HSPM 412 SELF-CHECKS

Based on the reported costs and health benefits, you conclude ______.

1. Drug B is a dominated by Drug A. Drug A is both cheaper ($40,000 < $80,000) and more effective (1.0 year > 0.2 year). Drug B is never an optimal treatment choice. 2. It never makes sense to use Drug I. Drug H yields the same benefit (3.4 years) at a much lower cost ($360,000 < $400,000).

Which of the following statements about indifference curves is (are) FALSE?

A set of Indifference curves shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed. (Indifference curves ACTUALLY show consumer preferences, identifying every possible combination of goods that give the consumer the same amount of satisfaction.)

Suppose you are under your health insurance policy, hospital expenses are subject to a $1,000 deductible and $250 per day copay. You get sick and are hospitalized for 4 days and the bill after insurance comes to $6,000. How much of that bill do you have to pay for yourself?

$2,000

Consider the market for shingles vaccines at a local clinic. Beyond the private benefits of immunization, the herd immunity benefits of each singles vaccine is worth an additional $10. From the perspective of a social planner, it would be optimal for 350 local seniors to get the vaccine. Calculate the total subsidy required to obtain the socially optimal level of vaccinations.

$3,500 multiply the two numbers

Using results from the RAND Health Insurance Experiment (below), calculate the price elasticity of demand for outpatient care.

-0.17 Using the Midpoint Method... ((Q2-Q1) / (Q2+Q1)) / ((P2-P1) / (P2+P1))

When the price of fresh tomatoes decreases by 10%, the quantity demanded of fresh tomatoes increases by 46%. Calculate the price elasticity of demand for fresh tomatoes.

-4.6 % change in quantity demanded / % change in price (the price elasticity of demand will always be negative)

Producer surplus is the difference between a seller's cost to produce a good and the amount a seller is actually paid for it (market price) and is represented by the area ______.

ABOVE the supply curve and BELOW the market price

The set of policies that comprise the ______ model reflect two major values: solidarity and economic liberty.

Bismark

The market for lemonade is initially in equilibrium. Temperatures soar during the month of July. All else equal, how does the heat wave affect the equilibrium price and quantity of lemonade?

Both equilibrium price and equilibrium quantity will increase (The July heat wave leads to an increase in the demand for lemonade (demand shifter: CONSUMER TASTES).

The terms "demand" and "supply" refer to the behavior of people as they interact with one another in a market: _______ represents the behavior of buyers and _____ represents the behavior of sellers

DEMAND=BUYERS SUPPLY=SELLERS

The market for lemonade is initially in equilibrium. Temperatures soar during the month of July. At the same time, Harris Teeter runs a promotion on lemons, lowering the price from $1.79 to $0.99/lb. How will the changing market conditions affect the EQUILIBRIUM QUANTITY of lemonade?

Equilibrium quantity will increase

Sometimes, costs or benefits may spill over to a third party not directly involved in the transaction. These spillover costs and benefits are called [x].

Externalities

Consider the two market (supply-and-demand) diagrams below. ______ provides a graphical interpretation of a negative externality, where the horizontal distance between Qprivate and Qsocial reflects the ______ of the market good

Figure A; overconsumption (social and private lines are horizontal aka parallel to each other on this graph)

Which of the following statements about the Beveridge model is (are) FALSE?

NONE of them are false! 1.All citizens automatically receive insurance coverage through the government. 2.The government runs hospitals and clinics. 3.The government decides how many doctors and specialists will be working at each hospital. 4.Single-payer health insurance is financed through taxes rather than premiums, so individuals don't need to pay anything to enroll.

Adverse selection may occur only in the presence of information asymmetry.

TRUE

Barriers to care erected by managed care organizations, such as requiringpatients to visit gatekeeper physicians prior to seeking specialist care, can increase consumer welfare.

TRUE

Economics is the study of the allocation of _____ to satisfy ______.

limited resources, unlimited wants

If someone values life at ______, then Drug H is preferable to Drug C.

more than 500,000 per year

Government can play a role in encouraging positive externalities by ______ goods or services that generate spillover benefits.

providing subsidies for

If the United States sits on a different health production function (as in Figure B), its health economy is operating efficiently - despite higher health expenditures and worse health outcomes than those measured in the UK and Switzerland.

