ECON 403 (Health) Exam 1
Explain the logic of the Fuchs hypothesis
delaying gratification means you are more likely to invest in both your education and your health
In which of the following scenarios would the thrifty phenotype hypothesis be most effective at explaining the relationship between SES and health? (a) A country that started out poor and has remained poor (b) A country that started out poor and has gotten rich (c) A country that started out rich and got poorer (d) A country that started out rich and has remained rich
(b) A country that started out poor and has gotten rich
What is the discount factor for a person who would require at least a 25% interest rate to give up consumption today in exchange for consumption next year (i.e. a 25% discount rate)? (a) 0.80 (b) 4.00 (c) 0.25 (d) 1.33
(a) 0.80
What is one problem with the Rand Health Insurance Experiment? (a) A lot has changed about the health care industry since the 1970's (b) Families were not randomly assigned into insurance plans (c) The experiment tracked how much each family spent on healthcare, but not how much healthcare they consumed (d) The families included were predominantly low-income, and thus were not a representative sample of the nation
(a) A lot has changed about the health care industry since the 1970's
According to the efficient producer hypothesis, why does high SES lead to better health? (a) Educated people are more efficient producers of health (b) Those with higher SES tend to have lower stress levels (c) High SES means you can afford better healthcare (d) It's actually reverse causality and better health enables you to reach a higher SES
(a) Educated people are more efficient producers of health
Suppose that the internal rate of return for a career as a physician is equal to 10% as compared to a career as an accountant. Under which of the following scenarios would an individual choose to become a physician? (a) If their discount rate was below 10% (b) If their discount rate was above 10% (c) If their discount rate was exactly equal to 10% (d) We cannot tell since we don't know the difference in earnings between the two careers
(a) If their discount rate was below 10%
If we were to estimate healthcare demand by simply looking at prices paid and quantity consumed without ALSO controlling for individual levels of health, then our estimated healthcare demand curve would... (a) Underestimate quantity demanded at high prices since healthy people choose insurance plans with high copayment rates (b) Overestimate quantity demanded at low prices since sick people choose insurance plans with high copayment rates (c) Underestimate quantity demanded at high prices since healthy people choose insurance plans with low copayment rates (d) Underestimate quantity demanded at low prices since sick people choose insurance plans with low copayment rates
(a) Underestimate quantity demanded at high prices since healthy people choose insurance plans with high copayment rates
Table 1: Price and quantity of u shots Price Quantity San Diego $50 200 Atlanta $30 250 Using the information in Table 1, what is the arc elasticity of demand for u shots? (a) -2.25 (b) -0.44 (c) -0.625 (d) -0.30
(b) -0.44
Andy has a discount factor of 0.95, while Beth has a discount factor of 0.75. Given these numbers, which is the most likely scenario (a) All else equal, Andy and Beth will invest the same amount in their health since the discount factor only applies to income (b) Andy will live longer than Beth (c) Beth will invest more in her health today since she discounts the future less (d) Andy is less patient than Beth
(b) Andy will live longer than Beth
Which of the following is most responsible for physician induced demand? (a) Greedy doctors who want to extract as much revenue from their patients (b) Asymmetric information that limits the ability of patient's to assess what health procedures they really need (c) Government regulations that limit patient choice of doctor (d) New technology that while improving health outcomes, is more expensive than older medical procedures
(b) Asymmetric information that limits the ability of patient's to assess what health procedures they really need
Which of the following is true about health investment in the Grossman model (a) The highest returns for health investment occur at the highest levels of health (b) At very low levels of health, increasing your health will also allow you to increase your leisure (c) There are increasing returns to health investment (d) None of the above are true
(b) At very low levels of health, increasing your health will also allow you to increase your leisure
According to the Rand HIE and the Oregon Medicaid experiment, which of the following is true about the relationship between the price of healthcare and health outcomes? (a) Differences in mortality rates were only observed for the least at-risk individuals (b) For low-income individuals, cheaper healthcare meant lower rates of depression (c) Lower prices improved all measures of health outcomes (d) All of the above
(b) For low-income individuals, cheaper healthcare meant lower rates of depression
