Deck 14: The Economics of Health Insurance and Health Care

Question 1

In the United States, government spending (federal, state, and local) on health care services accounts for ________ of all health care spending.

A) 7%
B) 47.3%
C) 52.7%
D) 84.4%

Answer 1

52.7%

Question 2

Altogether, total health care spending per person in the United States is

A) about $3,600.
B) over $8,000.
C) roughly $26,000.
D) about $50,000.

Answer 2

over $8,000.

Question 3

On an annual basis, Americans spend about as much on health care as they do on

A) food.
B) clothing.
C) transportation.
D) housing.

Answer 3

housing.

Question 4

Since 1960, the price of medical care in the United States has

A) decreased slightly.
B) remained relatively unchanged.
C) increased 8-fold.
D) increased 19-fold.

Question 5

Prior to the health care reforms passed in 2010, about ________ of all Americans had no health insurance.

A) 2%
B) 5%
C) 15%
D) 40%

Question 6

Since 1960, life expectancy at birth has ________ in the United States.

A) dropped slightly
B) remained unchanged
C) risen almost 10 years
D) risen more than 17 years

Question 7

Since 1960, infant mortality rates in the United States have

A) dropped more than 75%.
B) dropped by about 20%.
C) risen slightly.
D) dropped by less than 5%.

Question 8

Of the following OECD countries, which has the highest per-capita spending on health care?

A) the United Kingdom
B) Japan
C) Canada
D) the United States

Question 9

Of the following OECD countries, which spends the most on health care when measured as a percentage of GDP?

A) the United Kingdom
B) Japan
C) Canada
D) the United States

Question 10

Of the following OECD countries, which has the lowest infant mortality rate?

A) the United Kingdom
B) Japan
C) Canada
D) the United States

Question 11

Of the following OECD countries, which has the best breast cancer and prostate cancer survival rates?

A) the United Kingdom
B) Japan
C) Canada
D) the United States

Question 12

When comparing the gap in measured health care outcomes between the United States and Canada, the U.S. health care system stacks up poorly in terms of life expectancy and infant mortality. Much of that gap can be attributed to which of the following occurrences in the United States?

A) obesity
B) accidental deaths
C) low-birthweight babies
D) a combination of all of the above

Question 13

Total health care spending in the United States was over $2.6 trillion in 2013.

Question 14

In the United States since 1960, the price of health care services has increased but the price of health insurance has decreased.

Question 15

Improved quality in health care services is partly responsible for increases in health care costs in the United States.

Question 16

In terms of life expectancy and infant mortality, other OECD nations are able to generate superior health care outcomes with fewer resources relative to the United States.

Question 17

The goods and services provided by hospitals, doctors, therapists, and pharmacies are collectively referred to as ________.

Question 18

What has happened to health care spending and the quality of health care services in the United States over the past 50 years?

Question 19

The health care system in Japan is referred to as ________, under which every resident of Japan is required to enroll in either a private or government-provided health insurance program.

A) a single-payer system
B) a universal health insurance system
C) socialized medicine
D) a private health care system

Question 20

The health care reforms passed by the U.S. government in 2010 are collectively referred to as

A) the Patient Protection and Affordable Care Act.
B) socialized medicine.
C) the National Health Service.
D) the Medicare and Medicaid Cooperative.

Question 21

In which of the following countries do elective medical procedures generally receive lower priority, often resulting in longer waiting times than are common under more privately-funded systems?

A) Japan and the United States
B) Japan and Canada
C) Canada and the United Kingdom
D) the United Kingdom and the United States

Question 22

Disadvantages to the employer-based health insurance model which is common in the United States include

A) when someone loses her job, she loses her insurance.
B) a reduction in job mobility.
C) the method used by insurance companies to set premiums.
D) all of the above

Question 23

In the United Kingdom, most doctors are privately employed.

Question 24

In Canada, the government alone is responsible for paying health care providers for delivering medically necessary procedures.

Question 25

In Japan, residents pay for most routine and preventive medical care.

