Question 1

Which of the following grew rapidly after the passage of the Medicare and Medicaid programs in the mid-1960s?
A) the share of healthcare expenditures financed directly by the consumer
B) the share of healthcare expenditures financed by third parties
C) the prices of healthcare relative to the prices of other goods and services
D) both b and c

Accepted Answer

The passage of Medicare and Medicaid led to an increase in third-party financing of healthcare expenditures and contributed to rising healthcare prices relative to other goods and services.

Question 2

Why is the current U.S. tax-treatment of health insurance purchased through one's employer discriminatory?
A) Health insurance should not be a tax-deductible expense for anyone.
B) The system gives preferential tax treatment to self-employed individuals.
C) The system imposes higher taxes on the direct purchase of health insurance because it is not tax deductible.
D) The system gives preferential tax treatment to people who purchase health insurance directly from a provider.

Accepted Answer

The current U.S. tax-treatment of health insurance purchased through one's employer is discriminatory because it imposes higher taxes on the direct purchase of health insurance because it is not tax deductible. This means that people who purchase health insurance through their employer receive a tax benefit, while those who purchase insurance on their own do not. This creates an uneven playing field and disadvantages those who do not have access to employer-sponsored health insurance.

Question 3

Which of the following grew rapidly during the years following the passage of the Medicare and Medicaid programs?
A) the share of healthcare expenditures financed by third parties
B) the prices of healthcare relative to the prices of other goods and services
C) expenditures on healthcare as a share of the economy
D) all of the above

Accepted Answer

The passage of Medicare and Medicaid programs led to a significant increase in the share of healthcare expenditures financed by third parties, which in turn fueled a rapid increase in healthcare prices relative to other goods and services. This resulted in higher overall expenditures on healthcare as a share of the economy. Therefore, all of the above options grew rapidly during the years following the passage of these programs.

Question 4

When a third party pays a larger and larger share of the purchasing price of a good, economic theory indicates that the
A) demand for the good will decline.
B) consumers of the good will have less and less incentive to economize on its use.
C) suppliers of the good will have a stronger incentive to provide the good at low prices.
D) prices of the good will tend to decline with the passage of time.

Accepted Answer

The answer of When a third party pays a larger...

Question 5

A 2.9 percent payroll tax (1.45 percent levied on both the employee and the employer) imposed on current workers is used to finance the
A) Medicaid program that provides healthcare for the poor.
B) hospitalization costs of Medicare beneficiaries.
C) cost of physician services supplied to the elderly.
D) healthcare costs of both the elderly and the poor.

Accepted Answer

The 2.9 percent payroll tax (1.45 percent each from the employer and the employee) is used to finance the hospitalization costs of Medicare beneficiaries. This tax is one of the primary sources of funding for Medicare Part A, which covers inpatient hospital care, skilled nursing facility care, and some home healthcare services.

Question 6

Economic analysis indicates that the increasing government expenditures and growth of third-party payments accompanying the Medicare and Medicaid programs
A) reduced the demand for healthcare services.
B) reduced the incentive of consumers to economize on their use of healthcare.
C) increased the incentive of consumers to economize on their use of healthcare.
D) placed downward pressure on the prices of healthcare services.

Accepted Answer

The increasing government expenditures and growth of third-party payments accompanying the Medicare and Medicaid programs reduced the incentive of consumers to economize on their use of healthcare, leading to increased demand for healthcare services and higher prices for healthcare services.

Question 7

If a third party pays a larger and larger share of the purchasing price of a good, economic theory indicates that
A) the total expenditures (including those made by the third party) on the good will decline.
B) the demand for the good will decrease.
C) consumers will have a stronger incentive to economize on their use of the good.
D) suppliers will have less incentive to provide the good at low prices.

Accepted Answer

The answer of If a third party pays a larger...

Question 8

Under the current structure of Medicare, economic theory indicates that the movement of the baby boom generation into the retirement phase of life during the years following 2011 will
A) reduce the share of healthcare services paid for by a third party.
B) push both healthcare prices and expenditures upward.
C) increase the incentive of suppliers to provide healthcare services at a low cost.
D) increase the incentive of consumers to economize on their use of healthcare.

Accepted Answer

As the baby boom generation moves into retirement, there will be an increase in demand for healthcare services, which will likely cause healthcare prices and expenditures to rise. This is due to the basic economic principle of supply and demand, as increased demand leads to higher prices.

Question 9

When health insurance is purchased primarily through one's employer,
A) direct purchase of health insurance becomes cheaper.
B) the benefits of the healthcare insurance are fully taxable.
C) it is more costly for employees to switch jobs and move to areas where jobs are available.
D) the overall number of people without health insurance decreases.