TRUE If the United States sits on a different health production function (as in Figure B), its health economy is operating efficiently - despite higher health expenditures and worse health outcomes than those measured in the UK and Switzerland.

Which of the following is the best definition of the term "annual health insurance deductible?"

The amount of covered health care expenses you must pay yourself each year before your insurance will begin to pay

A primary cause of increasing uninsurance in the U.S. over the past decade is that more employers are deciding to stop providing health insurance coverage entirely.

FALSE

Hospital admission rates in the United States increased dramatically between 1990 and 2010.

FALSE

If you receive inpatient care at a hospital that participates in your health plan's provider network, all the doctors who care for you while you're in the hospital will also be in network.

FALSE

In employer-sponsored health insurance in the U.S., employers pay the largest share of the costs of health insurance.

FALSE

The amount of social loss depends only on the extent of price distortion (i.e. the fullness of the insurance contract).

FALSE

The imposition of federally mandated maternity benefits had no effect on the mean wages of female workers.

FALSE

The price of curing Hodgkin's disease has risen substantially between 1950 and 2000.

FALSE

The primary source of funding for the Medicare program is from premiums assessed on the elderly population, which is the primary population enrolled in the program.

FALSE

Moral hazard will occur if and only if at least one of the following three conditions is present: price distortion, information asymmetry, or price sensitivity.

FALSE Moral hazard will occur if and only if ALL THREE of the following conditions is present: price distortion, information asymmetry, and price sensitivity.

Consider the two market (supply-and-demand) diagrams below. ______ provides a graphical representation of a positive externality, where ______.

Figure B: social benefits exceed private benefits

The Bismarck model has three defining features: ______.

regulated private health care provision, community rating, and universal insurance

Under the Bismarck model of managed competition, multiple nonprofit insurance funds offer health insurance in a nationwide market that is constrained by four major rules. Which of the following is NOT a feature of managed competition in health insurance markets?

Insurers charge different premiums to different customers based on their individual risk of needing health care.

The compulsory nature of insurance enrollment in Bismarck systems prevents the worst of adverse selection because it guarantees that there are always healthy people paying into the system to subsidize care for the sick.

TRUE

According to the efficient producer hypothesis, health disparities exist because better-educated individuals are more efficient producers of health than less-educated individuals.

TRUE (According to the efficient producer hypothesis, health disparities exist because better-educated individuals are more efficient producers of health than less-educated individuals.)

The demand for wifi-enabled robot vacuums is more elastic than the demand for lifesaving epinephrine. In the figure below, the market for epinephrine is best represented by the graph on the ______ while the market for iRobot vacuums is best represented by the graph on the ______.

left; right BECAUSE the price elasticity of demand is related to the slope of the demand curve. When demand for a good is more elastic (price sensitive), the demand curve will be more horizontal. When demand for a good is more inelastic (price insensitive), the demand curve will be more vertical.

The economics of health and health care is different from the economics at work in other, smaller markets because ______.

demand for healthcare is uncertain, health insurance is very common, health is contagious

If ______ the graph in Figure A is insufficient to judge (i.e. cannot tell us with certainty) that the health economy in the United States is operating inefficiently.

1. the US and other countries have different populations with different inherent levels of health 2. people in the US and other countries value health differently 3. the US differs from other countries in how much health inequality exists

The primary sources of funding for Medicaid are payroll taxes (paid by workers),and premiums, deductibles, and copayments (paid by patients).

FALSE

The take-up rate of health insurance among people with good jobs (that is full-time jobs that have lasted longer than a year) has declined in recent years, and this is an important reason for the increase in uninsurance rates over those same years.

FALSE

According to a 2013 study, high-risk patients should avoid seeking treatment at hospitals associated with medical schools (aka "teaching hospitals") whenever possible.

FALSE (A high-risk patient is likely better off in a teaching hospital for most of the year. JULY is an exception.)

The Dartmouth Atlas research project finds that health care spending varied widely between different American cities in the early 2000s, and that Medicare enrollees in high-spending cities were a lot healthier as a result.

FALSE The Atlas does show wide variation in spending levels, but it also finds that more expensive treatment did not tend to result in better outcomes.

An ICER value indicates which of two treatment options is better.

FALSE The ICER by itself does not indicate which treatment is optimal; it simply indicates exactly how expensive a health improvement is in monetary terms.

