Deck 13: Macroeconomics and Medical Care

Question 1

If the number of people diagnosed with chronic diseases doubles next year, the amount of capital and labor resources required to treat those people will have to double next year too.

Answer 1

False

Question 2

Macroeconomic studies would be more interested in the trend in overweight and obesity in the U.S. and other OECD countries rather than the percent of public spending on health care.

Answer 2

False

Question 3

All other things equal, if an individual earning $100,000 per year has an income elasticity of demand for health care of 0.4, if her salary increases by 10%, her expenditures on health care will increase by $4,000.

Answer 3

True

Question 4

GDP in country X is $2,900 per capita, or about $3.3 trillion for all of country X. If the expected growth in the real GDP of country X is estimated to be about 7% for next year, health expenditures should increase by at least $203 per capita.

Question 5

Your father is unable to perform many of the activities of daily living (ADL), including feeding and bathing himself. He considers moving from his apartment to a nursing home. The nursing home application asks for financial information from you and your siblings concerning how much you are able to contribute financially to his care. This is an example that the shared income hypothesis is being employed.

Question 6

It took about 8 years for the Health Professions Educational Assistance Act of 1963 to show the fully intended increase in the physician supply.

Question 7

The Iron Law means that, without exceptions, medical income may exceed medical spending by no more than 15%.

Question 8

Unintended consequences of price controls are often misinterpreted or ignored by proponents of such controls because the effects take a few years to work through the health care system.

Question 9

The effect of cost controls implemented under the institution of the DRG payment structure to hospitals has been blunted by the general trend for increased out-patient expenditures.

Question 10

Most health economists view the role of regulation in healthcare industry negatively, pointing to the fact that in the past all attempts to control costs through regulation has been largely unsuccessful.

Question 11

The Iron Law: Medical Costs = Medical Incomes is the same as the identity specified by health economist Uwe Reinhardt as the Alfred E. Neuman's Cosmic Law of Health Care, "Every dollar of health spending is someone else's health-care income, including fraud, waste and abuse."

Question 12

There is a strong correlation between macroeconomic fluctuations and growth trends in the healthcare sector.

Question 13

Most of the increase in the labor portion of total health care expenditures in the past 40 years can be explained by

A) increased real wages of physicians.
B) increased real wages of non-physician health care personnel.
C) increased number of non-physician health care personnel.
D) decreased number of physicians combined with increased demand for physicians.
E) shared income hypothesis.

Question 14

It is unlikely that health care industry employment will fall significantly during a recession because

A) employment in health care does not respond to economic fluctuations.
B) employment in health care lags behind economic downturns because of fixed contracts.
C) employers will hire more part time employees.
D) employers will use less part time employee hours.
E) employers will reduce or cancel overtime hours for full-time employees.

Question 15

Real health care wages have risen over the past forty years because

A) of government policies which provided incentives for that.
B) of a long-lasting impact from the Medicare enactment in 1965.
C) prices in the healthcare industry were rising faster than the inflation rate in the rest of the economy.
D) a greater share of each dollar spent has been allocated to healthcare.
E) growth in real health care wages is primarily determined by the shared income hypothesis.

Question 16

The major determinants of total health care spending are

A) microeconomic factors.
B) GDP, population and inflation.
C) the nation's health status, population, and inflation.
D) society's elasticity of demand for health care, national income, and government regulation.
E) individual elasticity of demand for health care, national income and population.

Question 17

Special tax treatment for health insurance payments, government payment of almost half of all health expenditures, government supported funding of research and regulations under the Employee Retirement Income Security Act of 1974 (ERISA)

A) are all part of the lifecycle income hypothesis.
B) are all part of the permanent income hypothesis which says that the income of the social and political group to which a person belongs determines her current health expenditures.
C) are all part of the shared income hypothesis which says that a person's expected income determines her current health expenditures.
D) the permanent income hypothesis which says that a person's expected income determines her current health expenditures.
E) the shared income hypothesis which says that the income of the social and political group to which a person belongs determines her current health expenditures.

Question 18

When examining the relationship between the rates of growth of health expenditures and GDP in order to build a model for forecasting healthcare expenditures, the most precise estimate would come from using __________ as an independent variable.

A) year-to-year changes in GDP.
B) averaged GDP rates of growth over the 3-year periods.
C) averaged GDP rates of growth over the 5-year periods.
D) averaged GDP rates of growth over the 8-year periods.
E) averaged GDP rates of growth over the 10-year periods.