A person's health may affect their wealth contemporaneously (in the moment) and in the future (growth in wealth). Which of the following best characterizes the relationship between current health, current wealth, and growth in wealth? (a) Healthier people tend to have higher wealth today, but do not experience higher growth rates in wealth over time (b) Healthier people tend to have both higher wealth today and higher growth rates in their wealth over time (c) Healthier people tend to have higher wealth today, but experience lower growth rates in wealth over time as diminishing returns to health investment kick in (d) There is no observed relationship between health today and wealth or growth in wealth. Rather, both variables are being caused by a person's ability to delay gratification
(b) Healthier people tend to have both higher wealth today and higher growth rates in their wealth over time
Which of the following do we use when estimating the price of healthcare? (a) Annual insurance premium (b) Insurance co-payment rates (c) The marginal cost of producing a particular type healthcare (d) None of the above
(b) Insurance co-payment rates
7 In a perfectly competitive labor market, what would we expect to happen when the internal rate of return for a career as physician exceeds the market interest rate? (a) The market interest rate will rise to the physician IRR as people shift their investments toward healthcare (b) The IRR will fall as more people choose to enter the physician labor force (c) No change in either rate since resources invested in financial markets are incompatible with resources invested into a career as a physician (d) A decline in the physician labor force since the IRR exceeds the market interest rate
(b) The IRR will fall as more people choose to enter the physician labor force
Which of the following is NOT true about American vs. European models of training physicians (a) Students go straight into European medical school after high school, while they must first complete a bachelor's degree in the United States (b) The cost of European medical schools is much higher than American medical schools (c) European medical school lasts for six years, while American medical school lasts for four years (d) Residents in the United States on average work longer hours than residents in Europe
(b) The cost of European medical schools is much higher than American medical schools
Suppose that the elasticity of demand for u shots is -1.25. Which of the following is NOT true? (a) A 10% increase in the price of u shots will lead to a 12.5% decrease in quantity demanded (b) The demand for u shots is relatively inelastic (c) Increasing the price of u shots would decrease revenue to u shot producers (d) All of the above are true
(b) The demand for u shots is relatively inelastic
Suppose someone only cares about leisure time. Which of the following is true about their health investment? (a) They will choose a health level HMIN , the minimum amount of health they need to stay alive (b) They will choose the level of health for which the slope of the PPF is at (c) If their PPF were to expand due to a new health innovation that allows for a higher maximum level of health, they would still choose the same level of health as before since all they care about is leisure (d) Both B and C
(b) They will choose the level of health for which the slope of the PPF is flat
What discount rate corresponds to a discount factor of 0.90? (a) 1.11 (b) 0.53 (c) 0.11 (d) 0.90
(c) 0.11
A researcher wants to estimate the effects of offering free breakfast to grade school students on their performance on standardized exams. She plans to oer breakfast to one group of students (the treatment group) and withhold breakfast from the second group (the control). Which of the following methods would do the best job of random selection? (a) Groups are divided according to height (b) Groups are divided according to distance from the school (c) Groups are divided alphabetically (d) Groups are divided by their homeroom teacher
(c) Groups are divided alphabetically
Suppose that the market interest rate were to rise, but there was no effect on the efficiency of health capital (i.e. people do not become any more efficient at producing health). All else equal, what would we expect to happen to the optimal level of health investment (a) No effect since we cannot compare investing in your own health and survival to investing in asset markets (b) Health investment should increase since people expect to be richer (c) Health investment should decrease since the opportunity cost of health investment has gone up (d) Health investment should increase since higher interest rates will decrease health depreciation
(c) Health investment should decrease since the opportunity cost of health investment has gone up
Which of the following is not true about the healthcare industry in the US and globally? (a) Healthcare expenditures as a share of GDP in the US have steadily risen since the 1960's (b) In 2014, nearly one out of every six dollars spent in the the US was spent on healthcare (c) Health spending as a share of GDP tends to be higher in low income countries since these countries are generally less healthy to begin with (d) In 2015, the US government paid for about half of all healthcare expenditures in the US, one of the lowest rates amongst developed countries.