The Oregon Medicaid study is an example of a natural experiment.

FALSE The Oregon Medicaid study is an example of a randomized experiment. A lottery was used to randomly assign individuals into groups

If Medicare patients in Boston are paying more per capital for a hip replacement than Medicare patients in Boise for the same procedure, but health outcomes are exactly equal, then this is evidence that Boston is wasteful in their health spending.

FALSE There could be an alternative explanation: Boston may have a lower health production function than Boise does and therefore may need to spend more money in order to reach the same level of health as Boise.

Under the Bismarck model, health care is a good provided by the government and paid for with tax revenue, just like schools or libraries.

FALSE Under the Beveridge model, health care is a good provided by the government and paid for with tax revenue, just like schools or libraries.

Because it undermines the core tenet of social solidarity, Beveridge countries use ______ sparingly.

Price rationing

Assuming you would derive the same enjoyment teaching tots to "French fry" and "pizza" on the slopes as you would treating their runny noses, which career should you choose?

Ski Instructor (If you expect that the two careers would bring you the same enjoyment, you should base your decision on a comparison of the NPV of lifetime earnings.)

If your health insurance or health plan refuses to pay for a service that you think is covered and your doctor says you need, you can appeal the denial and possibly get the insurance company to pay the claim.

TRUE

In the U.S. Medicare program, by statute, the government is not permitted to take cost-effectiveness criteria into account when deciding whether to cover new medical technologies.

TRUE

Medicare Part D, which was implemented in 2006, is the federal insurance program for the elderly in the US that provides for prescription drug coverage.

TRUE

Nearly half of expenditures on health care in the US are government financed.

TRUE

Adverse selection is not an issue in health care systems that follow the Beveridge model because all citizens are automatically enrolled in free public insurance.

TRUE Adverse selection is not an issue in health care systems that follow the Beveridge model because all citizens are automatically enrolled in free public insurance.

If people paid full prices for health care, we would not need to measure QALYs and the value of a life year because customers would make socially optimal decisions on their own.

TRUE Moral hazard justifies cost-effectiveness analysis, which in turn necessitates research into quality weights and life valuation

The RAND HIE finds that higher co-insurance rates lead to lower levels of both effective and ineffective medical utilization.

TRUE RAND HIE researchers found that higher co-insurance rates reduced the use of effective and less-effective care across the board.

Calculate the Herfindahl-Hirschman Index (HHI) for the hospital market in Columbia, SC.

The HHI, a measure of market concentration, is the sum of the squared market shares of all the firms in a market. The market share of firm (si) is a fraction, ranging from 0 to 1.

Which of the following best describes the "health insurance formulary"?

The list of prescription drugs your health plan will cover

An individual who is relatively PATIENT will have a ______ discount factor δ and a ______ discount rate r.

high (i.e. δ close to 1); low

Universal public (single-payer) insurance is associated with each of the following EXCEPT ______.

reduced equity

Suppose your health plan covers lab tests in full if you go to an in-network lab, but only pays 60% of allowed charges if you go out of network. You forget to check and go get your blood test at a lab out of network. The lab bills you $100. Your health insurance allows only $20 charge for that test. How much do you have to pay out of pocket?

$88 The lab bills you the difference between the lab fees but they only cover $12 of that $20 so you owe $8 more.

Models of information asymmetry predict ______.

1. market collapse 2. bulk markups 3. positive correlation between risk and coverage

Which of the following statements about fair insurance contracts is (are) TRUE?

1. A fair insurance contract is defined by the equation r = pq. 2. The purchase of a fair insurance contract has no effect on the individual's expected income E[I]. 3. The price of a fair insurance (i.e., the premium r) is equal to the expected payout. THIS IS CONSIDERED A FAIR BET

Which of the following statements about partial insurance contracts is (are) TRUE?

1. A partial insurance contract is defined by the equation q < IH - IS. 2. Under a partial insurance contract, final income is state dependent. 3. A partial insurance contract reduces (but does not eliminate) the financial uncertainty faced by the individual.

Which of the following statements about the marginal efficiency of health capital (MEC) curve is (are) TRUE.