Question 26

Under Obamacare, residents who do not have health insurance that meets certain basic requirements are subject to a tax penalty.

Question 27

Match the following countries with the type of health care delivery system each uses:

-Canada

A) nationalized health care
B) private health care
C) single-payer system
D) universal health care

Question 28

Match the following countries with the type of health care delivery system each uses:

-Japan

A) nationalized health care
B) private health care
C) single-payer system
D) universal health care

Question 29

Match the following countries with the type of health care delivery system each uses:

-the United Kingdom

A) nationalized health care
B) private health care
C) single-payer system
D) universal health care

Question 30

Match the following countries with the type of health care delivery system each uses:

-the United States

A) nationalized health care
B) private health care
C) single-payer system
D) universal health care

Question 31

For the following countries, specify whether hospitals are privately owned or owned by government, and whether doctors are privately employed or employed by government:
a. Canada
b. Japan
c. the United Kingdom
d. the United States

Question 32

Briefly explain what is included in the following provisions which are a part of the Patient Protection and Affordable Care Act (ACA):
-the individual mandate
-the employer mandate
-regulation of private insurers
-state health exchanges

Question 33

If a meat packing plant has 30 employees and each employee has a 1 in 90 chance of getting injured on the job, then on average, one employee will get injured on the job every

A) 120 days.
B) 1 year.
C) 3 years.
D) 9 years.

Question 34

If a meat packing plant has 30 employees, each employee has a 1 in 90 chance of getting injured on the job, and the cost of treating a job-related injury is $18,000, then the annual cost per injury for each employee is

A) $6.67.
B) $200.
C) $600.
D) $6,000.

Question 35

With respect to the insurance market, what is adverse selection?

A) Adverse selection refers to the actions people take before they purchase an insurance policy.
B) Adverse selection refers to the actions people take, after they purchase an insurance policy, that make the insurance company worse off.
C) Adverse selection refers to people who purchase one type of insurance policy when they would have been better off purchasing a different policy.
D) Adverse selection refers to the situation in which a person purchasing an insurance policy takes advantage of knowing more about his health than the insurance company knows.

Question 36

As healthy people leave an insurance pool, premiums rise, which cause more people to leave the pool and even higher premiums. This describes

A) moral hazard.
B) the reversibility paradox.
C) irrational pricing.
D) a premium death spiral.

Question 37

A provision of the Affordable Care Act states that private insurance companies cannot deny coverage to anyone because of a preexisting medical condition. By offering health insurance to people with preexisting medical conditions, this provision eliminates ________ for both the insurance company and the policy holder, and eliminates ________ for the insurance company.

A) moral hazard; asymmetric information
B) asymmetric information; adverse selection
C) asymmetric information; moral hazard
D) adverse selection; moral hazard

Question 38

One reason why adverse selection problems arise in the market for health insurance is because

A) sick people are more likely to want health insurance than are healthy people.
B) fewer people are choosing careers in the medical field because of increases in the cost of education.
C) as people live longer, a greater portion of their medical bills will have to be paid by younger generations.
D) advances in medical technology are costly, and drive up the price of medical insurance.

Question 39

Which of the following should help reduce the adverse selection problem?

A) the employer mandate provision of the Affordable Care Act
B) the individual mandate provision of the Affordable Care Act
C) keeping high-risk and low-risk individuals in the same health insurance pool
D) all of the above

Question 40

Which of the following provisions of the Affordable Care Act will work to keep high-risk and low-risk people in the same health insurance pool?

A) the employer mandate provision
B) the individual mandate provision
C) the stipulation that people with preexisting conditions cannot be denied health insurance
D) all of the above

Question 41

A large company is trying to decide which of two health insurance plans to offer its employees. Plan A has a high monthly premium and a low deductible, and Plan B has a low monthly premium and a high deductible. Adverse selection is likely to be a bigger problem with

A) Plan B because it is likely to attract employees who expect high medical costs, and therefore prefer low deductibles.
B) Plan A because it is likely to attract employees who expect high medical costs. Healthier employees who do not expect to have many medical bills will not be willing to pay the high premiums.
C) Plan B because it is likely to attract healthy employees who do not expect to have many medical bills. Because the monthly premiums are low, the insurance company will have a larger financial burden to bear in the event of claims due to serious illness.
D) Plan A because it is likely to attract employees who tend to overuse health care services due to the low deductible. Insurance companies are likely to pay out more in claims than they collect in premiums.

