Deck 6: The Demand for Medical Insurance: Traditional and Managed Care Coverage

Question 1

According to John Nyman, classic economic theory overstates the degree of overconsumption of medical services by only considering ______.

A) inefficient moral hazard
B) pure premiums
C) risk-averse consumers
D) efficient moral hazard
E) income effects

Answer 1

A

Question 2

According to John Nyman, the reduction in utility due to the payment of an insurance premium when healthy is less than the increase in utility from an equal income transfer when ill. Which of the following best explains why this is true?

A) As incomes increase, people gain greater utility from additional income.
B) When sick, people no longer behave rationally.
C) As incomes decrease, people gain greater utility from additional income.
D) When healthy, people are able to get more enjoyment from their income.
E) John Nyman is incorrect.

Answer 2

C

Question 3

Insurance premiums determined by a _______ are based on the risk characteristics of the entire membership.

A) loading charge
B) experience rating
C) staff model
D) group model
E) community rating

Answer 3

E

Question 4

Reduced coinsurance rates are likely to _______ moral hazard costs and _______ the risk exposure of the consumer.

A) increases; decreases
B) decreases; decreases
C) increases; increases
D) decreases; increases
E) None of the above

Question 5

A _______ attempts to remove financial incentives of physicians to overuse by combining the insurer and provider functions of medical care.

A) network model HMO
B) PPO
C) POS
D) staff model HMO
E) IPA model HMO

Question 6

An individual who is _______ would be indifferent to purchasing health insurance.

A) risk-averse
B) self-employed
C) unemployed
D) risk-neutral
E) risk-loving

Question 7

Elimination of the tax-exempt status of employer-sponsored health insurance would most likely lead to a decrease in the purchase of health insurance.

Question 8

Consumer-driven healthcare attempts to _______ moral hazard costs by _______ out-of-pocket expenditures faced by consumers.

A) increase; decreasing
B) decrease; decreasing
C) increase; increasing
D) decrease; increasing
E) None of the above

Question 9

Capitation payments made to physician group practices reduce the financial incentive for physicians to provide excessive medical services.

Question 10

Individuals with higher annual incomes possess a greater incentive to purchase more comprehensive health insurance coverage.

Question 11

Estimates of the income elasticity of demand for health insurance have found it to be an inferior good.

Question 12

An increase in income tax rates _______ the opportunity cost of purchasing employer-sponsored health insurance.

A) increases
B) decreases
C) does not affect
D) eliminates
E) transfers

Question 13

If Sarah has an income of $50,000 when healthy, and faces a probability of 0.15 of losing $10,000 of this due to an illness, what is her expected income?

A) $17,500
B) $40,000
C) $48,500
D) $44,000
E) $16,000

Question 14

A risk-averse individual will always prefer a certain amount of income over an expected amount of income of equal value.

Question 15

An individual who is _______ would not choose to purchase health insurance.

A) risk-averse
B) self-employed
C) unemployed
D) risk-neutral
E) risk-loving