Deck 15: Health Insurance I- Health Economics and Private Health Insurance

Question 1

Medicare is financed by:

A) revenues from federal excise taxes on cigarettes and alcohol
B) a payroll tax levied on both employees and employers
C) a payroll tax levied only on employers
D) a tax on Social Security benefits

Answer 1

a payroll tax levied on both employees and employers

Question 2

If an insured patient pays the full cost of the first $5,000 of medical expenses per year,what is that $5,000 amount called?

A) copayment
B) premium
C) coinsurance
D) deductible

Answer 2

deductible

Question 3

Suppose that there is a flat 25% income tax but that the U.S.tax policy with respect to health insurance remains the same.You make $25,000 per year and wish to buy a $2,000 health insurance policy.Are you better off,worse off,or neither better nor worse off if your employer buys the policy and deducts the $2,000 from your wages than if you buy the policy yourself? By how much?

A) better off; $500
B) worse off; $500
C) no better or worse off; $0
D) better off; $250

Answer 3

better off; $500

Question 4

Suppose that you have private health insurance.Last year you were injured once,which represented the only time you had a medical expense.At the time,you paid $25 to see your doctor,who referred you to a specialist.The total bill for the specialist was $1,100.You paid the first $500,then 10% of the additional $600 (equal to $60). Which of the following is the coinsurance?

A) the $25 paid for the doctor visit
B) the $60 paid toward the cost of seeing the specialist
C) the difference between the $25 paid to the doctor and what the doctor actually received (that is,the amount the insurance company paid the doctor)
D) the $1,100 that the specialist received

Question 5

Jermaine's health insurance policy has a deductible of $1,000,a $10 copayment on doctor visits,and coinsurance of 10% on all expenses other than those for which there are copayments.If Jermaine went to the doctor four times (doctor's fee is $40 per visit)and had a surgery that cost $2,000,how much of these expenses did Jermaine pay directly?

A) $40
B) $1,000
C) $1,040
D) $1,140

Question 6

In 2010,health care spending in the United States accounted for approximately _______ of GDP.

A) 5%
B) 17.4%
C) 21.9%
D) 33.5%

Question 7

Suppose that there is a flat 20% income tax rate,but otherwise U.S.tax law is the same as that in place.You make $40,000 per year.If your employer pays for your $4,000 per year insurance policy and deducts the expense from your salary,your after-tax,after-insurance take-home pay is __________.If you pay for your $4,000 per year policy directly,your after-tax,after-insurance take-home pay is ____________.

A) $36,000; $36,000
B) $36,000; $32,000
C) $28,800; $32,000
D) $28,000; $28,800

Question 8

Suppose that you have private health insurance.Last year you were injured once,which represented the only time you had a medical expense.At the time,you paid $25 to see the doctor,who referred you to a specialist.The total bill for the specialist was $1,100.You paid the first $500,then 10% of the additional $600 (equal to $60). Which of the following is the copayment?

A) the $25 paid for the doctor visit
B) the $60 paid toward the cost of seeing the specialist
C) the $1,100 that the specialist received
D) the $500 you paid toward the cost of the specialist

Question 9

Which of the following explains why nearly all firms with more than 200 employees offer health insurance,while only 55% of firms with fewer than 10 employees provide health insurance?

A) The expected expenditure per worker is smaller for large firms than for small firms.
B) Administrative costs per worker increase as the number of insured employees increases.
C) The expected expenditure per worker is more predictable for large firms than it is for small firms.
D) Health insurance companies target employers with fewer than 10 employees.

Question 10

Which of the following is TRUE?

A) Current tax law provides a subsidy to employees for insurance purchased in the employment setting.
B) Current tax law provides a subsidy to employers for providing health insurance to employees.
C) Currently,tax law treats health insurance purchased in the employment setting the same as it treats health insurance purchased in the private market.
D) Nearly all individuals not covered by employer or public insurance obtain health insurance in the private market.

Question 11

Which of the following increases the predictability of medical risk distributions for insurance risk pools?

A) the individuals in the group having the average medical risk of their age and sex group
B) the presence of adverse selection
C) smaller,more manageable groups rather than large groups
D) more diverse groups in each risk pool

Question 12

Which of the following is the percentage of each medical bill (e.g.,20%)that the patient pays rather than a flat dollar amount?

A) copayment
B) premium
C) coinsurance
D) deductible

Question 13

Which of the following is referred to as a fixed payment made by a privately insured patient in exchange for receiving a medical good or service?

A) copayment
B) premium
C) coinsurance
D) deductible

Question 14

Which of the following is NOT true regarding health care in the United States?

A) Health care spending is much higher in the United States than in the typical industrialized nation.
B) Prescription drug spending accounts for almost half of health spending.
C) In 2010,approximately 16% of the population was uninsured.
D) The most important source of health insurance in the United States is private insurance.

