Econ 5.3

Ace your homework & exams now with Quizwiz!

The situation described here​ (of healthy people not subsidizing sick people through the purchase of​ insurance) is a problem for a system of health insurance since it

1) Accentuates the adverse selection problem for insures 2) may impose big losses on insurers 3) make insurance premiums excessively high

Given the following​ statement: ​"Providing health care is obviously a public good. If one person becomes ill and​ doesn't receive​ treatment, that person may infect many other people. If many people become​ ill, then the output of the economy will be negatively affected.​ Therefore, providing health care is a public good that should be supplied by the​ government." Health​ care, as a​ good, is best described​ by:

1) Health care should be supplied by the govt because it generates positive externalities & 2) health care should not be supplied by the government because the private market preserves incentives to improve health care with innovation and medical technology.

An Externality

1) interferes with the economic efficiency of a market equilibrium 2) refers to a benefit or cost of an economic activity that affects someone who is not directly associated with it 3) may require government intervention (ANSWER: ALL of the ABOVE)

Health insurance companies deal with asymmetric information problems by

1) requiring applicants to submit medical records 2) requiring policy holders to pay a deductible 3) limiting the coverage of pre-existing conditions. (Answer:All of the Above)

An article in the Economist magazine argues that the real problem with health insurance is as​ follows: The healthy people who decide not to buy insurance out of rational​ self-interest, and who turn out to be right. By not buying​ insurance, those​ (largely young) healthy people will be failing to subsidize the people insurance is meant​ for: the ones who end up getting sick. ​Source: "To Boldly Go Where He Had Already Been​ Before," Economist​, May​ 13, 2011. Why is it rational for healthy people not to buy health​ insurance?

1) they anticipate having small or negligible medical bills 2) they receive little risk of becoming sick 3)they anticipate little benefit from purchasing health insurance (ANSWER: All of the ABOVE)

While teaching the concepts of asymmetric​ information, a professor asked his students for examples of adverse selection or moral hazard in marriage. Which of the following examples most accurately describes adverse selection and moral hazard in​ marriage?

Adverse selection because the​ husband's secret alcoholism comes out after the wedding. Moral hazard because a spouse lets their appearance go after marriage.

Briefly explain whether you agree with the following​ statement: ​"The reluctance of healthy young adults to buy medical insurance creates a moral hazard problem for insurance​companies."

Disagree. Moral hazard becomes a problem after one purchases insurance. In this​ case, the reluctance of​young, healthy adults to purchase insurance in the first place leads to an adverse selection problem.

Which of the following refers to the​ principal-agent problem in the market for health​ care?

Doctors pursuing their own interest rather than the interests of their patients

Under the Social Security retirement​ system, the federal government collects a tax on most​ people's wage income and makes payments to retired workers above a certain age who are covered by the system.​ (The age to receive full Social Security retirement benefits varies with the year the worker was​ born.) What attributes of the Social Security retirement system make it a program of social​ insurance?

It provides a means of spreading the risk of bad outcomes & it is a transfer program

Do you agree that health insurance is meant for people who end up getting​ sick?

No. While it obviously directly benefits those who do become​ sick, it indirectly benefits all since everyone faces some risk of sickness. There is a​ "psychic" benefit to knowing that one is​ "covered" if sickness should befall them.

Which of the following are examples of activities that generate externalities in the market for health​ care?

People receiving vaccinations against infectious disease & Individuals engaging in injurious or reckless lifestyle choices

Match the terms below on the left with the definitions to their right. Do this by inserting into each​ term's response box the number associated with its correct definition.

Principal-agent problem:Results from agents pursuing their own interests rather than the interests of the principals who hired them. Adverse selection: Is the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. Asymmetric information: Occurs when one party to an economic transaction has less information than the other party. Moral hazard: Refers to actions people take after they have entered into a transaction that make the other party to the transaction worse off.

