Health Econ 530 Final

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? a. Advances in medical technology b. Availability of health insurance to pay the bills c. Urbanization d. An aging population and the increased incidence of chronic illness that followed e. Development of the germ theory of disease

d. An aging population and the increased incidence of chronic illness that followed

Which of the following statements is true of direct to consumer advertising (DTCA)? a. There is a positive correlation between a drug's price and the amount of DTCA practiced. b. DTCA increases pharmaceutical profits but does little to improve consumer welfare. c. The majority of pharmaceutical spending on advertising is focused on the patient. d. DTCA attracts more patients to consider using the product who might not have known about the drug. e. Pharmaceutical advertising does little to educate patients. Its sole purpose is to promote product use.

d. DTCA attracts more patients to consider using the product who might not have known about the drug.

Amendments in the mid-1960s to the Social Security Act created: a. major medical insurance. b. managed care. c. tax exemptions for health insurance as an employee benefit. d. Medicare and Medicaid. e. Blue Cross and Blue Shield.

d. Medicare and Medicaid

Which of the following would increase the supply of physicians? a. Making it easier for plaintiffs to prove medical malpractice claims b. Increasing the medical school entrance requirements to include 15 hours of economics c. Increasing the cost of attending medical school d. More scholarships and grants to cover medical school tuition e. Reducing the number of residency programs in some specialties in order to increase the number of family practice residencies

d. More scholarships and grants to cover medical school tuition

Which of the following statements is true about cost shifting in hospitals? a. The positive correlation coefficient between cost-to-payment ratios for various payers indicates that cost shifting is taking place. b. Classic Ramsey pricing can be interpreted in different ways, leading researchers into arguing that if it looks like cost shifting, it probably is cost shifting. c. Regardless of payer mix, hospitals are taking full advantage of their bargaining power with payers who are able to cost shift. d. The ability to cost shift depends on a hospital's payer mix. e. Capacity-constrained medical providers are not able to cost shift.

d. The ability to cost shift depends on a hospital's payer mix.

Starting salaries for female OB/GYNs are higher than those of male OB/GYNs. What is the best explanation for this? a. Female OB/GYNs have more human capital than male OB/GYNs. b. Female OB/GYNs are smarter than male OB/GYNs. c. More males are in OB/GYN residency programs than females. d. The demand for female OB/GYNs is greater than the demand for male OB/GYNs. e. The demand for female OB/GYNs is less than the demand for male OB/GYNs.

d. The demand for female OB/GYNs is greater than the demand for male OB/GYNs.

A health maintenance organization where the physicians are salaried employees of the HMO is called: a. an IPA. b. a network-model HMO. c. a direct-contract HMO. d. a staff-model HMO. e. a group-model HMO

d. a staff model HMO

Long-term trends for private employer-sponsored insurance indicate that: a. enrollment in the staff-model HMO is becoming more popular. b. there is a resurgence in the popularity of traditional indemnity insurance coverage. c. the continued popularity of the preferred provider organization is reflected by the fact that it is still the fastest growing form of insurance. d. almost one-third of private sector employees covered by group plans are enrolled in some form of high-deductible health plan. e. the high-deductible health plan (HDHP) is now the most popular form of insurance for private sector employees covered by group plans.

d. almost one-third of private sector employees covered by group plans are enrolled in some form of high-deductible health plan.

Capitated payments: a. shift financial risk onto patients. b. are the maximum allowable fees in a fee-for-service system. c. are charges that providers include in bills sent to insurance companies. d. create incentives to provide fewer services. e. pay for all medically necessary care.

d. create incentives to provide fewer services

Horizontal integration allows firms to do all of the following except: a. reduce administrative costs. b. create brand identity. c. take advantage of cost savings due to economies of scale. d. fully integrate with primary care clinics and acute care nursing facilities

d. fully integrate with primary care clinics and acute care nursing facilities

The rate of return on an investment in medical education: a. will increase with an increase in the availability of student loans. b. is inversely related to the number of years in the profession. c. is much higher than the rate of return on an undergraduate business degree. d. is inversely related to the length of time spent in formal schooling. e. is inversely related to income.

d. is inversely related to the length of time spent in formal schooling.

