Deck 7: Health Care: How Much for Whom

Question 1

Economists estimate the value of a life by evaluating the value people place on their own lives based on what they pay to prevent small but predictable increases in the risk of dying.

Answer 1

True

Question 2

The threat of potential competitors probably helps to limit physician-induced demand.

Answer 2

True

Question 3

Critics of vouchers say they may not work as intended because recipients may make poor choices of health insurers or providers.

Answer 3

True

Question 4

It is not possible to put a dollar value on a life.

Question 5

Defensive medicine is the main culprit in excessive spending on health care.

Question 6

A third-party payment is a payment made directly to the provider of a good or service by someone other than the buyer.

Question 7

Defensive medicine has increased because more patients are trying to prevent late treatment of diseases.

Question 8

Wasteful spending occurs in health care as a result of third party payments.

Question 9

Asymmetric information occurs when physicians have information that is superior to patients' information.

Question 10

Defensive medicine is medical care given to reduce the risk of a malpractice suit.

Question 11

Health care expenditures as a percentage of GDP have increased substantially over the past fifty years.

Question 12

Federal tax exemptions for health insurance benefits can cause the individual's bottom line cost of health insurance to decline.

Question 13

Life expectancy at birth has increased from 50 years in 1900 to 77 today.

Question 14

Excessive health care caused by physician-induced demand may be mitigated by the growing practice of third-party payers requiring second opinions before agreeing to pay for medical care.

Question 15

Managed care is health care that is reviewed by someone other that the patient or provider to determine whether the right services are being provided and whether the cost of provision in minimized.

Question 16

The tax exemption for health insurance has been a major factor in increasing the availability of low-cost insurance.

Question 17

The proponents of a voucher system argue that such a system would increase competition in the health care industry.

Question 18

The quantity of health care provided is said to be excessive if at that quantity the marginal benefits of health care are greater than the marginal costs of health care.

Question 19

Managed care increases the intensity of the health care provided.

Question 20

Some medical care in United States is provided in situations where it is of little or no value.

Question 21

The national health expenditure (NHE) relative to gross domestic product (GDP):

A) will increase if the average price of medical care increases relative to the average price of all other goods and services.
B) will decrease if the average quantity of medical care increases relative to the average quantity of all goods and services.
C) is likely to decrease in the future.
D) will never be greater than 5 percent.

Question 22

The national health expenditure (NHE) as a share of gross domestic product (GDP) is:

A) rising
B) falling
C) constant
D) at its peak

Question 23

The federal income tax exemption for health insurance:

A) makes employees worse off because their net wages are lowered when employers pay for health insurance.
B) decreases in value as the marginal tax rate increases.
C) can cause the individual's bottom line cost of health insurance to decline.
D) causes the quantity of medical care demanded to fall.

Question 24

Which of the following could help finance federal health care expenditures in the future?

A) Increasing the budget deficit.
B) Transferring funds from other discretionary programs.
C) Raising taxes.
D) All of the above are possible, but each has undesirable consequences.

Question 25

Managed care helps slow the rising costs of health care by:

A) having a third party review services and price.
B) denying payment for some services.
C) negotiating price with providers.
D) All of the above.

Question 26

New technology normally increases costs because:

A) it increases the "intensity" of care.
B) hospitals, especially in metropolitan areas, must increase spending on technology in order to get rid of excess capacity.
C) the fact that technology does little to increase the quality of health care.
D) it provides less opportunities for providing more services to patients.

Question 27

Which of the following is not a contributing factor of the increasing quantity of health care over time?

A) The aging of the population.
B) The decreasing number of people insured.
C) The increases in insurance coverage.
D) Technological change.

Question 28

The cumulative effect of the federal income tax exemption for health insurance could be quite large because:

A) the exemption causes a secondary effect that causes the quantity of medical care demanded to decrease.
B) the exemption causes a secondary effect that causes the quantity of medical care demanded to increase.
C) employers do not try to find the most efficient health insurance providers as a result of the exemption.
D) the exemption decreases consumers' incentives to seek out second opinions on some types of treatments.

Question 29

The principal "third parties" in the market for health care are:

A) private insurance companies and government agencies.
B) private insurance companies and business firms.
C) government agencies and business firms.
D) those who are self-insured and private insurance companies.

Question 30

Physician-induced demand may be mitigated because of:

A) the inability of physicians to limit the entry of competitors.
B) consumer ignorance about alternative treatments.
C) fewer third-party payers requiring second opinions.
D) the fact that patients rarely have a priori expectations concerning their treatment.