Question 42

Research by economists Martin Hackmann, Amanda Kowalski, and Jonathan Kolstad indicates that the individual mandate provision of the Massachusetts health care program was responsible for a(n) ________ in premiums and the mandate helped to ________ premium increases in subsequent years.

A) increase; accelerate
B) increase; hold down
C) decrease; accelerate
D) decrease; hold down

Question 43

Asymmetric information contributes to

A) the adverse selection problem.
B) the moral hazard problem.
C) both the adverse selection problem and the moral hazard problem.
D) neither the adverse selection problem nor the moral hazard problem.

Question 44

When people purchase health insurance and then change their behavior after the purchase because the insurance protects them from loss, the health insurance market is said to face the problem of

A) asymmetric information.
B) moral hazard.
C) adverse selection.
D) the rationality paradox.

Question 45

With respect to the health insurance market, what is moral hazard?

A) Moral hazard refers to the actions people take, after they purchase an insurance policy, that make the insurance company worse off.
B) Moral Hazard refers to to people who purchase one type of insurance policy when they would have been better off purchasing a different policy.
C) Moral Hazard refers to the situation in which a person purchasing an insurance policy takes advantage of knowing more about his health than the insurance company.
D) Moral hazard refers to the actions people take before they purchase an insurance policy.

Question 46

Jackson buys an automobile insurance policy and then decides to drive recklessly because he knows he is insured in case he has an accident. This describes the problem of

A) adverse selection.
B) asymmetric information.
C) moral hazard.
D) risk pooling.

Question 47

Scenario 14.1: Marco and Lisette love to play darts, but both suffer from carpal tunnel syndrome due to excessive play. They are considering how many visits to make to the doctor, and both know that they each get $150 of relief from the first visit, and only $45 of additional relief from the second visit. Neither has health insurance and therefore will bear the full cost of medical care. Each visit to the doctor costs $75.

-Refer to Scenario 14.1. Marco's dominant strategy is to schedule ________, and Lisette's dominant strategy is to schedule ________,

A) 1 visit; 1 visit
B) 1 visit; 2 visits
C) 2 visits; 1 visit
D) 2 visits; 2 visits

Question 48

Scenario 14.1: Marco and Lisette love to play darts, but both suffer from carpal tunnel syndrome due to excessive play. They are considering how many visits to make to the doctor, and both know that they each get $150 of relief from the first visit, and only $45 of additional relief from the second visit. Neither has health insurance and therefore will bear the full cost of medical care. Each visit to the doctor costs $75.

-Refer to Scenario 14.1. Marco's dominant strategy will give him a net benefit of

A) $45.
B) $75.
C) $120.
D) $150.

Question 49

Scenario 14.1: Marco and Lisette love to play darts, but both suffer from carpal tunnel syndrome due to excessive play. They are considering how many visits to make to the doctor, and both know that they each get $150 of relief from the first visit, and only $45 of additional relief from the second visit. Neither has health insurance and therefore will bear the full cost of medical care. Each visit to the doctor costs $75.

-Refer to Scenario 14.1. Lisette's dominant strategy will give her a net benefit of

A) $45.
B) $75.
C) $120.
D) $150.

Question 50

Scenario 14.1: Marco and Lisette love to play darts, but both suffer from carpal tunnel syndrome due to excessive play. They are considering how many visits to make to the doctor, and both know that they each get $150 of relief from the first visit, and only $45 of additional relief from the second visit. Neither has health insurance and therefore will bear the full cost of medical care. Each visit to the doctor costs $75.