Question 19

The response of the health care industry to legislative and macroeconomic shocks is delayed due to the lengthy nature of training for many health care jobs, the contractual arrangements for many health care jobs, and the process of adjustments across the economy. Which of the historical examples below does not serve as an illustration of this phenomenon?

A) Unexpected inflationary spending in 1977 was not realized immediately in health care.
B) The 1987 stock market crash had little impact on 1988 health care employment levels.
C) The recession of 2007-2009 had little impact on health care employment levels.
D) It took about seven years to realize the total rise in employment attributable to passage of Medicare in 1965.
E) Spike in drug utilization between the months of January and May of 2006 was a result of the enactment of Medicare Part D in January 2006, which provided prescription drug coverage for seniors.

Question 20

If the inflation rate in the U.S. was 1.5% in 2010 and 3.0% in 2011, then we can estimate that the contribution of these inflationary trends towards the increase in healthcare expenditures in 2011 was

A) 1.5%
B) 2.0%
C) 3.0%
D) 4.0%
E) 4.5%

Question 21

Which of the following statements is true?

A) For many decades, employment in the healthcare sector has been growing at least twice as fast compared to the employment growth across all industries.
B) The major portion of healthcare expenditures in the U.S. is spending on land and capital.
C) Even though dozens of new healthcare occupations emerge each year, employment growth in the healthcare industry is still primarily driven by expanding numbers of healthcare workers within the existing occupations.
D) One of the most important determinants of any nation's total healthcare spending is the overall health status of the nation: i.e. how healthy or how sick people are.
E) It is during the times of economic growth that Congress is mostly likely to consider introducing new cost control measures for the healthcare sector, as healthcare expenditures tend to grow especially fast at those times.

Question 22

If real healthcare expenditures per capita have grown 6% last year, while real GDP per capita has grown 3% last year, we can safely predict that the health share of GDP last year

A) has grown.
B) has declined.
C) has remained the same.
D) could have gone either way, as the precise answer depends on the population growth rate as well.
E) has no relationship to the facts mentioned above.

Question 23

When trying to forecast national healthcare expenditures many years into the future, economists rely on a combination of which two theories?

A) permanent income hypothesis and shared income hypothesis
B) shared income hypothesis and consumption function
C) consumption function and lagging inflation adjustment hypothesis
D) permanent income hypothesis and lagging inflation adjustment hypothesis
E) lagging inflation hypothesis and shared income hypothesis

Question 24

Which of the following is not among the methods of cost control used by the government during recent decades?

A) regulation of providers' prices
B) cap on providers' revenues
C) "voluntary efforts" to have hospitals reduce their prices
D) rationing of health care in general
E) introducing, under the Patient Protection and Affordable Care Act, a 25% discount on prescription drugs to seniors whose spending on prescription drugs under Medicare has reached the "donut hole" (the spending range where Medicare does not pay for prescription drugs anymore and seniors are fully responsible for the cost of drugs out of pocket).

Question 25

Discuss the correlation between GDP growth and health outcomes. Compare short-term trends vs. long-term trends. Why would this be an example of the fallacy of composition in health economics?

Question 26

Please explain the macroeconomic factors which allow individual income elasticity of medical care to be about 0.4 for individuals in the U.S, but in excess of 1.0 for the U.S. as a whole. Detail the budget constraints relevant in each case.

Question 27

Discuss the nature of health care spending as a derived demand for health in addressing variations in spending and health outcomes for different groups within the U.S.. Be sure to include input as well as output factors which determine health spending.

Question 28

"Unexpected inflation acts to redistribute earning power and wealth." Explain how this statement might mean that during periods of high inflation, workers in health care industry may actually be hurt more than workers in other industries.

Question 29

Explain why physician groups and health service workers' unions prefer stricter licensure requirements rather than cost control efforts from legislators.

Question 30

Karen Davis, health economist who served as deputy assistant secretary for health policy in the Department of Health and Human Services in the Carter administration, has been quoted (Health Affairs, 2009) as saying that industry response to Carter's "voluntary effort (VE)" legislation proposal "dissipated within three years of its initial roll-out in 1978 and had no lasting impact on rising hospital expenditures." Why would such a reminder be relevant more than 30 years later? What characteristic of health expenditure spending relative to the macroeconomy explains the failure of VE?