Question 15

Elise's health insurance policy has a deductible of $500,a $20 copayment on doctor visits,and coinsurance of 10% on all expenses other than those for which there are copayments.She visited the doctor four times last year (doctor's fee is $40 per visit)and underwent a surgery that cost $3,000.If instead she had had a policy with a $1,000 deductible,a $10 copayment on doctor visits,and no coinsurance,which of the following is TRUE regarding her expenses (excluding the cost of the insurance)?

A) With the higher deductible,she would have saved between $70 and $249 relative to what she paid with her actual policy.
B) With the higher deductible,she would have saved more than $250 relative to what she paid with her actual policy.
C) With the higher deductible,she would have spent at least $300 more than she paid with her actual policy.
D) With the higher deductible,she would have spent between $50 and $250 more than she paid with her actual policy.

Question 16

Suppose that you have private health insurance.Last year you were injured once,which represented the only time you had a medical expense.At the time,you paid $25 to see your doctor,who referred you to a specialist.The total bill for the specialist was $1,100.You paid the first $500,then 10% of the additional $600 (equal to $60).Which of the following is the deductible?

A) the $25 paid for the doctor visit
B) the $60 paid toward the cost of seeing the specialist
C) the difference between the $25 paid to the doctor and what the doctor actually received (that is,the amount the insurance company paid the doctor)
D) the $500 you paid toward the cost of the specialist

Question 17

According to a 2012 study by the Institute of Medicine,the main areas of wasteful spending in health care include:

A) medical malpractice insurance premiums and procedures designed to avoid malpractice claims.
B) extended hospital stays and repeated services.
C) inflated prices,excess administrative costs,and unnecessary services.
D) unnecessary nursing services and excess medication.

Question 18

Which of the following would make selling insurance to employees of a given firm problematic for the insurer in terms of risk pooling?

A) The firm employs a large group of people.
B) All workers are required to participate in the group insurance plan.
C) Workers take into account their health status when choosing which firm to work for.
D) Workers do not take into account their health status when choosing which firm to work for.

Question 19

Health insurance premiums are typically lower when a large group is insured because:

A) larger groups have lower medical expenditures per person,on average.
B) larger groups have more predictable medical expenditures per person,on average.
C) administrative costs increase proportionally with the size of the group.
D) the insurance company can pick and choose which group members to cover.

Question 20

One reason employers are the predominant source of health insurance is because:

A) insuring at the firm level reduces the extent to which insurance has moral hazard effects.
B) insuring at the firm level allows insurers to create large insurance pools with a predictable distribution of medical risk.
C) government regulation requires that employee compensation include a non-cash component and health insurance premiums qualify.
D) it is efficient from society's perspective to link employment and health insurance coverage.

Question 21

Which of the following is TRUE regarding uninsured individuals in the United States,on average?

A) They have higher-than-average incomes.
B) They have lower-than-average incomes.
C) Approximately two-thirds of them are in the family of current or former military personnel.
D) They tend to have jobs that require a college degree.

Question 22

Retrospective reimbursement generally:

A) creates incentives for providers to skimp on the quality of health care.
B) causes providers to choose the efficient level of health care services.
C) has no effect on the choice between low-quality and high-quality health care.
D) provides little incentive to economize on health care services.

Question 23

Which of the following is a reason the high number of uninsured may be a problem?

A) Because the uninsured may receive uncompensated care,the necessary cost shifting increases the prices for insured patients.
B) Uninsured individuals fully comprehend the risks of being uninsured.
C) Insured individuals have a better job match and are thus more productive workers.
D) Those without insurance are not entitled to medical care in hospital emergency rooms.

Question 24

A person with health insurance who pays 80% of the cost of all medical services consumes:

A) more than the socially optimal amount of medical services since the marginal cost is so high.
B) more than the socially optimal amount of medical services since the marginal cost is so low.
C) less than the socially optimal amount of medical services since the marginal cost is so high.
D) less than the socially optimal amount of medical services since the marginal cost is so low

Question 25

Most recipients of Medicaid are ____________; most of the costs of Medicaid are associated with benefits received by _____________.

A) low-income elderly; low-income mothers and children
B) low-income mothers and children; low-income elderly
C) military retirees; disabled veterans
D) disabled veterans; military retirees

Question 26

Suppose that you want to estimate how health insurance affects the mobility rate of workers.Which of the following is a problem with identifying this effect when you compare the mobility rate of those who have insurance with that of those who do not have insurance?

A) Jobs that offer health insurance tend to be the same in other ways (e.g.,pension plans or vacation).
B) Jobs that offer health insurance may be better in other ways (e.g.,pension plans or vacation).
C) Those with health insurance may not want to switch jobs because they are fearful of losing their insurance.
D) Health insurance does not affect worker mobility since workers are able to keep their insurance after changing jobs.