-Refer to Scenario 14.1. Marco and Lisette decide to help each other out and agree to split any medical bills from their doctor. With this new arrangement, Marco's dominant strategy is to schedule ________, and Lisette's dominant strategy is to schedule ________,

A) 1 visit; 1 visit
B) 1 visit; 2 visits
C) 2 visits; 1 visit
D) 2 visits; 2 visits

Question 51

Scenario 14.1: Marco and Lisette love to play darts, but both suffer from carpal tunnel syndrome due to excessive play. They are considering how many visits to make to the doctor, and both know that they each get $150 of relief from the first visit, and only $45 of additional relief from the second visit. Neither has health insurance and therefore will bear the full cost of medical care. Each visit to the doctor costs $75.

-Refer to Scenario 14.1. Marco and Lisette decide to help each other out and agree to split any medical bills from their doctor. With this new arrangement, Marco's dominant strategy will give him a net benefit of

A) $45.
B) $75.
C) $120.
D) $150.

Question 52

Scenario 14.1: Marco and Lisette love to play darts, but both suffer from carpal tunnel syndrome due to excessive play. They are considering how many visits to make to the doctor, and both know that they each get $150 of relief from the first visit, and only $45 of additional relief from the second visit. Neither has health insurance and therefore will bear the full cost of medical care. Each visit to the doctor costs $75.

-Refer to Scenario 14.1. Marco and Lisette decide to help each other out and agree to split any medical bills from their doctor. With this new arrangement, Lisette's dominant strategy will give her a net benefit of

A) $45.
B) $75.
C) $120.
D) $150.

Question 53

Scenario 14.1: Marco and Lisette love to play darts, but both suffer from carpal tunnel syndrome due to excessive play. They are considering how many visits to make to the doctor, and both know that they each get $150 of relief from the first visit, and only $45 of additional relief from the second visit. Neither has health insurance and therefore will bear the full cost of medical care. Each visit to the doctor costs $75.

-Refer to Scenario 14.1. Marco and Lisette decide to help each other out and agree to split any medical bills from their doctor. With this new arrangement, this scenario resembles a

A) chicken game.
B) assurance game.
C) battle of the sexes game.
D) prisoner's dilemma game.

Question 54

If insurance companies are able to gather more and better information on their customers, this will

A) help reduce the problem of adverse selection but do nothing to help with the problem of moral hazard.
B) help reduce the problem of moral hazard but do nothing to help with the problem of adverse selection.
C) help reduce the problems of adverse selection and moral hazard.
D) do nothing to help with the problems of moral hazard and adverse selection.

Question 55

Asymmetric information refers to a situation where people who pose the greatest risk to insurers are the ones who buy insurance.

Question 56

A premium death spiral occurs when healthy people leave an insurance pool, which causes premiums to increase, and that causes more people to leave the pool, which results in even higher premiums.

Question 57

Governments can address the adverse selection problem in the health insurance market by requiring all its citizens to have health insurance.

Question 58

The very existence of an insurance policy may cause people to behave in a riskier manner, which will increase the moral hazard problem.

Question 59

Insurance creates an incentive for people to consume more health care, and this helps to reduce the moral hazard problem.

Question 60

Deductibles, copayments, and coinsurance are all ways in which insurance companies can address the problem of moral hazard.

Question 61

In the United States, the market for health care is very competitive, with little variation in price for similar medical procedures.

Question 62

When one party to a transaction knows more than the other, ________ is said to exist.

Question 63

Benny, Denny, Jenny, Kenny, and Lenny are tap-dancing siblings who perform as the Tapiocas. Do to their individual dance styles, Benny and Denny each have a 50% chance of developing hammer toe, and Jenny, Kenny and Lenny each have a 20% chance of developing hammer toe. Each visit to the podiatrist costs $250. If each member of the Tapiocas were offered hammer toe insurance, how much would the premium be?

Question 64

When Jimmy is shopping for fire insurance for his condo, he finds that the insurance companies all require smoke detectors be installed before they will issue a policy. This is a way for the insurance companies to help reduce the problem of ________.

Question 65

Explain the differences between asymmetric information, adverse selection, and moral hazard.

Question 66

Describe three ways that private insurance companies deal with the moral hazard problem.