The health savings account (HSA): a. is also called a health reimbursement arrangement (HRA). b. is funded with after-tax dollars. c. allows its owner to ignore high medical care prices. d. is often used in conjunction with a high-deductible health plan (HDHP). e. can be used to cover non-medical spending without penalty.

d. is often used in conjunction with a high-deductible health plan (HDHP).

By the time a drug enters the clinical trial phase of testing on humans,: a. safety and effectiveness are no longer major concerns. b. its approval is virtually assured. c. the only step left in the process is testing to see if the drug accomplishes its intended purpose. d. on average, five years of the overall patent life have already expired. e. most of the investment in research and development has already been made

d. on average, five years of the overall patent life have already expired.

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? a. The physician balances their usual fee equally between Medicare and the patient. b. The patient must pay the entire bill without the assistance of Part B insurance. c. The physician has a guarantee that the patient will pay the balance of the bill left after Medicare pays its approved fee. d. 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)

d. 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)

What percentage of the new drugs introduced in the United States between 1940 and 1990 were discovered by U.S. firms? a. 60 b. 30 c. 15 d. 75 e. 45

a. 60

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)? a. Markets must be segmentable, identifying differences in ability-to-pay. b. Demand for services must be relatively price elastic. c. Profitable service expansion opportunities must be limited. d. Customers cannot know that different prices are being charged. e. The provider must have excess capacity to accommodate the extra business.

a. Markets must be segmentable, identifying differences in ability-to-pay.

Changes caused by the shift from charge-based rates to negotiated rates has had the following results. a. 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. b. Chargemaster rates serve as a powerful guide for optimal resource allocation in the industry. c. A growing percentage of patients with insurance are paying billed rates. d. The change has increased the importance of Ramsey pricing principles in setting rates.

a. 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.

Using the physician-control model to explain hospital behavior leads to which of the following conclusions? a. Other medical inputs tend to be overused to maximize physicians' productivity. b. The use of operating rooms will be maximized with little excess capacity. c. Physicians will strive to utilize the nursing staff efficiently. d. All investment decisions will be based on optimal resource use.

a. Other medical inputs tend to be overused to maximize physicians' productivity.

Suppose the number of medical school graduates continues to increase over the next decade. Which of the following is true? a. Physicians' salaries will rise if the demand for medical services rises more than the supply of physicians rises. b. Physicians' salaries will fall only if the demand for medical services falls. c. Physicians' salaries must rise. d. Physicians' salaries will fall if the demand for medical services rises more than the supply of physicians rises. e. Physicians' salaries must fall.

a. Physicians' salaries will rise if the demand for medical services rises more than the supply of physicians rises.

Surgical specialists earn more than general/family practice physicians do.Which of the following statements is not true regarding this income differential? a. Surgeons will always earn more than general practitioners because they are smarter than general practitioners. b. Surgeons earn more than general practitioners because cutting into people is risky. c. Surgeons earn more because their practice costs, including medical malpractice insurance, are higher. d. Surgeons earn more to compensate them for the extra years spent as residents. e. Physicians' incomes are determined largely by supply and demand conditions with respect to each specialty.

a. Surgeons will always earn more than general practitioners because they are smarter than general practitioners.

The observed variations in practice patterns in different regions of the country is the result of all of the following except one. a. Patients often prefer a number of different options to treat the same illness and physicians are willing to accommodate these differences. b. The observed variations are due to scientific uncertainty associated with diagnosis and treatment. c. There are many alternative treatment options available for most ailments. d. Practice variations are due to differences in demographics and disease incidence across regions. e. Medical training varies across the country depending on where the physician was trained, and most physicians' practices tend to be in the same regions.

d. Practice variations are due to differences in demographics and disease incidence across regions.