1. An examination of the MEC curve shows that the total increase in lifetime utility, which is the "return" or benefit of an investment to increase health, depends on the individual's starting level of health H. The marginal lifetime returns to health are high at low levels of health and low at high levels of health because of the diminishing marginal returns to health. 2. In order to guarantee the same rate of return as the market investment opportunity, health must pay a return of at least the market interest rate (r) plus the rate of depreciation of health due to aging (). 3. The MEC curve highlights the role that health plays as an investment good in the Grossman model

Which of the following statements about differentiated product oligopoly is (are) TRUE?

1. Differentiated product oligopoly is a model of competition in which there are few firms as a result of barriers that restrict entry and in which the products supplied by firms are not perfect substitutes for each other 2. Under a differentiated product oligopoly, firms wield some market power. 3. Differentiated product oligopoly markets fall somewhere between perfectly competitive markets and monopolies. 4. Economists model the hospital market as a differentiated product oligopoly. Response Feedback:

Which of the following statements about the illness avoidance function is (are) TRUE?

1. In the Grossman model, there are diminishing marginal returns to productive time from health. An examination of the illness avoidance function shows TS falls as health improves, but the effect of better health on TS also shrinks as health improves. 2. A careful examination of the illness avoidance function shows that there is a point on the x-axis () such that the individual is sick for the entire period (), with no time left to work, play, or even seek medical care. 3. The downward slope of the illness avoidance function reflects a key feature of the Grossman model: health is an input to the production of productive time (as health H improves, TS falls and the individual has more productive time TP available). 4. The illness avoidance function illustrates the relationship between health levels H and the marginal efficiency of health capital

Based on the production possibilities frontier (PPF) and indifference curve map below, which of the following statements is (are) true?

1. The individual prefers POINT D to POINT C because POINT D will fall on a higher indifference curve. 2. The individual's optimal consumption bundle includes a higher level of H than POINT C but a lower level of health H than POINT D. (Higher indifference curves (further from the origin) represent higher levels of consumer satisfaction (aka utility). We can identify the individual's optimal consumption bundle (H, Z) by finding the point where the PPF is tangent to (just touching, but not intersecting) one of his indifference curves.)

Researchers studying real world insurance markets have reported ______.

1. evidence of a positive risk-coverage correlation 2. no evidence of a positive risk-coverage correlation 3. evidence of a negative risk-coverage correlation

Several reasons have been outlined for why adverse selection is not omnipresent (i.e. a serious problem in all markets for health insurance), including _____.

1. insurance customers misperceive their own risk 2. customers do not act on their private information 3. insurers can accurately observe consumers' risk 4. Less risky people are more risk-averse, wealthier, or better able to understand the benefits of insurance

Ex ante moral hazard refers to ______.

1. risks that people with health insurance take with their health that similar uninsured people do not 2. behavior changes that occur before an insured event happens and make that event (i.e. you ending up in the clinic or hospital) more likely

In YEAR 0, the price of health care ph = $1.50, while the price of other goods pc = $1.50. At these prices, you demand 30 units of health care and 35 units of other goods. In YEAR 1, health care becomes cheaper at ph = $1, while other goods become more expensive at pc = $2. Calculate the Laspeyres price index, that is the amount of money you need to buy the YEAR 0 bundle in YEAR 1, divided by the money you paid for it in YEAR 0.

1.025

Based on the production possibilities frontier (PPF) and indifference curves below, Rob's optimal combination of goods is ______.

15 birds and 17 crabs! The optimal combination of birds and crabs is identified at the point where Rob's PPF is tangent to (touching but not intersection) one of his indifference curves.

Assume an individual faces probability of illness p = 0.7. Using the income-utility diagram below, calculate the individuals expected utility under no insurance.

486.6 To calculate the expected utility E[U(I)], we use the equation: E[U(I)] = p U(IS) + (1-p) U(IH)

You have just graduated from college and must now decide on your future career. Two career options, along with your salary in each of three earning periods, are presented in the table below. Calculate the net present value (NPV) of your lifetime earnings as a ski instructor. Assume your discount factor is 0.6

7.84 To calculate the net present value of lifetime earnings (when there are three earnings periods), we use the formula: NPV= (period 0) + (discount value x period 1) + (discount value squared x period 2)

______ refers to the process of choosing an optimal treatment among all potentially cost-effective ones given a certain monetary value for each unit of health effect.