Question 27

Suppose that your friend applies for private insurance and resents the number of questions asked on the application.He states that since the primary contribution of insurance companies is to pool the risk of many individuals,they should care less about the characteristics of any one applicant and more about increasing the number of the patients that they insure.Furthermore,he states,when he had insurance through his employer,he hardly had to answer any questions.Use economic reasoning to explain to your friend the insurance company's behavior.

Question 28

As the case of McAllen,TX,shows,there are significant differences in spending under Medicare across health referral regions (HRRs).Which factor primarily explains these differences?

A) differences in sickness rates across HRRs
B) higher-quality medical care in some areas than others
C) variations in fee schedules across HRRs
D) higher utilization of health services in some areas than others

Question 29

According to the notion that flat-of-the-curve medicine is practiced in the United States,which of the following best describes the marginal health benefit from the next dollar of medical spending?

A) It decreases as more is spent on health care.
B) It increases as more is spent on health care.
C) It first increases and then decreases as more is spent on health care.
D) It first decreases and then increases as more is spent on health care.

Question 30

Suppose that you break your arm and incur your first medical expense ($2,000)of the year.Which of the following is consistent with having an insurance plan that provides first-dollar coverage?

A) You pay the entire $2,000 bill,since it is below the insurance plan's coverage.
B) The insurance company pays the entire bill.
C) You pay 20% of the bill ($400).
D) You pay a $50 copayment and insurance covers the remaining expense.

Question 31

What are the five fundamental reasons that government may care about the number of uninsured? Discuss.

Question 32

If there are moral hazards associated with health insurance,then why not eliminate health insurance entirely and have individuals pay the full cost of their health care?

Question 33

Which elasticity of demand with respect to health care would have the highest deadweight loss of insurance coverage,all other things equal?

A) -0.5
B) -1
C) -2
D) -3

Question 34

The unwillingness to move to a better job for fear of losing health insurance is referred to as ________ and results from being ___________.

A) moral hazard; insured through the private market
B) job lock; insured through one's employer
C) job lock; uninsured
D) first-dollar coverage; insured through one's employer

Question 35

Retrospective reimbursement provides financial incentives for _______ medical care; prospective reimbursement provides financial incentives for _______ medical care.

A) efficient; inefficient
B) excessive; efficient
C) insufficient; efficient
D) excessive; insufficient

Question 36

Suppose that a healthy individual has worked for 10 years in Medicare-covered employment.At what age can this individual start receiving Medicare?

A) age 65
B) age 62
C) the age at which that individual starts to receive Social Security benefits
D) depends on the average income that the individual had earned in those highest paid 10 years of Medicare-covered employment

Question 37

Which of the following health insurance policies is most likely to lead to the optimal consumption of health care services?

A) Copayments are 50%,but there is no deductible.
B) Copayments are 0%,and there is no deductible.
C) Copayments are 25% until the insured individual pays $5,000,after which the copayment is 0%.
D) There is a $5,000 deductible,after which the copayment is 0%.

Question 38

If you have a health insurance policy with a $500 deductible,a $30 copayment for visits to the doctor (doctor's fee is $60/visit),and 5% coinsurance on covered expenses (excluding doctor's visits),how much of your health insurance expenses would the insurer pay if you went to the doctor twice and had a surgery that cost $1,500?

A) $635
B) $985
C) $610
D) $1,010

Question 39

For which of the following events is the consumption-smoothing benefit from first-dollar coverage small?

A) predictable events
B) costly events that occur only very infrequently
C) events such as serious injuries from car accidents
D) injuries that are caused by the negligence of other people

Question 40

The main difference between retrospective reimbursement and prospective reimbursement is that retrospective reimbursement creates incentives for ________ care and prospective reimbursement creates incentives for ________ care.

A) preventive; efficient
B) efficient; preventive
C) too much; too little
D) too little; too much

Question 41

Assume that the marginal cost (supply)of influenza vaccinations is constant at $40.Assume that everyone in society has health insurance that pays 80% of all medical services,including flu shots.Assume that there are no external benefits associated with these vaccinations.Draw the market demand for flu shots and show graphically what the socially optimal number of flu shots is.Show how many flu shots will be provided in this market given the insurance.Show the deadweight loss caused by the health insurance.

Question 42

What is a health savings account (HSA)? What is the goal of the creation of such accounts?

Question 43

Suppose that 75% of medical expenses were incurred by 10% of individuals.What would the implication of such a fact be for the success of health savings accounts (HSAs)in reducing the moral hazards associated with insurance? Explain.

Question 44

Imagine two scenarios.In scenario 1,you have a $1 million health insurance policy.In scenario 2 you do not have health insurance.You earn an income of $40,000 and have $60,000 in savings.In both scenarios,you fall ill with exactly the same serious illness.In scenario 1,you undergo treatment that costs $850,000.In scenario 2,you undergo treatment that costs $50,000.Can you identify the moral hazard costs of health insurance in this case? If so,what are they? If not,why not? Explain your answer.