Many individuals without health insurance receive "free" care. What are the sources of most of the care they receive? a. Private, for-profit hospitals b. Multi-specialty physicians' practices c. Private, not-for-profit hospitals d. Public hospitals and clinics e. Solo practitioners and their associates

d. Public hospitals and clinics

Pharmaceutical development provides a good example of rent-seeking behavior, the pursuit of which results in _______. a. lower economic activity by diverting resource to less-productive uses b. lower prices throughout the economy c. increased economic activity by promoting efficiency d. a more equitable distribution of income and wealth e. greater income and wealth in the private se

a. lower economic activity by diverting resource to less-productive uses

Pharmaceutical development provides a good example of rent-seeking behavior, the pursuit of which results in _______. a. lower economic activity by diverting resource to less-productive uses b. lower prices throughout the economy c. increased economic activity by promoting efficiency d. a more equitable distribution of income and wealth e. greater income and wealth in the private sector

a. lower economic activity by diverting resource to less-productive uses

Medicare and Medicaid were enacted by the Johnson administration in 1965 as amendments to which federal law already in existence? a. Social Security Act b. Welfare Act of 1960 c. Managed Care Act d. Employee Retirement and Income Security Act e. Equal Rights Act

a. social security act

The Medicare pay-as-you-go system is jeopardized by: a. the changing demographics of the U.S. population with an increasing percentage over the age of 65. b. an overly generous fee schedule that pays physicians more than private insurance for most procedures. c. the rising costs of long-term care. d. allowing physicians to balance bill their patients. e. a reliance on the premiums paid by the elderly themselves to fund a majority of the total cost of the system.

a. the changing demographics of the U.S. population with an increasing percentage over the age of 65.

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: a. the provider's payer mix. b. the size of the hospital. c. whether the hospital is organized as for profit or not-for-profit. d. whether the patient has Medigap insurance. e. the patient's income.

a. the provider's payer mix.

Data from a study of retail drug prices by the OECD and Eurostat (2008) showed that: a. there is some evidence that pharmaceutical prices are highly correlated with a country's per capita GDP. b. high-income countries can keep their drug prices below the OECD average by relying on strict price controls. c. the U.S. had the highest retail drug prices among the 30 countries studied. d. U.S. drug prices are double the OECD average.

a. there is some evidence that pharmaceutical prices are highly correlated with a country's per capita GDP

One of the primary reasons that costly technology is being introduced into the health care system is: a. third-party insurance finances most of the cost of care. b. high cost is synonymous with better outcomes. c. better access to technology, especially diagnostic imaging, results in lower spending. d. research scientists have successfully mapped the human genome.

a. third-party insurance finances most of the cost of care

Type II error is: a. when a beneficial drug is blocked from entering a market. b. easy to detect and seldom happens. c. the statistical notion of rejecting a true hypothesis. d. when a harmful drug is allowed into the market.

a. when a beneficial drug is blocked from entering a market.

The tax fully dedicated to provide support for Medicare Part A is: a. a tax on the health insurance premiums paid for all group plans. b. a 2.9 percent payroll tax paid by all workers, regardless of their age. c. the federal income tax. d. levied on the Medicare Trust Fund. e. the mandate tax paid by individuals who do not purchase health insurance.

b. a 2.9 percent payroll tax paid by all workers, regardless of their age.

Moral hazard and adverse selection are both examples of: a. the principal-agent problem. b. asymmetric information. c. externalities in consumption. d. perfect information. e. efficiency in markets.

b. asymmetric information.

Managed care plans often use _______ to shift financial risk back onto providers. a. practice guidelines b. capitation c. open panels d. formularies e. closed panels

b. capitation

One of the major advantages of the health savings account is that: a. there is virtually no limit to how much money you can save each year. b. it provides individuals with more control over their own health care spending. c. it eliminates concern over high and rising premiums. d. there are few limitations on what the money can be used to purchase. e. it provides peace of mind so patients can be indifferent to the prices they pay.

b. it provides individuals with more control over their own health care spending.

Pharmaceutical companies receive patents as an exclusive right to produce a drug. This results in: a. orphan drug status. b. monopoly rights in the production of the drug. c. normal profits on the patented drug. d. fewer new chemical compounds discovered. e. lower prices for patients requiring the drug.

b. monopoly rights in the production of the drug.

