Question 1

What would be the consequence of a law that forced individuals to receive an annual preventive health checkup?

Accepted Answer

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Question 2

________ would be minimized if hospital policy based a physician's salary on how healthy patients were following treatment by that doctor rather than the number of patients treated per year.

Accepted Answer

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Question 3

Favorable tax policies have encouraged the construction of new hospitals in the United States.How does this affect the equilibrium price and quantity for medical services?

Accepted Answer

Favorable tax policies have encouraged the construction of new hospitals in the United States, thus increasing the supply of medical services. However, demand has remained constant. As a result, the equilibrium price has fallen and quantity has risen as supply has increased, but demand has remained constant.

Question 4

Reese has a tendency to get very bored while he is driving his car and falls asleep behind the wheel.He has decided to seek the maximum amount of car insurance that he can obtain.What does this situation reflect?

Accepted Answer

The situation described involves moral hazard, which occurs when individuals take greater risks because they are protected from the consequences (in this case, by having maximum car insurance). Reese's tendency to fall asleep while driving is a risk that may increase because he feels less responsible for the consequences.

Question 5

After attending medical school,Georgiana has decided to encourage all of her family members to see her for their healthcare needs because she knows their health problems and has an incentive to keep them alive and as healthy as possible.What type of asymmetric information problem is Georgiana trying to correct by having her family members see her for care?

Accepted Answer

The principal-agent problem arises when there is a conflict of interest between a principal (in this case, the family members as patients) and an agent (Georgiana, as the healthcare provider), where the agent has more information than the principal. Georgiana aims to mitigate this issue by leveraging her intimate knowledge of her family's health problems, aligning her interests (keeping them healthy) with theirs.

Question 6

The problem that arises when a party that is protected from risk behaves differently than if it were not protected from risk is

Accepted Answer

Moral hazard is a situation where a party behaves differently than it otherwise would because it is protected from risk. In other words, the party may take more risks than it would if it were not protected because it knows it won't have to bear the full consequences of those risks. This can lead to inefficient or even harmful outcomes.

Question 7

After years of paying all healthcare expenses for employees,a city's largest employer has decided not to offer healthcare coverage anymore.The equilibrium price and quantity for medical services in the city would

Accepted Answer

With the employer no longer providing healthcare coverage, demand for medical services will decrease as employees have to pay for their own healthcare. However, supply of medical services will remain constant since there is no change in the number of medical providers. Therefore, with a decrease in demand and constant supply, the equilibrium price and quantity for medical services will fall.

Question 8

After a natural disaster destroyed nine of the 10 hospitals in a city but injured only 1 percent of the population,what would you expect to happen to the price and quantity of medical services?

Accepted Answer

With nine out of ten hospitals destroyed, the supply of medical services decreases significantly. At the same time, the demand for medical services dramatically increases due to the injuries caused by the natural disaster. Therefore, we would expect the equilibrium price to rise. However, the effect on equilibrium quantity is ambiguous because there are no details on how the remaining hospital is able to accommodate the increased demand.

Question 9

How can an insurance company reduce the moral hazard problem?

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Question 10

Requiring patients to pay a portion of the cost of the medical care they receive is designed to reduce the severity of

Accepted Answer

Requiring patients to pay a portion of the cost of the medical care they receive helps reduce the severity of moral hazard, which is the tendency for individuals to overconsume healthcare services because they do not bear the full cost. By requiring patients to pay a portion of the costs, they are incentivized to use healthcare services more judiciously, resulting in more efficient allocation of resources.

Question 11

What would be the consequence of a law that forced patients to pay all of the costs for preventive care?

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Question 12

One method of reducing the moral hazard problem in health care insurance would be

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Question 13

As the owner of a business that sells alarm clocks,Jaslene wants to hire workers who will sell as many of these clocks as possible.If Jaslene perceives the moral hazard to be strong among her sales employees,what could she do to minimize it?

Accepted Answer

By paying employees a percentage of their sales, Jaslene creates an incentive for them to sell as many alarm clocks as possible, as their pay will directly reflect their performance. This aligns employee interests with Jaslene's goal of selling as many clocks as possible and minimizes the moral hazard.

Question 14

What would be the consequence for insurance companies allowing patients as many treatments as they want?

Accepted Answer

Allowing patients unlimited treatments would increase the moral hazard problem because patients would be more likely to seek unnecessary treatments or procedures, knowing that they won't have to pay for them. This would increase healthcare costs for both the patient and the insurer. Additionally, it may lead to providers ordering unnecessary or expensive treatments, which would further increase costs for insurers.

Question 15

One method of reducing the moral hazard problem in healthcare insurance would be to allow insurance companies to

Accepted Answer

By agreeing to cover preventive care completely, insurance companies can incentivize policyholders to take care of their health and avoid expensive medical procedures in the future, reducing the risk of moral hazard. This can also ultimately lead to lower healthcare costs for both the insurance company and the policyholder.

Question 16

In a town with only one hospital,the largest employer (a local manufacturing plant)now offers health insurance to its employees.What would be the expected change to the price and quantity of medical services?

Accepted Answer

With the introduction of health insurance by the largest employer, more people are likely to seek medical services since the cost barrier is reduced. This increases the demand for medical services. Since the supply (the hospital's capacity to provide services) remains constant, the increased demand leads to higher prices and quantities of medical services sold.

Question 17

After a natural disaster destroyed one of the 10 hospitals in a city and injured nearly 75 percent of the population,what would you expect to happen to the price and quantity of medical services,ceteris paribus?

Accepted Answer

With the destruction of one hospital and such a high percentage of the population now in need of medical services, demand would increase dramatically. However, supply would also decrease slightly as there is now one less hospital to provide medical services. This would lead to a rise in equilibrium price, but the effect on equilibrium quantity is ambiguous as it depends on the extent to which the decrease in supply can meet the increase in demand.

Question 18

Instead of referring to a sample of comments a doctor has provided on his own website,Catrina has decided instead to rely on reviews from friends who have been his patients.What type of asymmetric information problem is Catrina trying to correct by soliciting comments from friends?

Accepted Answer

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Question 19

After Luis received health insurance from his job as an accountant,he decided to become a skydiver on the weekends because he knew that his health insurance from his employer would cover most of his medical costs if he were injured.Which of the following statements is true?

Accepted Answer

The moral hazard problem refers to the tendency for people to take greater risks or engage in riskier behavior when they are insured, knowing that insurance will cover their costs in the event of an adverse outcome. In this case, Luis is taking on a more dangerous activity (skydiving) because he knows his health insurance will cover any potential medical costs. Therefore, the moral hazard problem has increased in intensity.

Question 20

Noelle's mother has always said,"If you want something done right,you have to do it yourself." What type of asymmetric information problem does her statement reflect?

Accepted Answer

Noelle's mother's statement reflects a principal-agent problem, which occurs when one party (the principal) hires another party (the agent) to carry out a task, but the agent's interests may not align with the principal's interests. In this case, Noelle's mother believes that others may not do a task to her satisfaction, indicating a lack of trust in others to act in her best interest. This creates a situation where the principal (Noelle's mother) may need to monitor and incentivize the agent (another person) to act in her best interest.

Quiz 18: Health Insurance and Health Care