(c) Health spending as a share of GDP tends to be higher in low income countries since these countries are generally less healthy to begin with
According to the direct income hypothesis, why does high SES lead to better health? (a) Educated people are more efficient producers of health (b) Those with higher SES tend to have lower stress levels (c) High SES means you can afford better healthcare (d) It's actually reverse causality and better health enables you to reach a higher SES
(c) High SES means you can afford better healthcare
Suppose that the elasticity of demand for outpatient care is -0.25, while the elasticity of demand for inpatient care is -0.10. What can we infer from this? (a) The demand for inpatient care is more sensitive to price than the demand for outpatient care. (b) Because the elasticities are negative, both inpatient and outpatient care are inferior goods (c) If the price of both kinds of care were to increase by the same amount, demand for inpatient care would fall by a smaller proportion (d) The demand for outpatient care is 0.15 larger than the demand for inpatient care
(c) If the price of both kinds of care were to increase by the same amount, demand for inpatient care would fall by a smaller proportion
According to both the Rand HIE and the Oregon Medicaid Experiment, which of the following best characterizes the demand for inpatient vs. outpatient care? (a) The demand for inpatient care is more price sensitive than the demand for outpatient care (b) People are more likely to shop around for inpatient care than for outpatient care (c) If the price of both kinds of care were to rise, we would expect a greater drop in the demand for outpatient care (d) The price elasticity of demand for inpatient care was the same as that for outpatient care
(c) If the price of both kinds of care were to rise, we would expect a greater drop in the demand for outpatient care
All of the following are problems with using capitation to address physician induced demand EXCEPT... (a) It incentivizes physicians to deny care to the chronically ill (b) It may lead to an underprovision of appropriate services (c) It induces physicians to order unnecessary procedures in order to extract more revenue from each patient (d) It relies on insurers to correctly estimate the cost of treating patients before they have been seen by physicians
(c) It induces physicians to order unnecessary procedures in order to extract more revenue from each patient
Which of the following best describes the "July Effect" in the American healthcare system? (a) July is the month in which medical school graduates are matched to residency programs (b) Insurance companies tend to raise their rates in July, leading to worse health outcomes (c) July is the month in which new residents replace experienced residents (d) A spike in traffic accidents around the July 4th holiday and the summer driving season lead to longer hospital waiting times
(c) July is the month in which new residents replace experienced residents
Which of the following represents a normative (i.e. not positive) question about health economics? (a) How much would it cost to provide free annual checkups for everyone in the country? (b) How much would consumers save if licensing restrictions on doctors were relaxed? (c) Should people be required to buy health insurance? (d) Would imposing price caps on pharmaceuticals reduce research investment into new drugs?
(c) Should people be required to buy health insurance?