Cost-Benefit Analysis (CBA)

Assume that the demand for MRI scans is less elastic than the demand for Band-Aids. If (in the market graph below) the demand for MRI scans is represented by demand curve D2, the demand for Band-Aids is best represented by ______.

Demand Curve 1 (Because demand for MRI scans is less elastic than the demand for Band-Aids, we expect the demand curve for MRI scans (D2) to be more vertical than the demand curve for Band-Aids. Therefore, the demand for Band-Aids is best represented by demand curve D1.)

Medical experts are ideal candidates for providing estimates of the quality weights associated with various health states.

FALSE While using medical experts to provide such estimates is appealing because the experts have taken care of many patients with the given disorder and observed their quality of life, this method is prone to weigh the concerns of doctors over the concerns of patients.

Which of the following statements about the production possibilities frontier in the Grossman model is (are) TRUE?

In the Grossman model, consumption points with high Z and low H are not attainable and should not be included on the frontier (PPF on the right).

An individual faces healthy-state income IH, sick-state income IS, and a known probability of illness p = 1.0. Given this information, what is the individual's expected income E[I] this year?

Income is CERTAIN: E(I)=Is (In this example, the individual knows with certainty that she will be ill (p = 1.0) and receive sick-state income IS. Thus, income is CERTAIN: E[I] = IS)

Is a health insurance premium something you must pay every month, regardless of whether you use health care services, or do you only have to pay your premium during months when you use your health care services?

Must pay every month, regardless of whether you use services.

Which of the following statements about prospective payments is (are) FALSE?

NONE of them are false! 1. In a prospective payment system, charges are NOT based on how much care is received. Payments to doctors or hospitals depend only on the condition of the patient. 2. Prospective payment schemes create incentives for physician-induced demand. 3. Prospective payment schemes are embraced as an effective way to reduce moral hazard. 4. A prospective payment system may turn doctor-patient relationships adversarial.

Which of the following statements about price rationing is (are) FALSE?

NONE of them are false! 1. Price rationing can answer two fundamental questions that every economy faces: "How much health care should be produced?" and "Who should get it?" 2. Price rationing helps markets allocate resources efficiently; scarce resources will go to those individuals willing and able to pay the most for them. 3. Price rationing can deprive low-income people of valuable care 4. Price rationing can reduce the amount of wasteful medical procedures by dissuading low-benefit patients from waiting in the queue

The ______ model best describes hospital-physician relationships in most hospitals in the United States.

Physician's Workbench (First described by Harris (1977), the "physician's workbench" model in which hospitals provide a place for physicians to do their work but do not directly employ them describes most American hospitals reasonably well)

An individual faces healthy-state income IH, sick-state income IS and probability p = 0.75 of falling ill. On the income-utility diagram below, the individual's expected utility E[U(I)] is marked by ______ on the y-axis.

Point C To locate E[U(I)]0.75 on the income-utility diagram, you should trace a straight line from the individual's expected income E[I]0.75 upward until you reach the straight, dashed line connecting U(IS) and U(IH). This value corresponds to Point C on the y-axis.

Each theory to explain socioeconomic health disparities outlined in Chapter 4 of the BHATTACHARYA textbook has supporting (empirical) evidence.

TRUE

What is the best definition of a health insurance premium?

The amount health insurance companies charge each month for coverage.

The market for lemonade is initially in equilibrium. Temperatures soar during the month of July. At the same time, Harris Teeter runs a promotion on lemons, lowering the price from $1.79 to $0.99/lb. How will the changing market conditions affect the EQUILIBRIUM PRICE of lemonade?

The change in equilibrium price is ambiguous (we don't have enough information to be certain)

Which of the following best describes a "health plan provider network?"

The hospitals and doctors that contract with your health plan to provide services for an agreed-upon rate or fee schedule.

Which of the following best describes "the annual out-of-pocket limit" under and health insurance policy?

The most you will have to pay in deductibles, copays, and coinsurance for covered care received in network for the year.

Calculate the ICER for Drug C over Drug A.

Total cost of drug C - Total cost of drug A / Life expectancy of drug C - life expectancy of drug A

Based on the CEF and indifference curves (below), ______ is the most cost-effective treatment.

