TEST BANK for Health Economics and Policy 8th Edition by Henderson James. ISBN 9780357132968, ISBN13

Chapter 01: U.S. Medical Care: A System at the Crossroads 1. Charging higher prices for one category of patients in order to provide free or subsidized care to another group is called: a. price discrimination. b. cost shifting. c. categorical costing. d. reprehensible and unethical. e. creative accounting.

ANSWER: b FEEDBACK: a. Incorrect. Cost shifting is the practice of charging higher prices to one group of patients, usually those with private health insurance, in order to subsidize the care of those whose payments do not cover the fully allocated cost of the care they receive. b. Correct. Cost shifting is the practice of charging higher prices to one group of patients, usually those with private health insurance, in order to subsidize the care of those whose payments do not cover the fully allocated cost of the care they receive. c. Incorrect. Cost shifting is the practice of charging higher prices to one group of patients, usually those with private health insurance, in order to subsidize the care of those whose payments do not cover the fully allocated cost of the care they receive. d. Incorrect. Cost shifting is the practice of charging higher prices to one group of patients, usually those with private health insurance, in order to subsidize the care of those whose payments do not cover the fully allocated cost of the care they receive. e. Incorrect. Cost shifting is the practice of charging higher prices to one group of patients, usually those with private health insurance, in order to subsidize the care of those whose payments do not cover the fully allocated cost of the care they receive.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 1-1a - Emergence of the Modern Medical System DATE CREATED: 1/24/2022 3:04 AM DATE MODIFIED: 2/9/2022 7:28 AM 2. In the 1960s, individuals paid for the majority of their medical care out of pocket. Increased insurance coverage, both private and public, displaced out-of-pocket spending as the primary source of payment. By 2020, what was the forecasted percentage amount of health care spending paid by individuals? a. 6 percent b. 10.4 percent c. 11.6 percent d. 17.4 percent e. Whatever amount we are currently spending ANSWER: b FEEDBACK: a. Incorrect. The amount that individuals paid out of pocket for health care expenditures declined from 17.4 percent in the 1960s to a forecasted 10.4 percent in 2020, according to Centers for Medicare and Medicaid Services (CMS.gov). b. Correct. The amount that individuals paid out of pocket for health care

expenditures declined from 17.4 percent in the 1960s to a forecasted 10.4 percent in 2020, according to Centers for Medicare and Medicaid Services (CMS.gov). c. Incorrect. The amount that individuals paid out of pocket for health care expenditures declined from 17.4 percent in the 1960s to a forecasted 10.4 percent in 2020, according to Centers for Medicare and Medicaid Services (CMS.gov). d. Incorrect. The amount that individuals paid out of pocket for health care expenditures declined from 17.4 percent in the 1960s to a forecasted 10.4 percent in 2020, according to Centers for Medicare and Medicaid Services (CMS.gov). e. Incorrect. The amount that individuals paid out of pocket for health care expenditures declined from 17.4 percent in the 1960s to a forecasted 10.4 percent in 2020, according to Centers for Medicare and Medicaid Services (CMS.gov).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 1-1c - Recent Changes in the Payment Structure DATE CREATED: 1/24/2022 3:09 AM DATE MODIFIED: 2/9/2022 7:41 AM 3. When someone mentions the “managed care” approach to health care, what are they referring to? Be sure to include the term “horizontal integration” in your answer.

ANSWER: Managed care refers to a delivery system that originally integrated the financing and provision of medical care into one organization. Now the term encompasses different arrangements designed to coordinate services and control costs, such as an HMO, a PPO, or a point-of-service plan. Horizontal integration is the process by which this was carried out, transforming a highly fragmented industry into a single multihospital system.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 1-1b - Recent Changes in Medical Care Delivery DATE CREATED: 1/24/2022 3:14 AM DATE MODIFIED: 2/9/2022 7:41 AM 4. The 1974 federal legislation that exempted employers from certain state laws governing health insurance was: a. COBRA. b. ERISA. c. CON. d. HIPAA. e. SCHIP. ANSWER: b FEEDBACK: a. Incorrect. Passed to regulate the corporate use of pension funds, the Employee Retirement and Income Security Act (ERISA) of 1974 also exempted selfinsured health plans from state-level health insurance regulations. Today, over two-thirds of all workers with employer-sponsored insurance are covered by self-insured plans. b. Correct. Passed to regulate the corporate use of pension funds, the Employee