All of the following are reasonable explanations for why physician specialists earn more than general practitioners EXCEPT... (a) Specialists tend to work longer hours (b) Residencies for specialists last longer (c) Specialists retire later in life (d) There are higher skill requirements for specialists than for general practitioners
(c) Specialists retire later in life
For which of the following reasons would a person never choose a level of health in the "free lunch zone" of the PPF relating health and leisure (a) Their health is already so high that they can afford to give up a little health and free up a lot of leisure time (b) Their health is so low that they spend all of their time sick (c) The marginal benet of increasing health is so high that they can increase both health and leisure (d) Everyone will choose the point that maximizes leisure time as this leads to the highest possible level of utility
(c) The marginal benet of increasing health is so high that they can increase both health and leisure
According to the Grossman model, which of the following best represents the four ways you can spend your time? (a) Time spent being sick, working, improving health, and sleeping (b) Time spent on leisure, working, improving health, and sleeping (c) Time spent on leisure, improving health, being sick, and working (d) Time spent being sick, sleeping, improving health, and on leisure
(c) Time spent on leisure, improving health, being sick, and working
What is one problem with the Oregon Medicaid Experiment (a) The experiment only considered people in Oregon rather than in every part of the country (b) Not everyone who won the lottery to apply for Medicaid actually did apply for Medicaid (c) The families included were predominantly low-income, and thus were not a representative sample of the nation (d) All of the above
(d) All of the above
Which of the following would explain the rising trend in healthcare expenditures as a share of GDP (a) People are living longer (b) Advances in medical technology have widened the range of services available (c) The government has taken on a larger share of healthcare expenditures (d) All of the above
(d) All of the above
Which of the following are reasons why resident working hours should NOT be limited (a) Limiting resident hours would raise the cost of healthcare by restricting physician supply (b) Limiting resident hours would lead to more handoffs in which the same patient is seen by multiple doctors, increasing the chance of treatment errors (c) Fewer hours worked means less on the job training for residents (d) All of the above are arguments against limiting resident working hours
(d) All of the above are arguments against limiting resident working hours
Which of the following reasons justify the barriers to entry into the physician labor market established by the American Medical Association (AMA)? (a) Limiting spaces in medical schools ensures that only the most qualified applicants are admitted (b) Training standards in foreign medical schools are lower than those in the United States (c) High search costs make it difficult for consumers to differentiate quality among physicians (d) All of the above are justifications for imposing entry barriers in the physician labor market
(d) All of the above are justifications for imposing entry barriers in the physician labor market
For which of the following reasons would we expect the average American doctor to have a higher discount factor than the average European doctor? (a) The cost of medical school in the US is lower than that in Europe (b) The residency period for American doctors is shorter than that for European doctors (c) American doctors tend to earn more after residency than European doctors (d) European residents earn more than American residents
(d) European residents earn more than American residents
According to the productive time hypothesis, why does high SES lead to better health? (a) Educated people are more efficient producers of health (b) Those with higher SES tend to have lower stress levels (c) High SES means you can afford better healthcare (d) It's actually reverse causality and better health enables you to reach a higher SES
(d) It's actually reverse causality and better health enables you to reach a higher SES
Which of the following is best characterized as taste-based discrimination? (a) A physician believes that Hispanic patients are less likely to follow through with an expensive therapeutic regimen that could lead to major side effects if not adhered to closely as a result, she does not prescribe this regimen to her Hispanic patients (b) A surgeon has read that it is more difficult for black patients to find bio-compatible matches on the kidney-donor waitlist. As such, he is more aggressive in trying to save a black patient's kidneys than a white patient's kidneys (c) A dermatologist believes that white patients are more susceptible to skin cancer and thus spends more time stressing the importance of sun protection with her white patients than she does with her non-white patients (d) None of the above are examples of taste-based discrimination
(d) None of the above are examples of taste-based discrimination
All of the following are valid explanations for the rise in caesarian births relative to vaginal births since 1970 EXCEPT... (a) New technology has improved detection of fetal distress (b) Medical malpractice lawsuits have become more common (c) Caesarean births generate about 33% more revenue than vaginal births (d) The fertility rate in the United States has been increasing
(d) The fertility rate in the United States has been increasing
In the Grossman model, how does the production of leisure differ from the production of health? (a) The amount of leisure you had last period directly affects your leisure this period, whereas your health this period is unaffected by past health (b) Leisure is produced using only time, whereas health requires both time and tangible inputs (c) Health is produced using only time, whereas leisure requires both times and tangible inputs (d) The health you had last period directly affects your health this period, whereas your leisure this period is unaffected by past amounts of leisure
(d) The health you had last period directly affects your health this period, whereas your leisure this period is unaffected by past amounts of leisure
Which of the following best characterizes the Fuchs hypothesis? (a) Those willing to delay gratification will experience greater health, but lower income since they put o entering the workforce for a longer time (b) Those willing to delay gratification will have higher income, but lower health since they are less active and in the moment ( c) Those willing to delay gratification will have both worse health and lower income since they are continually delaying investing in their education and health (d) Those willing to delay gratification will have both better health and higher income since they are willing to make investments in health and education today that will turn into greater health and income in the future
(d) Those willing to delay gratification will have both better health and higher income since they are willing to make investments in health and education today that will turn into greater health and income in the future
What can we infer from the observed positive correlation between socioeconomic status (SES) and health for Canadian children? (a) Lowering the price of healthcare can help reduce inequality in health outcomes (b) The access to care hypothesis linking SES and health is supported by this result (c) Canada is an outlier since we do not observe this relationship in other countries (d) Universal healthcare would likely NOT eliminate health inequality
(d) Universal healthcare would likely NOT eliminate health inequality
Which of the following is NOT a problem with Randomized Experiments? (a) The results may not be generalizable (b) We know that a policy works, but not why a policy works? (c) Is it ethical to experiment with people's lives? (d) We can observe a correlation, but can never infer a causal effect of a policy.
