive markets can accomplish optimal resource allocation through the invisible hand - the competitive price system.
The following list of characteristics are true of the pharmaceutical industry, except one.
Virtually guaranteed profits when the product is introduced
Suppose the market for nursing services in a local community is so dominated by a single community hospital that for all practical purposes it is considered a monopsony. Using the diagram below, answer the question.
W0 and E0
Suppose the market for nursing services in a local community is so dominated by a single community hospital that for all practical purposes it is considered a monopsony. Using the diagram below, answer the question.
W1 and E1
Congress initially intended for the Medicaid program to provide basic safety net coverage for certain vulnerable populations, including all the following but one.
Working age adults without dependents
Most of the states, including those that did not expand Medicaid, have eligibility thresholds that exceed the level set for household incomes set by the ACA (138 percent of the federal poverty level). This is true for all of the following groups except one. Which one?
Working-aged adults without dependents
The tax fully dedicated to provide support for Medicare Part A is:
a 2.9 percent payroll tax paid by all workers, regardless of their age.
Complete the following statement. The legal obligation created by the U.S. Congress to provide medical care for the elderly and indigent creates _____.
an entitlement subject to future changes based on shifts in public sentiment
Patents create monopolies, and monopolies have the ability to exercise market power. This ability results in all of the following except the ability to:
appropriate all surplus value turning it into monopoly profits.
Medicare Advantage (Part C) plans:
are offered by private insurance companies and provide hospital, physician, outpatient, and prescription drug coverage for a single premium.
The amount that Medicare pays a hospital for treating a Medicare patient is determined:
at the point when the diagnosis is made.
The most efficient method of allocating scarce resources is through:
competitive markets that allow supply and demand to interact freely to establish equilibrium prices.
Input demand is called derived demand because:
demand for an input is derived from the demand for the product or service it produces.
When medical fee schedules are negotiated by two monopolists—one representing patients and one representing providers—the equilibrium medical fees will:
depend on the relative bargaining strengths of the two groups negotiating the fee schedule.
Horizontal integration allows firms to do all of the following except:
fully integrate with primary care clinics and acute care nursing facilities.
The only disease-specific group eligible for Medicare are those suffering from:
end-stage renal disease.
To better control overall Medicaid spending, most states:
enroll all eligible recipients in managed care plans.
Data from a study of retail drug prices by the OECD and Eurostat (2008) showed that:
ere is some evidence that pharmaceutical prices are highly correlated with a country's per capita GDP.
Survey results indicate that support for the British National Health Service is quite strong
even though the majority of those surveyed feel the quality of care would improve if patients could spend their own money for rationed services.
In 2008, the state of Oregon used a lottery to extend Medicaid coverage to an additional 10,000 residents (often called the Oregon Experiment). Two years after enrollment, the lottery winners (the treatment group):
experienced an increase in the probability of receiving a diagnosis of diabetes and the use of drugs to control the condition.
Medigap policies are designed to offer:
first dollar coverage for out-of-pocket spending on deductibles and coinsurance.
The strengths of the British National Health Service (NHS) include:
good access to primary and preventive care.
Empirical research indicates that the 2014 expansion of Medicaid has led to a number of unintended consequences including:
higher per capita spending on the expansion population than anticipated.
The merger of two community hospitals located in the same geographic market is called:
horizontal integration.
The primary reason for an aging population is:
increased life expectancies and lower fertility rates.
Characteristics of the Swiss health care system include:
individual insurance policies with age-related premiums issued at birth.
The biggest challenge faced by the German health care system in the 1990s was:
integrating East and West Germany into a single system.
One of the most serious weaknesses in traditional Medicare is that:
it provides poor insurance coverage for unusually long hospital stays.
One of the reasons the 2008 Oregon Experiment was so important is because:
its experimental design included random selection of the treatment and control groups.
Economies of scale exist when:
long-run average costs decline as output increases.
Pharmaceutical development provides a good example of rent-seeking behavior, the pursuit of which results in _______.
lower economic activity by diverting resource to less-productive uses
People respond to incentives. The best way to get people to practice economizing behavior is to:
make sure they will benefit from it.
Complete the following statement. A collectively financed medical care system, providing universal coverage to a basic benefits package for everyone that includes the ability to purchase additional coverage with a supplemental insurance policy _____.
may not be equal, but is welfare enhancing for everyone
Pharmaceutical companies receive patents as an exclusive right to produce a drug. This results in:
monopoly rights in the production of the drug.
Complete the following statement. If the U.S. experience in reforming medical care has taught us anything, one thing is certain - _____.
moral hazard is a powerful force
Consolidation activity in the hospital industry:
occurs for the same reasons that cause consolidation in other industries.
By the time a drug enters the clinical trial phase of testing on humans,:
on average, five years of the overall patent life have already expired.
Danzon and Furukawa (2003) argue that:
pharmaceutical price differences across countries are roughly in line with differences in per capita GDP, supporting the predictions of Ramsey pricing practices.
Physicians who own their own diagnostic testing facilities tend to order more tests, charge higher fees for them, and have higher total bills to patients. This practice of self-referral is an example of:
physician-induced demand.
The major difference between the for-profit and the not-for-profit organizational form is:
primarily the ability to transfer assets
The dominant factor affecting medical care delivery and finance in the 1980s was:
prospective payment for hospitals.
The efficient response to a policy that provides free or heavily subsidized care to a substantial number of people is to:
provide incentives to expand the availability of medical services.
Legislation considered by Congress to restrict legal immigration would:
raise the costs of operating in many of the nation's rural and inner-city hospitals.
Altering the marginal cost of preventive screening by reducing the out-of-pocket cost to zero:
results in over-investment on screening technology. Using the funds elsewhere could have improved overall welfare.
Critics of the policy that allows the private system of health insurance in the United Kingdom focus on what they consider flaws in the model. They are concerned that private insurance:
slows improvements in the National Health Service by taking pressure off the system and results in a two-tiered system.
One of the best examples of managed competition in practice is:
the Federal Employee Health Benefit Plan (FEHBP)
The regulatory agency with oversight responsibility for the pharmaceutical industry is(are) the:
the Food and Drug Administration.
Many of the states that expanded Medicaid coverage to meet the criteria of the Affordable Care Act did not expect:
the large increase in the number of new enrollees already eligible under previous standards.
When the market fails to promote the efficient use of resources by producing either more or less than the optimal output level, government involvement can improve outcomes when _____.
the market equilibrium does not result in the equal distribution of the output
A recent study of the Canadian health care system estimates that a significant portion of the difference between health care spending in the U.S. and Canada is due to age differences between the two populations. Other reasons for lower health care spending in Canada include
the monopsony power of the Canadian provincial health plans in negotiating fees with physicians' associations and other providers
Congressional studies report that Medicare payments fall 11 percent below the cost of treating patients while private insurance patients pay 29 percent more than cost. This phenomenon may be attributable to cost shifting or price discrimination depending on:
the provider's payer mix
One of the primary reasons that costly technology is being introduced into the health care system is:
third-party insurance finances most of the cost of care.
Type II error is:
when a beneficial drug is blocked from entering a market.
Type I error is:
when a harmful drug is allowed into the market.
The following diagram depicts the market for physicians' services that is originally in equilibrium at the point where demand and supply (D0 and S0) intersect. As physician supply increases from S0 to S1, an even larger concurrent shift in demand from D0 to D1:
will cause overall spending on physicians' services to increase.