Question 31

Experience rating does not generally cause people to make choices that reduce their use of the health care system because:

A) the use of partial-cost payments offsets any incentives people have to decrease their use of the health care system.
B) government programs such as Medicaid and Medicare offset any incentives people have to decrease their use of the health care system.
C) most of the individual variation in the use of health care comes from factors beyond individual control.
D) most of the individual variation in the use of health care arises because of the way insurance companies structure payments to providers.

Question 32

The physician practice of prescribing medical procedures in order to avoid malpractice suits is known as:

A) physician sovereignty.
B) physician-induced demand.
C) protective medicine.
D) defensive medicine.

Question 33

The test of affordability and the one percent scenario says:

A) we can afford to spend a growing share of GDP on health care.
B) we cannot afford to spend a growing share of GDP on health care.
C) health care expenditures are too high for the lower class.
D) we will only be willing to pay more for health care if other prices remain constant.

Question 34

The physician practice of prescribing ineffective health care in order to increase wealth is known as:

A) physician sovereignty.
B) physician-induced demand.
C) protective medicine.
D) defensive medicine.

Question 35

All of the following are sources of benefits from medical advances, except:

A) reduced mortality.
B) increased life expectancy.
C) greater morbidity.
D) enhanced quality of life.

Question 36

Physician-induced demand arises because:

A) consumers lack information about the effectiveness of various health care alternatives.
B) consumers often do not bear the full cost of their health care due to the existence of third party payments.
C) of the lack of ability to substitute capital for labor in the production of health care.
D) All of the above.

Question 37

A third-party payment refers to:

A) a payment made by a consumer for a good or service obtained on credit.
B) a payment made to the provider of a good or service by a party other than the buyer.
C) the payment made for used goods and services.
D) the fact that insurance companies prefer to pay for the care rendered by third parties in institutional settings.

Question 38

The greatest burden of rising health care costs falls on:

A) state government
B) federal government
C) individuals
D) insurance companies

Question 39

Federal tax exemption for employer-provided health insurance increases the demand for health insurance, and thus adds to the excess demand for health services.

Question 40

All of the following help to explain why the quantity of health care provided by the system may be excessive except:

A) third-party payments.
B) physician-induced demand.
C) global budgeting.
D) defensive medicine.

Question 41

Dr. Smith orders Robert to undergo medical tests of questionable effectiveness in order to increase his income. This is an example of:

A) physician sovereignty.
B) physician-induced demand.
C) protective medicine.
D) defensive medicine.

Question 42

Of the following, it is likely that the largest source of excessive spending on health care is:

A) physician-induced demand.
B) defensive medicine.
C) too rapid growth in medical technology.
D) third-party payments.

Question 43

Which of the following are policy suggestions for reforming the health care system?

A) eliminating the federal tax exemption for health insurance.
B) greater reliance on managed care.
C) decreasing third party payments.
D) all of the above.

Question 44

Which of the following statements is correct?

A) The Canadian government will pay for an unlimited amount of health care.
B) Because of Canadian government expenditure limits, there is often excess supply of health services.
C) Because of Canadian government expenditure limits, there is often excess demand for health services.
D) Canadians tend to pay high partial cost prices.

Question 45

Even though Joan knows there is no possibility of her being pregnant, Dr. Jones prescribes a pregnancy test for Joan before putting her on medication. He does this in order to avoid any potential lawsuits that might arise. This is an example of:

A) physician sovereignty.
B) physician-induced demand.
C) protective medicine.
D) defensive medicine.

Question 46

Which of the following describes a health care voucher?

A) A coupon used by the recipient to pay for health care chosen by the recipient.
B) A coupon used by the recipient to pay for health care chosen by the health care agency.
C) A government coupon to prove insurance coverage.
D) A coupon exchangeable for dollars or health care services.

Question 47

At the current level of consumption, the marginal social benefit of health care is $300 while the marginal social cost if $450. Based on this information:

A) the quantity of health care should remain unchanged.
B) the quantity of health care should be increased.
C) the quantity of health care should be decreased.
D) the quantity of health care is currently at the efficient level.

Question 48

Which of the following statements is correct?

A) About 35% of the U.S. population is without health insurance.
B) Workers at small firms have a greater probability of not having insurance.
C) Most of the uninsured are not connected to the workforce.
D) Health insurance is not available to most small firms.

Question 49

Suppose that the risk of dying from head injury is reduced by 1 in 20,000 through use of helmets, and that 20,000 motorcycle riders choose to purchase helmets at a price of $150. What is the implicit value of a life to these buyers?

A) $2 million.
B) $2.5 million.
C) $3 million.
D) $250,000.