(d) We can observe a correlation, but can never infer a causal effect of a policy.
Which of the following represents a positive (i.e. not normative) question about health economics? (a) Does everyone deserve access to healthcare? (b) Should the government require everyone to get vaccinated? (c) Is it ethical to deny care to a dying patient? (d) Would a tax on saturated fats make the nation healthier?
(d) Would a tax on saturated fats make the nation healthier?
What are two explanations for the rapid increase in cesarean births relative to vaginal births since 1970?
- Improved technology increases detection of fetal distress - There has been a decline in fertility rates
Identify two problems with using randomized experiments to assess health policy
- The results may not be generalized for the rest of the population - It's immoral and unethical to conduct experiments on people
Briey explain the logic of the allostatic load hypothesis Why do the results of the Whitehall study suggest that equalizing access to healthcare would likely NOT eliminate health inequality?
- higher levels of stress cause the depreciation rate in health to increase - With universal health care in the UK, the most stressed British civil servants were the least healthy
The internal rate of return for physicians has consistently been higher than the market interest rate. What are two explanations for this seeming labor market failure?
- people may not have the competence to make it through medical school and residency - supply of physicians is artificially constrained by the number of spaces available in medical schools
Summarize the findings from the Rand HIE and Oregon Medicaid experiment with regards to how the price of healthcare affects health outcomes
- reducing the price of healthcare lead to a reduction in mortality rates for vulnerable people (low income, chronic disease) - price is a deterrent to healthcare for low income households, but not necessarily for higher income households
Why might someone in Europe be more likely to become a doctor than someone in the U.S.
1. The direct costs of medical school in Europe is lower 2. The indirect costs are lower, either through a shorter residency or a higher paying residency 3. The excess earnings from being a doctor are higher in Europe.
what would happen to the optimal level of health if there is a decrease in the market interest rate and all other variables remain unchange
A lower market interest rate reduces the opportunity cost of health investment. As such, people will invest more in their health
Discuss one benefit and one cost of limiting physician work hours
Benefit - Reducing Fatigue Cost - by cutting hours you are restricting the supply of physicians
Why would the practice of capitation reduce physician induced demand? What is one potential problem with capitation?
Capitation is when insurers pay physicians a at rate for each patient they see physician also has no financial incentive to perform any additional necessary services
Oregon Medicaid Experiment (2008)
Description: compared two groups of low income Oregonians: one that won a lottery that allowed them to apply for Medicaid and one that did not win this lottery (and remained ineligible to apply for Medicaid). Health utilization and outcomes were then tracked. Problem: It only looks at low-income people and only people in Oregon
RAND Health Insurance Experiment (1974-1982)
Description: randomly split 2000 families from six different cities into four health insurance groups: 0% copayment, 25% copayment, 50% copayment, and 95% copayment. Utilization of care and health outcomes were then tracked over time for these families Problem: The main problem with the Rand HIE is that a lot has changed about the healthcare market since the 1970's and 80's. Some of the results from the Rand HIE have been difficult to replicate using more recent data.