Accepted Answer

The answer of When health insurance is purchased primarily through...

Question 10

Under the current structure of Medicare, the movement of the baby boom generation into the retirement phase of life during the years following 2011 will
A) reduce the overall demand for medical services because the elderly will not have to pay for hospitalization in the future.
B) place downward pressure on healthcare prices.
C) cause Medicare expenditures to increase and necessitate the need for higher taxes to finance the program.
D) do all of the above.

Accepted Answer

As the baby boom generation enters retirement age, there will be an increase in demand for medical services, which will lead to increased Medicare expenditures. This will require higher taxes to finance the program, as Medicare is funded through a combination of taxes and premiums. Therefore, option C is the best choice. Options A and B are incorrect, as the demand for medical services will not decrease and there may be upward pressure on healthcare prices due to increased demand.

Question 11

Economic theory indicates that the growth of subsidies to healthcare consumers and accompanying expansion in third-party payments will
A) place downward pressure on the prices of healthcare services.
B) lead to higher healthcare prices.
C) increase the incentive of consumers to economize on their purchases of healthcare services.
D) increase the incentive of healthcare providers to provide their services at economical prices.

Accepted Answer

According to economic theory, when subsidies and third-party payments increase, the demand for healthcare services increases, leading to an increase in prices. This is known as the "moral hazard" problem, where consumers and providers may not be motivated to reduce costs because they are not paying the full price.

Question 12

Which of the following is true?
A) Healthcare in Canada and most of the European countries is a socialized industry.
B) Socialization of the healthcare industry eliminates the problem of scarcity in the healthcare industry.
C) The high-income countries of Europe are able to provide as much healthcare, free of charge, as their citizens want.
D) All of the above are true.

Accepted Answer

Option A is true. In many countries, healthcare is socialized, meaning that the government or state owns the healthcare system and subsidizes healthcare for citizens. This is the case in Canada and most European countries where healthcare is financed through taxes and provided to citizens free of charge. However, option B and C are not entirely true. Socializing the healthcare industry does not eliminate scarcity as resources are still limited, and even high-income European countries have limitations on the amount of healthcare they can provide for free to their citizens.

Question 13

Which of the following is fully tax deductible (it is either subtracted or excluded from taxable income) under the current tax system of the United States?
A) out-of-pocket medical expenses
B) healthcare insurance purchased through one's employer
C) healthcare insurance purchased directly by an individual or family
D) all of the above

Accepted Answer

Healthcare insurance premiums purchased through an employer are often paid with pre-tax dollars, making them fully tax-deductible.

Question 14

The growth of third-party payments (payments by insurers and the government) of healthcare services during the last four decades has been accompanied by
A) a reduction in expenditures on healthcare as a share of the economy.
B) an increase in the sensitivity of consumers to the prices of healthcare services.
C) persistent increases in the prices of healthcare services and rapid growth in the total expenditures on healthcare.
D) an increase in the incentive of suppliers to provide healthcare services at a low cost.

Accepted Answer

Third-party payments have led to persistent increases in the prices of healthcare services and rapid growth in total expenditures on healthcare. This is because consumers are less sensitive to prices and therefore do not have an incentive to shop around for more affordable healthcare options. Additionally, suppliers may have less of an incentive to provide healthcare services at a low cost as they can potentially charge more due to the third-party payments.

Question 15

What percentage of U.S. healthcare expenditures is currently paid for by a third party, either the government or an insurance company?
A) less than 10 percent
B) approximately 30 percent
C) approximately 50 percent
D) more than 85 percent

Accepted Answer

More than 85% of U.S. healthcare expenditures are paid by third parties, including government programs like Medicare and Medicaid, and private insurance companies.

Question 16

Economic theory indicates that the growth of subsidies to healthcare consumers and accompanying expansion in third-party payments will
A) lead to higher healthcare prices.
B) lead to lower healthcare prices.
C) reduce the incentive of consumers to economize.
D) increase the incentive of healthcare providers to provide their services at a low cost.
E) do both a and c above.

Accepted Answer

The answer of Economic theory indicates that the growth of...

Question 17

Third-party payments by either the government or an insurance company accounted for ____ of the 2009 healthcare expenditures, compared to ____ paid by third parties in 1960.
A) 40 percent; 20 percent
B) 20 percent; 40 percent
C) 86 percent; 45 percent
D) 96 percent; 73 percent

Accepted Answer

According to the passage, third-party payments by either the government or an insurance company accounted for 86 percent of the 2009 healthcare expenditures, compared to 45 percent paid by third parties in 1960.