Question 50

Suppose that the risk of dying in an automobile accident is reduced by 1 in 10,000 through the use of front seat air bags and that 10,000 auto buyers choose to purchase these air bags as an option at a price of $250. What is the implicit value of a life to these buyers?

A) $2 million.
B) $2.5 million.
C) $3 million.
D) $250,000.

Question 51

Suppose that a year of life is worth $150,000 and that a new treatment for diabetes increases life expectancy for a 40-year old woman by 2 years. Suppose that life expectancy without treatment is 75 and that the discount rate is 3 percent. Determine the present value of the increased life expectancy resulting from the new treatment.

A) $300,000
B) $194,000
C) $102,002
D) $51,755

Question 52

What is the present value of $100 paid to you a year from now if the rate of interest is 5%?

A) $95.24
B) $95.00
C) $5.25
D) $105.50

Question 53

Suppose that at current consumption levels the MSB of an additional vaccination against chicken pox is $35 while theMSC is $30. We know that:

A) the quantity of vaccinations should remain unchanged.
B) the quantity of vaccinations should be increased.
C) the quantity of vaccinations should be decreased.
D) the quantity of vaccinations is currently at the efficient level.

Question 54

Proponents of a voucher system argue that:

A) it would cause consumers of health care to make better health care choices.
B) it would cause consumers of health care to bear a smaller part of the cost of health care services they consume.
C) vouchers would eliminate competition for providers, thereby lessening the confusing choices that currently face consumers of health care services.
D) vouchers could increase the number of suppliers of medical services, thereby driving down costs.

Question 55

Suppose Paul's employer pays a health insurance premium of $2555 per year. Paul's marginal tax rate is 30 percent. What is the policy worth to Paul?

A) $766.50.
B) $1788.50.
C) $3321.50.
D) $3650.00.

Question 56

What is the total present value of two payments of $100 paid to you, one a year from now, and the second two years from now, if the rate of interest is 5%?

A) $190.50
B) $185.94
C) $210.93
D) $200.88

Question 57

The true cost of the Canadian nationalized health care system is difficult to estimate because:

A) all physicians receive different wages.
B) many physicians are leaving the occupation for higher paying jobs.
C) there is little data available regarding the cost of lost productive time.
D) patients receive all care free of charge.

Question 58

Suppose that a year of life is worth $100,000, and that the cost of a new treatment for HIV is $30,000 per year, and that it increases the life expectancy by 3 years. If the discount rate is 3 percent, is the HIV treatment worth the cost to a 30-year-old male who expects to live for 2 more years without treatment.

A) No, since the present value of costs are greater than the present value of benefits.
B) Yes, since the present value of benefits are greater than the present value of costs.
C) Yes, since the present value of benefits are equal to the present value of costs.
D) Not enough information is provided to make a determination.

Question 59

Suppose that the cost of a new treatment for HIV is $20,000 per year, and that it increases the life expectancy by 5 years. If the discount rate is 4 percent, what is the present value of the costs of treatment to a 40-year-old male who has a life expectancy of 45 years without treatment.

A) $96,153.85
B) $85,155.50
C) $73,181.47
D) $100,000

Question 60

Workers at small firms have a greater probability of not having insurance benefits because:

A) the risk pool is too high.
B) administration costs make it relatively too costly.
C) health maintenance organizations are not available to small groups.
D) All of the above.

Question 61

Suppose that a year of life is worth $150,000 and that a new treatment for diabetes increases life expectancy for a 40-year old woman by 2 years. Suppose, further, that the treatment will cost $50,000 in present value per woman. If the discount rate is 3 percent (i = 0.03) determine if this treatment is worth the cost.

Question 62

Discuss the shortcomings of third party payments for health care and how they contribute to the provision of an inefficiently large quantity of health care.

Question 63

Carefully explain what is meant by "excessive spending" on health care.

Question 64

What factors work to limit physician-induced demand?

Question 65

Suppose that a year of life is worth $100,000, and that the cost of a new treatment for HIV is $30,000 per year, and that it increases the life expectancy by 3 years. If the discount rate is 3 percent, is the HIV treatment worth the cost to a 30-year-old male who expects to live for 2 more years without treatment.

Question 66

What policies might be undertaken in an attempt to increase the efficiency of the health care system?

Question 67

Suppose Joe's marginal tax rate is 20 percent. His employer pays a health insurance premium of $2000 per year for Joe. What is this insurance worth to Joe?

Question 68

In the United States, most uninsured people:

A) are unemployed.
B) are employed.
C) are uninsurable due to health risks.
D) work for a large firm.

Question 69

Discuss the impact of the federal income tax exemption on the health care system.

Question 70

What factors are the largest contributors to excess health care spending?