Suppose you see a 2017 Honda Civic hatchback advertised in the campus newspaper for ​$9,000. If you knew the car was​ reliable, you would be willing to pay ​$11,500 for it. If you knew the car was​ unreliable, you would be willing to pay ​$6,500 for it. You should buy the car if which of the following circumstances is​ true?

There is a 50-50 chance that it is a lemon

The marginal social benefit from vaccinations is greater than the marginal private benefit to people being vaccinated.

True

An article in the New York Times​ observed, "American doctors often rail against the​ country's medical malpractice​system, which they say forces them to order unnecessary tests and procedures to protect themselves if a patient sues​them." ​Source: Margot​ Sanger-Katz, "A Fear of Lawsuits Really Does Seem to Result in Extra Medical​ Tests," New York Times​, July​ 23, 2018. Is there another economic explanation—apart from fear of lawsuits—for why doctors may end up ordering unnecessary tests and other medical​ procedures

Yes, since doctor themselves largely conduct the tests and preform the procedures, they benefit by enhancing the revenue of their practices

An article in the Wall Street Journal refers to​ "the basic principle of insurance—pooling risk in order to minimize liability from unforeseen​ dangers." ​Source: Amanda​ Foreman, "Insuring against​ Disaster," Wall Street Journal​, February​ 20, 2019. The problem of_____ moral hazardadverse selectionperfect information is that it undermines the ability of insurance to provide the benefit of sharing risk.

adverse selection

Which of the following terms refers to the situation in which one party to an economic transaction takes advantage of knowing more than the other party to the​ transaction?

adverse selection

The​ "lemons problem" refers to the observation that the presence of asymmetric information in the used car market leads to the problem of _________ causing the cars offered for sale to be predominantly ______ in quality.

adverse selection, poor

In the market for health​ insurance, asymmetric information problems arise because...

buyers of health insurance policies always know more about the state of their health than do the insurance companies.

Hospitals and doctors sometimes perform tests that may not be of any value to patients because

health care providers are paid for each service they render.

Which of the following is an example of a way in which health insurance companies have dealt with the problem of adverse​ selection?

limiting insurance coverage on​ pre-existing conditions

Which of the following terms refers to the problem in which one person with no deductible on his or her health insurance policy tends to engage in a less healthy lifestyle than another person with a high insurance​ deductible?

moral hazard

Because public goods must be both ______ and _____ health care _______ qualify as a public good under the usual definition.

nontrivial, non excludable, does not

Which of the following terms refers to what occurs when a person gets a vaccination against a disease and that action reduces the chances that other people will contract that​ disease?

positive externality

In an opinion column in the Washington Post​, Daniel Morgan of the University of​ Maryland's School of Medicine described the result of a study he carried out with​ colleagues: "We found that nearly 90 percent of the patients received at least one unnecessary​ [medical] test and​ that, overall, nearly​ one-third of all the tests were​ superfluous." ​Source: Daniel​ Morgan, "What the Tests​ Don't Show," Washington Post​, October​ 5, 2018. Are there features of the U.S. health care system that might be encouraging this​ behavior? The article is referring to the

prevalence of patient health insurance in the United States that results in the​ principal-agent problem.

An article in the Los Angeles Times describes a healthy​ 23-year old woman who has decided not to buy health insurance as​ "exactly the type of person insurance plans that states and the federal government are counting on to make health reform​ work." ​Source: Anna​ Gorman, "Affordable Care​ Act's Challenge: Getting Young Adults​ Enrolled," Los Angeles Times​, June​ 2, 2013. Young healthy people must be forced to participate in health reform because they are needed to

provide a subsidy to older sicker people

n the case of health​ insurance, a lemons problem exists since those more likely to want health insurance are ______ people.

sick


Related study sets

Biology 12 - Circulatory System Review

View Set

TestOut Ethical Hacker Pro Final Review (Labs)

View Set

8th Grade Science - Astronomy 1-2

View Set

Ch.10 - Virtualization, Cloud Computing, and Printers

View Set