The dominant factor affecting medical care delivery and finance in the 1980s was: a. creation of Medicare and Medicaid. b. prospective payment for hospitals. c. the explosive growth of managed care. d. the Hill-Burton Act. e. ERISA.

b. prospective payment for hospitals.

Managed care: a. is becoming less widespread in medical care delivery. b. provides a mechanism that shifts a portion of the financial risk onto patients and providers. c. recognizes and maintains separate responsibilities for the payer and the provider of medical services. d. provides retrospective payment determined by the amount of services provided to a patient. e. focuses cost-containment strategies on the provider side of the market.

b. provides a mechanism that shifts a portion of the financial risk onto patients and providers.

Legislation considered by Congress to restrict legal immigration would: a. have little effect on medical markets since so few physicians practicing medicine in the U.S. are foreigners. b. raise the costs of operating in many of the nation's rural and inner-city hospitals. c. allow more Americans trained abroad to compete for openings in U.S. residency programs. d. surprise many policy makers because Congress finds it difficult to agree on much of anything regarding immigration. e. improve employment prospects for native-born Americans.

b. raise the costs of operating in many of the nation's rural and inner-city hospitals.

Most empirical studies show that the cost savings provided by managed care are accomplished by: a. better preventive care. b. reducing the rate of hospitalization. c. denying access to costly specialty care. d. switching to generic drugs

b. reducing the rate of hospitalization.

The goal of health insurance is to: a. equally distribute the probability of loss over a large number of people. b. spread risk over a large group of people. c. redistribute income from the sick to the healthy. d. collect sufficient premiums to cover all possible losses. e. equalize the availability of medical care across population groups.

b. spread risk over a large group of people.

The following list of characteristics are true of the pharmaceutical industry, except one. a. Low variable cost b. Virtually guaranteed profits when the product is introduced c. High fixed cost d. Exclusive rights to market and sell patented products e. Segmentable markets

b. virtually guaranteed profits when the product is introduced

Type I error is: a. the statistical notion of accepting a false hypothesis. b. when a harmful drug is allowed into the market. c. difficult to detect and virtually ignored by the FDA. d. when a beneficial drug is blocked from entering a market.

b. 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: a. will result in a new equilibrium at P2 and Q2. b. will cause overall spending on physicians' services to increase. c. will force physicians to limit the number of patients they see. d. will increase demand for physicians' services, but not spending. e. will result in a decrease in the price of physicians' services.

b. will cause overall spending on physicians' services to increase.

In 2010, _____ percent of the U.S. population was over the age of 65. By the year 2030, projections place that percentage at _____. a. 15; 25 b. 18; 30 c. 13; 20 d. 8; 12 e. 10; 16

c. 13; 20

Which of the following results from patients having better information about their health status than insurers? a. The principle-agent problem b. Rational ignorance c. Adverse selection d. Externalities e. The substitution effect

c. Adverse selection

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? a. Canada's use of price ceilings has become the standard practice across Europe. b. Generic competition is more common in countries with strict price controls. c. Countries with the most stringent price controls do the least research. d. Most developed countries use similar methods to control prices in pharmaceutical markets. e. The U.S. is the only major country that relies strictly on market pricing and refuses to use price controls of any kind.

c. Countries with the most stringent price controls do the least research.

Which of the following statements regarding the quality of managed care is accurate? a. Managed care focuses on the ability to pay. b. Empirical evidence suggests that managed care fails to reduce health care spending. c. Empirical studies show little evidence that managed care quality was lower than that found in fee-for-service plans. d. Most of managed care's savings do not affect hospitalization.

c. Empirical studies show little evidence that managed care quality was lower than that found in fee-for-service plans.

This study was the catalyst for the early 20th century reform of medical education in the United States. What was it? a. Coolidge Commission b. Mangrum Report c. Flexner Report d. Kaiser Foundation Study e. Hill-Burton Committee

c. Flexner Report

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? a. Instead of the current open-ended structure of the program, provide premium support directly to individuals allowing them to purchase the plan of their choice. b. To simplify the benefit structure, roll Parts A, B, and D into one plan with one deductible and uniform coinsurance rates. c. Limit the coverage for end-of-life care, the most expensive single item in Medicare, to include only essential palliative care. d. Place limits on the purchase of complementary Medigap insurance that provides first-dollar coverage to pay deductibles and coinsurance. e. Raise the eligibility age gradually much like the changes that were made to Social Security eligibility.

c. Limit the coverage for end-of-life care, the most expensive single item in Medicare, to include only essential palliative care.

