Deck 11: The Private Health Insurance Industry

Question 1

Individuals who have access to large-group coverage are _______ likely to fall victim of cherry-picking behavior because the total cost of health insurance is distributed among a _______ number of subscribers.

A) less; larger
B) more; larger
C) less; smaller
D) equally; similar
E) equally; larger

Answer 1

A

Question 2

Third-party payments provide incentives for the adoption of new technologies that may carry low benefits with high costs.

Answer 2

True

Question 3

Which of the following reasons might explain why health insurance purchased as a group might be less costly than coverage purchased individually?

A) Greater bargaining power
B) Risk spreading over a larger number of people
C) Lower marketing costs for the provider
D) Both a and b
E) All of the above

Answer 3

E

Question 4

_______ exist when the average total cost of providing insurance coverage decreases as a firm provides coverage for larger groups of people.

A) Moral Hazard
B) Asymmetric Information
C) Rationality
D) Scale Economies
E) Adverse Selection

Question 5

_______ occurs when insurance companies structure plans that provide an incentive for healthier consumers to enroll while discouraging enrollment of higher-risk individuals.

A) Moral Hazard
B) Asymmetric Information
C) Cherry-picking
D) Guaranteed renewability
E) Adverse Selection

Question 6

_______ reasons that firm-size classes with expanding populations are more efficient than those with shrinking populations over time.

A) Scale Economies
B) Economies of Scope
C) Survivor Theory
D) Search Frictions
E) none of the above

Question 7

Which of the following reasons might explain why managed care organizations might be able to lower healthcare costs with premiums similar to fee-for-service plans?

A) The lower health care costs of managed care plans may be offset by higher administrative costs.
B) Managed care organizations may set their premiums just below that of their competitors.
C) Managed care organizations may compete with one another based on service offerings rather than price.
D) Both a and c
E) All of the above

Question 8

An increased HMO presence in insurance markets will likely increase premiums for consumers.

Question 9

Scale economies may serve as a barrier to entry in the private health insurance market by mandating a tiered benefit system.

Question 10

People obtaining health insurance as part of a group are likely to pay higher premiums than those who acquire coverage individually.

Question 11

_______ occurs when consumers have less incentive to avoid risky behaviors.

A) Ex post moral hazard
B) Ex ante moral hazard
C) Adverse selection
D) Asymmetric information
E) none of the above

Question 12

To maximize profits, a dominant insurance provider will set the price for insurance such that the marginal revenue of providing coverage is _______ of providing coverage.

A) greater than the marginal cost
B) less than the average total cost
C) equal to the marginal cost
D) equal to the average total cost
E) none of the above

Question 13

_______ is the situation where insured individuals alter their behavior because they are no longer financially responsible for the full cost of their behavior.

A) Moral Hazard
B) Asymmetric Information
C) Rationality
D) Scale Economies
E) Adverse Selection

Question 14

_______ occurs when high-risk individuals subscribe to an insured group of low-risk individuals.

A) Moral Hazard
B) Asymmetric Information
C) Rationality
D) Scale Economies
E) Adverse Selection

Question 15

Health insurance mandates may result in market inefficiencies if the marginal cost of additional coverage exceeds the marginal benefit received.