Treatment C I0 is tangent to CEF at Point C

Private insurance mandates reduce the problem of ______ at the cost of ______.

adverse selection; choice (personal liberty) Private insurance mandates reduce the problem of adverse selection at the cost of choice (personal liberty).

A peanut shortage causes the price of peanuts - along with the price of peanut butter - to increase by 40%. As a result, we expect demand for jelly to ______ .

decrease aka the demand curve will shift INWARD (this is because they are complement goods, so their demand patterns normally follow eachother)

Monitoring programs limit moral hazard by ______.

confronting information asymmetry

A negative externality occurs when a_________ spills over.

cost (positive externality is when a benefit spills over)

When markets are functioning well, then all the _______ of a transaction for a good or service are absorbed by the _________.

costs and benefits ; buyers and sellers

According to the ______, health disparities exist because the rich have more resources available to invest in health.

direct income hypothesis (The direct income hypothesis says rich people have more resources to invest in health and/or other goods. Therefore, we expect a disparity across people with different levels of income or wealth.)

The Grossman model predicts that an individual with a higher ______ will optimally choose a higher level of health.

discount factor δ (The Fuchs Hypothesis, argues that the relationship between health and SES exists because people willing to delay gratification (patient, long-term thinkers) invest more in both their education AND their health status.)

Imagine two individuals are identical in every way EXCEPT for the fact that Individual A is much better at producing health than Individual B. According to the ______, we expect Individual A to have ______ compared to Individual B.

efficient producer hypothesis; an expanded PPF and higher optimal level of health H*

In the presence of ______, the market equilibrium (without intervention) will fail to reach an efficient outcome.

either a positive externality or a negative externality

IN THE FIGURE BELOW, 1 QALY is valued at $100,000. If, instead, the value of each quality-adjusted life year was valued at $850,000, the slope of the indifference curves would be ______ and the most cost-effective treatment would be ______.

flatter; treatment H

The Beveridge model has three defining features: ______.

free care, universal single-payer insurance and public health care provision

Summers in Columbia are (famously?) HOT. During a heat wave, we expect that the demand for lemonade will ______.

increase aka the demand curve will shift OUTWARD

If rapidly increasing medical care expenditures can be explained by ______, then this trend does in fact harm health care consumers.

increase in p

A(n) ______ shows combinations of the two goods that give the individual the same utility.

indifference curve

We expect the demand for preventive care (like the flu vaccine) to be ______ than the demand for emergency room care.

more elastic (more price sensitive) (Preventive care refers to care taken to prevent future diseases rather than to treat current ones. Preventive care is rarely urgent. In addition, the benefits of preventive care can be difficult to measure: if you had the flu vaccine this year but did not catch the flu, it is impossible to tell if it was the shot or assiduous hand washing that spared you.)

When demand for a good is ______, insurance coverage will result in more social loss.

more price sensitive (i.e. when the demand curve appears more horizontal)

In a 2010 article published in Health Affairs, Lawrence Baker reports that after orthopedists and neurologists acquired their own imaging equipment (and could start billing for MRI scans), they ordered substantially more MRI procedures. These findings provide empirical evidence of ______ in health care markets.

physician-induced demand (practice patterns (use of diagnostic MRI imaging technology) changed with physicians' financial incentives.)

The RAND HIE provides empirical evidence of adverse selection in health insurance because ______.

researchers 1- found that families with the highest anticipated health expenditures were significantly more likely to state that they would choose to purchase the supplementary insurance AND 2- were not able to predict HIE participants anticipated expenditures using observable demographic and economic characteristics

By placing a monetary value on each QALY, we implicitly create a(n) ______.

set of indifference curves

Government can play a role in reducing negative externalities by ______ goods when their production generates spillover costs.

taxing

Economists have long noticed a positive correlation between the number of procedure performed (volume) and patient outcomes, i.e. the volume-outcome relationship.

that the strength of the volume-outcome relationship in hospitals varies dramatically across different procedure types

Peanut butter and Jelly are typically consumed ______ and as such are though of as ______ goods.

together; complement

Based on Robinson Crusoe's PPF (below), the combination of goods (30 birds, 80 crabs) is ______.

unattainable (because this combination of crabs and birds lays beyond the frontier)

According to the Coase theorem, resources will be used efficient to maximize social welfare, even in the face of externalities, provided ______.

well defined property rights and low transaction costs