Which of the following statements is true concerning the trend in hospital care between inpatient and outpatient services since the mid-1980s? a. Both have been declining. b. Outpatient services have been growing while inpatient services have been declining. c. Outpatient services have been declining while inpatient services have been growing. d. Both have been growing. e. There has been no noticeable trend in either inpatient or outpatient services.

c. Outpatient services have been declining while inpatient services have been growing.

The expanded use of prospective payment in hospitals has changed the nature of competition in that market. Which of the following statements is true? a. The switch to DRG payments in the 1980s has actually had little effect on competition because so much of hospital spending comes from the federal government. b. Because patients pay such a small percentage of hospital bills, prospective payment has had little effect on hospital operations. c. Savings from prospective payments are substantial and due primarily to fewer hospital admissions and shorter hospital stays. d. After an initial drop in operating margins shortly after the introduction of DRGs, Medicare margins have improved and most hospitals are generating 5-8 percent surpluses on all their Medicare business.

c. Savings from prospective payments are substantial and due primarily to fewer hospital admissions and shorter hospital stays.

To control moral hazard on the providers' side of the market and the increased spending that accompanies it, managed care organizations enter into contracts with providers that include all of the following except: a. risk sharing. b. case management. c. the ability to deny coverage to high-cost users. d. utilization review. e. capitation.

c. the ability to deny coverage to high-cost users

The dominant factor affecting medical care delivery and finance in the 1960s was: a. the passage of ERISA. b. the explosive growth of managed care. c. the creation of Medicare and Medicaid. d. the Hill-Burton Act. e. prospective payment for hospitals.

c. the creation of Medicare and Medicaid.

A major factor contributing to the growth in employee-based health insurance in the United States has been: a. the legislation requiring all firms to provide health insurance to all full-time workers. b. the long-standing tradition in the United States of providing a generous package of benefits to all workers. c. the tax-free treatment of health insurance as an employee benefit. d. greater-than-average economic growth leading to increased demand for labor.

c. the tax-free treatment of health insurance as an employee benefit.

Kaiser-Permanente, the nation's largest health maintenance organization, was founded: a. as a network-model HMO. b. as a group-model HMO. c. to provide access to medical care to Kaiser workers in remote locations where medical services were in short supply. d. to provide cost-effective medical care to Kaiser employees. e. to slow the rate of growth in medical spending for Kaiser employees.

c. to provide access to medical care to Kaiser workers in remote locations where medical services were in short supply.

Which of the following is a true statement about long-term care? a. Over 20 percent of the elderly population currently live in nursing homes. b. There would be fewer residents of nursing homes if more people had long-term care insurance. c. Nursing homes are largely populated by elderly men. d. Almost one-half of all nursing home residents are over age 85. e. The cost of long-term care is funded primarily by private insurance.

d. Almost one-half of all nursing home residents are over age 85.

Danzon and Furukawa (2003) argue that: a. the provision of government-provided free care increases the availability of newly introduced drugs to everyone covered by the government plan. b. generic competition in the U.S. has not done much to lower drug prices or spending. c. price controls in the U.S. would lower drug prices without affecting the overall availability of branded drugs or lowering incentives for future drug development. d. pharmaceutical price differences across countries are roughly in line with differences in per capita GDP, supporting the predictions of Ramsey pricing practices.

d. pharmaceutical price differences across countries are roughly in line with differences in per capita GDP, supporting the predictions of Ramsey pricing practices.

The most important aspect of the change from fee-for-service to capitation is that: a. patients get faster service since physicians don't have to worry about getting paid. b. physicians get their money quicker. c. physicians make less money. d. the most valuable patient is no longer the sickest, but the most healthy.

d. the most valuable patient is no longer the sickest, but the most healthy.