Question 18

During the 1965-2009 period, the price index of healthcare services
A) declined slightly relative to the overall consumer price index.
B) fell by approximately 50 percent compared to the overall consumer price index.
C) increased at twice the rate of the overall consumer price index.
D) rose during a brief period following the passage of Medicare and Medicaid but has been relatively stable since that time.

Accepted Answer

According to the information provided, the price index of healthcare services increased at twice the rate of the overall consumer price index during the 1965-2009 period. Therefore, choice C is the best option. Option A is incorrect because the price index of healthcare services did not decline during this period. Option B is incorrect because it fell by approximately 50 percent compared to the overall consumer price index. Option D is also incorrect because the price index has not been relatively stable since the passage of Medicare and Medicaid.

Question 19

As the share of healthcare expenditures paid for by third parties has grown, both healthcare prices and total expenditures have increased rapidly. Is this surprising?
A) Yes; third-party payments provide healthcare consumers with a strong incentive to economize, and therefore, the growth of expenditures is particularly surprising.
B) No; third-party payments weaken the incentive of healthcare consumers to economize, and therefore, the rapid growth of expenditures is an expected result.
C) Yes; the price increases are surprising because healthcare suppliers have a strong incentive to provide the services at a low price when they are paid for by a third party.
D) No; the growth of third-party payments will reduce the demand for healthcare, which will lead to both higher prices and expenditure levels.

Accepted Answer

When healthcare expenditures are paid for by third parties (such as insurance companies or government programs), patients are less likely to pay close attention to the prices of healthcare services, because they are not directly bearing the cost. As a result, healthcare providers have less incentive to keep prices low, leading to rapid increases in prices and total healthcare expenditures. This is the reason why the rapid growth of expenditures is an expected result when third-party payments are involved.

Question 20

As third-party payments and government expenditures on healthcare increased following the passage of Medicare and Medicaid,
A) total expenditures on healthcare declined.
B) the incentive of consumers to economize on their use of healthcare services increased.
C) the incentive of suppliers to provide healthcare services at a low cost increased.
D) both the prices of healthcare services and total expenditures on those services increased rapidly.

Accepted Answer

Third-party payments and government expenditures on healthcare led to an increase in demand for healthcare services. This increase in demand, combined with the lack of incentive for consumers to economize on their healthcare use, led to a rise in both the prices of healthcare services and the total expenditures on those services. Providers were able to charge higher prices and increase their own profits. As a result, total healthcare expenditures continued to rise rapidly.

Quiz 16: Applying the Basics: Special Topics in Economics

Which of the following grew rapidly after the passage of the Medicare and Medicaid programs in the mid-1960s?

Why is the current U.S. tax-treatment of health insurance purchased through one's employer discriminatory?

Which of the following grew rapidly during the years following the passage of the Medicare and Medicaid programs?

When a third party pays a larger and larger share of the purchasing price of a good, economic theory indicates that the

A 2.9 percent payroll tax (1.45 percent levied on both the employee and the employer) imposed on current workers is used to finance the

Economic analysis indicates that the increasing government expenditures and growth of third-party payments accompanying the Medicare and Medicaid programs

If a third party pays a larger and larger share of the purchasing price of a good, economic theory indicates that

Under the current structure of Medicare, economic theory indicates that the movement of the baby boom generation into the retirement phase of life during the years following 2011 will

When health insurance is purchased primarily through one's employer,

Under the current structure of Medicare, the movement of the baby boom generation into the retirement phase of life during the years following 2011 will

Economic theory indicates that the growth of subsidies to healthcare consumers and accompanying expansion in third-party payments will

Which of the following is true?

Which of the following is fully tax deductible (it is either subtracted or excluded from taxable income) under the current tax system of the United States?

The growth of third-party payments (payments by insurers and the government) of healthcare services during the last four decades has been accompanied by

What percentage of U.S. healthcare expenditures is currently paid for by a third party, either the government or an insurance company?

Economic theory indicates that the growth of subsidies to healthcare consumers and accompanying expansion in third-party payments will

Third-party payments by either the government or an insurance company accounted for of the 2009 healthcare expenditures, compared to paid by third parties in 1960.

During the 1965-2009 period, the price index of healthcare services

As the share of healthcare expenditures paid for by third parties has grown, both healthcare prices and total expenditures have increased rapidly. Is this surprising?

As third-party payments and government expenditures on healthcare increased following the passage of Medicare and Medicaid,