Deck 10: The Market for Health Insurance: Its Performance and Structure

Question 1

Which of the following gave Blue Cross cost advantages compared to commercial health insurers?

A)Tax exemption
B)Economies of scale
C)Both a and b
D)Neither a nor b

Answer 1

A
Blue Cross was found to have increasing administrative cost as the number of enrollees expanded,but they did enjoy state (and federal up until 1986)tax exemption.

Question 2

A risk-averse consumer faces a 0.60 probability of health expenditures equal to $10,000 and zero expenditures otherwise.She can purchase a health insurance policy that will cover all her actual health costs for $6,000.It follows that

A)She will definitely not buy the health insurance policy
B)She will possibly buy the health insurance policy
C)She will definitely buy the health insurance policy

Answer 2

C
A risk-averse consumer prefers to pay the expected cost of $6,000 for her policy,rather than face the potential risk of $10,000.

Question 3

Health insurance enrollees are less likely to change their health insurance carrier when

A)Administrative costs are high
B)Administrative costs are low
C)Switching costs are high
D)Switching costs are low

Answer 3

C
Switching cost refers to the non-pecuniary cost associated with switching providers,such as finding new health providers and additional paperwork.

Question 4

Do high concentration ratios have an effect on input prices?

Question 5

Commercial insurers who use a(n)_____________ rating can steal ________ risk individuals from Blue Cross and Blue Shield and reduce cost.

A)Community;high
B)Community;low
C)Experience;high
D)Experience;low

Question 6

Assume a high-risk person;has a 0.50 probability of a $500 medical expense and a low-risk person has a 0.10 probability of a $500 medical expense.Both types of people are risk neutral.What is the community rating premium for a neighborhood containing exactly half of each type of person?

A)$300
B)$250
C)$150
D)$50

Question 7

Explain why insurance companies may be hesitant to increase relative premiums.

Question 8

Are high concentration ratios indicative of market power in the health insurance industry?

Question 9

Assume a high-risk;person has a 0.50 probability of a $500 medical expense and a low-risk person has a 0.10 probability of a $500 medical expense.Both types of people are risk averse.What is the community rating premium for a neighborhood containing exactly half of each type of person?

A)$300
B)$250
C)$150
D)$50

Question 10

A movement of the medical loss ratio from .6 to .8 indicates an

A)Increase in administrative cost per enrollee
B)Decrease in administrative cost per enrollee
C)No difference in administrative cost per enrollee

Question 11

Blue Cross and Blue Shield uses

A)Experience rating premiums
B)Community rating premiums
C)Uniform rating premiums

Question 12

The Health Insurance Portability and Accountability Act allows all the following except

A)Portability
B)Limitations on preexisting exclusions
C)Guaranteed renewal
D)Reduced the tax deductibility of health insurance premiums

Question 13

Explain why the use of community-rated premiums leads to economic inefficiencies.

Question 14

Premiums based on experience ratings

A)Are uniform across age groups.
B)Are based on the loss experience of the insured.
C)Vary depending on the income of the insured.
D)Are illegal in most states in the United States
E)Are only used in property-casualty insurance underwriting.

Question 15

If the health insurance premium is equal to $2,000 and administrative fees are $500,then what is the benefit/premium ratio?

A).25
B).50
C).75
D)Cannot be calculated with the above information

Question 16

Assume the health insurance market is perfectly competitive.If the benefit/premium ratio is 0.90 and the premium is $1,000,how much are administrative cost?

Question 17

Firms self-insure to

A)Save money on premiums.
B)Avoid state insurance regulation.
C)Create uniform benefit packages for employees who live in different states.
D)All of the above.

Question 18

A strong individual mandate with large fines is __________ by insurers because it will _______ adverse selection.

A)Supported;reduce
B)Supported;increase
C)Not supported;reduce
D)Not supported;increase

Question 19

Monopsony power by health insurance plans can lead to

A)Fewer providers and higher quality of care
B)Fewer providers and lower quality of care
C)More providers and higher quality of care
D)More providers and lower quality of care

Question 20

A flat premium for all risk types will lead to

A)Adverse selection
B)Moral hazard
C)Both a and b
D)Neither a nor b