Use the following scenario for the question below. A group of 100 people seeks out an insurance company to underwrite health insurance for its members. The expected medical spending for the group is $150,000. What will the average premium be if the health insurance company estimates the premium adding net loading costs of 15 percent? a. $1,200 b. $2,250 c. $1,500 d. $1,725 e. $1,765

e. $1,765

Check My Work Use the following scenario for the question below. A group of 100 people seeks out an insurance company to underwrite health insurance for its members. The expected medical spending for the group is $150,000. If an additional 10 people, who have expected medical spending of $5,000 per person on average, join the group, the new premium will be approximately: a. $2,300. b. $1,818. c. $5,822. d. $2,090. e. $2,139.

e. $2,139.

A person with AIDS has a guaranteed right to apply for health insurance and receive coverage at the same rate as a healthy person. What is the likely result for the insurance company? a. Rational ignorance b. The principle-agent problem c. The substitution effect d. Externalities e. Adverse selection

e. Adverse selection

A prepaid hospital plan created by Baylor Hospital for a group of Dallas public school teachers in 1929 is considered the forerunner of what was later called: a. Blue Shield. b. the health maintenance organization. c. major medical insurance. d. managed care. e. Blue Cross.

e. Blue Cross

Which type of managed care organization has the strictest cost control features? a. IPA b. Group-model HMO c. PPO d. POS plan e. Closed-panel HMO

e. Closed-panel HMO

The regulatory agency with oversight responsibility for the pharmaceutical industry is(are) the: a. Health Care Financing Administration. b. the National Institutes for Health. c. the Federal Emergency Medical Administration. d. the Centers for Disease Control. e. the Food and Drug Administration.

e. FDA

Which of the following is not true for social insurance? a. It is usually supported by taxes, usually income tax or payroll tax. b. It serves the basis for most redistribution programs. c. It requires mandatory participation to be effective. d. It is the basis of the provision of medical care to the poor, elderly, and other vulnerable population groups in the U.S. e. It is usually experience-rated with premiums based on ability to pay.

e. It is usually experience-rated with premiums based on ability to pay.

Analysts cite figures on the number of uninsured in the U.S. as low as 10 million and as high as 60 million. Which of the following is a true statement? a. Once you lose your health insurance, it is extremely difficult to get reinsured. b. Most of the uninsured have health problems and are not able to get private health insurance. c. The lack of health insurance means that the individual has virtually no access to medical care. d. The uninsured are all free riders. e. Most of the uninsured have some labor-force connection—either they are working or are a dependent of someone who is working.

e. Most of the uninsured have some labor-force connection—either they are working or are a dependent of someone who is working.

Which of the following is not a result of moral hazard? a. Increased medical care spending b. Higher health insurance premiums c. Increased likelihood of visiting a physician d. Deductibles and coinsurance e. Rational ignorance

e. Rational ignorance

What is the most significant cost of attending medical school? a. Tuition and fees b. Room and board c. Pain and suffering d. Books and incidentals e. The income foregone

e. The income foregone

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? a. This behavior is highly unlikely because every country pays its fair share of the cost of research and development. b. Setting drug prices at the marginal cost of production expands the market and guarantees that total drug spending covers all costs, including fixed development costs. c. It assures consumers of the unlimited availability of the drug. d. The described practice is almost impossible because development costs are easily divided among consumers and prices to reflect differences in the relative benefits each receives. e. This practice is a classic example of free riding.

e. This practice is a classic example of free riding.

Premiums based on experience ratings: a. are illegal in most states in the U.S. b. vary depending on the income of the insured. c. are uniform across age groups. d. are only used in property-casualty insurance underwriting. e. are based on the loss experience of the insured group.

e. are based on the loss experience of the insured group.

The amount that Medicare pays a hospital for treating a Medicare patient is determined: a. after medical services are provided. b. before the patient sees a physician. c. at the time of admission to the hospital. d. after the hospital bill is reviewed by Medicare auditors. e. at the point when the diagnosis is made

e. at the point when the diagnosis is made

Insurers try to minimize moral hazard by: a. charging higher premiums to individuals than to groups. b. requiring advance payments of premiums. c. refusing to sell insurance to individuals with chronic illnesses. d. only selling policies to individuals with high ethical standards. e. charging deductibles and coinsurance.

e. charging deductibles and coinsurance.