Suppose you estimated the demand for healthcare by gathering data on the price paid for a particular healthcare procedure and the quantity of that procedure consumed without controlling for the perceived health of each patient. a. What should you use as the price for this healthcare procedure? b. Briey explain why such a strategy is likely to lead to an estimated demand curve that underestimates true demand at high prices and overestimates true demand at low prices
Each person's co-payment rate would be the most suitable measure of price as it captures the marginal expenditure per procedure By not controlling for individual health, we end up underestimating demand for healthy people (who pay higher prices) and overestimating demand for sick people (who pay lower prices)
Health Production Function
Ht = H[(1 − γ)Ht−1, T H t , Mt],
Healthcare spending as a share of GDP in the United States has been rising steadily over the past 60 years. What are two explanations for this trend?
People are living longer : - As people live longer, they will be demanding healthcare for a longer amount of time - we also spend more on healthcare when we get older and our health depreciates at Technological innovation in medicine: - There have been tremendous advances in medical technology that have had led to amazing improvements in health. - Today, that disease may be treated with surgery, medication, therapy, etc., but these treatments are expensive
Briey explain the role that information asymmetry plays in physician-induced-demand
Since theres only limited asymmetry information, we hope that seeing a physician care is most efficient in terms of balancing the quality and cost of care.
Statistical Discrimination
Statistical discrimination is when doctors treat a racial/ethnic group differently based on a statistically supported belief that there are differences in how to best treat the same condition across racial/ethnic groups
Taste-based discrimination
Taste-based discrimination is when doctors treat a racial/ethnic group differently not based on any statistical evidence on the efficacy of care, but based on their own personal biases
Why is on the job training important for physicians during residency?
The July effectin the US and the August killing season in the UK, new residents take over for experienced physicians that have completed their residencies. Medical errors in these months are higher than any other, suggesting that residency provides valuable on the job training.
Rank the following healthcare services in order of their likely demand elasticity, going from the least elastic to the most elastic: cosmetic surgery, emergency room care, non-emergency (but necessary) surgery. Explain your ranking.
The elasticity of demand will be higher for goods that are less necessary and have more substitutes. Ranking these services in terms of need and substitutability, the least price sensitive (most inelastic) should be emergency room care, while the most price sensitive (most elastic) should be cosmetic surgery
How does the government's share of spending on healthcare in the United States compare to that in other industrialized countries. What is one explanation for this difference?
The government share of spending is much lower in the United States than in most other industrialized countries. - The main reason for this is that in most other countries, the government either directly provides healthcare (Beveridge model) - or provides national health insurance while controlling private healthcare costs (Bismarck model).
Leisure Production Function
Zt = Z(T Z t , Jt)
You want to estimate the effect of offering free dental care on dental health. Briey describe how you would set up a randomized experiment to assess this
a representative sample of the population and split this sample randomly into two groups that would have to be identical
Identify one benefit and one cost to the AMA imposing entry barriers on the US physician labor market
benefit - Entry barriers tend to raise the quality of physicians as they increase the competition for spaces in medical schools cost - physicians are able to earn monopoly rents that make up about 25% of physician compensation
What will happen to the number of people pursuing careers as physicians if the internal rate of return for this career were to decrease?
fewer people would have discount rates below the lowered IRR therefor fewer people would choose a career as a physician
explain why a natural experiment like the Dutch Famine Study allows for a clearer evaluation of the thrifty phenotype hypothesis
it allows us to compare children in utero during the famine to those in utero just after the famine. Since the famine was an exogenous shock, there shouldn't be much of a difference between these two groups
Explain the logic behind the thrifty phenotype hypothesis
states that a child exposed to scarce conditions in utero is more likely to have thriftygenes resulting in a smaller body size, slower metabolism, and reduced level of activity more likely to hold in a country that experiences rapid economic growth because with an increase in resources the person is more prone to obesity and diabetes and heart attack
What is one reason why an increase in average income in a country may NOT lead to improved health outcomes?
the increase in average income goes to only the top 5% of earners leading to a more inequality and bad health outcomes