Medigap policies are designed to offer: a. coverage for Part D out-of-pocket spending. b. catastrophic coverage for costs that exceed traditional Medicare's out-of-pocket maximum. c. long-term care coverage for the elderly. d. coverage for dental and vision care. e. first dollar coverage for out-of-pocket spending on deductibles and coinsurance.

e. first dollar coverage for out-of-pocket spending on deductibles and coinsurance

Early in U.S. history, health insurance was provided to cover: a. the catastrophic cost of medical care including hospitalization and physicians' services. b. routine physicians' services. c. medical costs due to specific diseases such as tuberculosis and alcoholism. d. hospital expenses. e. income loss due to disability or disease

e. income loss due to disability or disease

One of the most serious weaknesses in traditional Medicare is that: a. patients must pay a deductible every time they enter the hospital. b. the definition of an episode of illness is too restrictive. c. Part B is voluntary. d. patients are not able to choose their own physicians. e. it provides poor insurance coverage for unusually long hospital stays.

e. it provides poor insurance coverage for unusually long hospital stays.

Economies of scale exist when: a. long-run average costs increase as output increases. b. long-run average costs are constant. c. short-run average costs increase. d. short-run average costs decline. e. long-run average costs decline as output increases.

e. long-run average costs decline as output increases.

The regulatory agency with oversight responsibility for the pharmaceutical industry is(are) the: a. Health Care Financing Administration. b. the National Institutes for Health. c. the Federal Emergency Medical Administration. d. the Centers for Disease Control. e. the Food and Drug Administration

e. the Food and Drug Administration

Insurance works best in situations where: a. there is a high probability of a large loss. b. the level of probability and the size of the loss are irrelevant. c. there is a high probability of a small loss. d. there is a low probability of a small loss. e. there is a low probability of a large loss.

e. there is a low probability of a large loss.

Which age category has the highest incidence of those without health insurance? a. 45-64 years of age b. 19-34 years of age c. Under 19 years of age d. Over 65 years of age e. 35-44 years of age

a. 45-64 years of age

According to surveys by the Medical Group Management Association, the average family practice physician earned approximately _______ in 2014. a. $220,000 b. $145,000 c. $190,000 d. $130,000 e. $160,000

a. 220,000

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? a. 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. b. The Medicare Hospital Trust fund provides permanent funding for Part A spending. c. Based on historical evidence, hospital productivity is expected to increase substantially in the future, lowering Part A spending substantially. d. Medicare spending has been holding steady at approximately one percent of GDP since 1975 and is expected to remain below 3 percent of GDP over the next decade. e. Fortunately, Medicare's trustees have historically overstated the system's future revenue shortfalls.

a. 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.

Which of the following statements about the distribution of physicians among specialties is true in the United States? a. There are twice as many specialists as there are generalists. b. The majority of physicians specialize in general/family practice. c. The specialty distribution in the U.S. is similar to that of the rest of the world. d. There are twice as many generalists as there are specialists

a. There are twice as many specialists as there are generalists.

What is the motivation behind the cost-control features of managed care? a. To influence the way physicians practice medicine by changing the financial incentive structure of medical care delivery b. To ensure access to specialty care through general practitioner gatekeepers c. To shift the financial risk onto patients d. To create competition by providing patients with a wide range of providers e. To eliminate all the guesswork from diagnoses by establishing practice guidelines

a. To influence the way physicians practice medicine by changing the financial incentive structure of medical care delivery

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. What is the equilibrium wage and level of employment under monopsony? a. W0 and E0 b. W2 and E0 c. W1 and E1 d. W0 and E1

a. W0 and E0

One result of asymmetric information in health insurance markets is: a. adverse selection. b. an optimal number of insurance policies sold. c. externalities in consumption. d. the principal-agent problem. e. a low marginal benefit of additional information for the buyer of insurance.

a. adverse selection

Patents create monopolies, and monopolies have the ability to exercise market power. This ability results in all of the following except the ability to: a. appropriate all surplus value turning it into monopoly profits. b. restrict output below the social optimum. c. charge higher prices. d. gain exclusive rights to a market and sell a product for a specific time period.

a. appropriate all surplus value turning it into monopoly profits.

Input demand is called derived demand because: a. demand for an input is derived from the demand for the product or service it produces. b. demand for the output produced is also derived from consumer demand. c. demand for an input is derived from its availability in the input market. d. input demand actually determines how much output is produced.

a. demand for an input is derived from the demand for the product or service it produces.

The merger of two community hospitals located in the same geographic market is called: a. horizontal integration. b. a real shame since one of the hospitals will likely close. c. a leveraged buyout. d. vertical integration. e. a conglomerate merger.

a. horizontal integration.

The primary reason for an aging population is: a. increased life expectancies and lower fertility rates. b. a decreased need for elders to enter nursing homes. c. advances in pharmaceutical innovation. d. improvements in the treatment of chronic illness. e. the expansion of insurance coverage because of Medicare.

a. increased life expectancies and lower fertility rates.

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? a. There is evidence of a significant reduction in mortality from specific causes (e.g., cardiovascular disease) and the mortality rates of certain vulnerable population groups (e.g., non-whites). b. The introduction of Medicare in 1965 played an essential role in the decline in mortality rates for the elderly over the following decade. c. 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). d. The long-run benefits of Medicare may be due to encouraging the use of preventive care to control chronic illnesses.

c. 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).

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. If the market were perfectly competitive instead of dominated by a monopsonist, what would the equilibrium wage and level of employment be? a. W2 and E0 b. W0 and E2 c. W1 and E1 d. W0 and E1 e. W0 and E0

c. W1 and E1

A health maintenance organization that contracts with individual physicians or group practices to provide care for a specified group of enrollees is called: a. a network-model HMO. b. a group-model HMO. c. an IPA. d. a staff-model HMO. e. a direct-contract HMO.

c. an IPA

Medicare Advantage (Part C) plans: a. are much like traditional Medicare and do not offer maximum out-of-pocket limits. b. do not receive any federal support because private insurance companies sell them. c. are offered by private insurance companies and provide hospital, physician, outpatient, and prescription drug coverage for a single premium. d. are not very popular among seniors because they often require additional premiums. e. never include dental, vision, and hearing coverage as part of their covered services.

c. are offered by private insurance companies and provide hospital, physician, outpatient, and prescription drug coverage for a single premium.

People buy insurance: a. to defer consumption. b. to insure against poor health. c. because they are risk averse. d. to maximize their welfare. e. because of externalities.

c. because they are risk averse

The only disease-specific group eligible for Medicare are those suffering from: a. metastasized cancer. b. diabetes. c. end-stage renal disease. d. advanced coronary artery disease. e. AIDS.

c. end-stage renal disease.

All of the following are true for indemnity insurance except that: a. it provides reimbursement for financial losses, including fire and life. b. premiums are based on separate risk pools often organized by employers. c. it serves as the basis for all health insurance coverage in most developed countries, including the U.S. d. it frequently includes coverage for losses due to casualty and theft. e. it is often experience-rated with premiums based on expected losses.

c. it serves as the basis for all health insurance coverage in most developed countries, including the U.S.

Consolidation activity in the hospital industry: a. has slowed due to federal government legislation. b. has occurred almost exclusively at the local level. c. occurs for the same reasons that cause consolidation in other industries. d. has created a large number of nationwide for-profit hospital chains.

c. occurs for the same reasons that cause consolidation in other industries

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: a. adverse selection. b. cognitive dissonance. c. physician-induced demand. d. moral hazard. e. res ipsa loquitor.

c. physician-induced demand.

The major difference between the for-profit and the not-for-profit organizational form is: a. patients receive higher quality of care in not-for-profit hospitals. b. shareholders receive higher return on their investment in a not-for-profit environment. c. primarily the ability to transfer assets. d. for-profit hospitals do not provide charity care. e. the absence of a profit motive in the not-for-profit environment.

c. primarily the ability to transfer assets.