Retirement and Income Security Act (ERISA) of 1974 also exempted selfinsured health plans from state-level health insurance regulations. Today, over two-thirds of all workers with employer-sponsored insurance are covered by self-insured plans. c. Incorrect. Passed to regulate the corporate use of pension funds, the Employee Retirement and Income Security Act (ERISA) of 1974 also exempted selfinsured health plans from state-level health insurance regulations. Today, over two-thirds of all workers with employer-sponsored insurance are covered by self-insured plans. d. Incorrect. Passed to regulate the corporate use of pension funds, the Employee Retirement and Income Security Act (ERISA) of 1974 also exempted selfinsured health plans from state-level health insurance regulations. Today, over two-thirds of all workers with employer-sponsored insurance are covered by self-insured plans. e. Incorrect. Passed to regulate the corporate use of pension funds, the Employee Retirement and Income Security Act (ERISA) of 1974 also exempted selfinsured health plans from state-level health insurance regulations. Today, over two-thirds of all workers with employer-sponsored insurance are covered by self-insured plans.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 1-1a - Emergence of the Modern Medical System DATE CREATED: 1/24/2022 3:15 AM DATE MODIFIED: 2/9/2022 7:42 AM 5. The key elements of the Affordable Care Act (ACA) passed in 2010 included all of the following except: a. a mandate that required individuals and every employer with over 50 full-time workers to provide a qualified health plan at an affordable price or face penalties. b. expanded insurance regulations include guaranteed issue, guaranteed renewability, and no exclusions for preexisting conditions. c. the establishment of insurance exchanges where individuals who did not have access to employer-sponsored insurance could receive subsidies to purchase private coverage. d. a federal requirement that states extend Medicaid coverage to individuals with family income less than 138 percent of the federal poverty level. e. price controls on brand name pharmaceuticals.

ANSWER: e FEEDBACK: a. Incorrect. Mandates, new insurance regulation, health insurance exchanges, and a mandatory Medicaid expansion were all part of the original ACA passed in 2010. Two years later, the Supreme Court ruled that states were not required to expand Medicaid coverage, but could do so voluntarily. Pharmaceutical price controls were not a part of the legislation. b. Incorrect. Mandates, new insurance regulation, health insurance exchanges, and a mandatory Medicaid expansion were all part of the original ACA passed in 2010. Two years later, the Supreme Court ruled that states were not required to expand Medicaid coverage, but could do so voluntarily. Pharmaceutical price controls were not a part of the legislation. c. Incorrect. Mandates, new insurance regulation, health insurance exchanges, and a mandatory Medicaid expansion were all part of the original ACA passed in 2010. Two years later, the Supreme Court ruled that states were not required to expand Medicaid coverage, but could do so voluntarily. Pharmaceutical price controls were not a part of the legislation. d. Incorrect. Mandates, new insurance regulation, health insurance exchanges,

and a mandatory Medicaid expansion were all part of the original ACA passed in 2010. Two years later, the Supreme Court ruled that states were not required to expand Medicaid coverage, but could do so voluntarily. Pharmaceutical price controls were not a part of the legislation. e. Correct. Mandates, new insurance regulation, health insurance exchanges, and a mandatory Medicaid expansion were all part of the original ACA passed in 2010. Two years later, the Supreme Court ruled that states were not required to expand Medicaid coverage, but could do so voluntarily. Pharmaceutical price controls were not a part of the legislation.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 1-2b - The Key Elements of the ACA DATE CREATED: 1/24/2022 3:18 AM DATE MODIFIED: 2/9/2022 7:42 AM 6. One of the key elements of ACA was the establishment of health care insurance exchanges. Describe briefly what an insurance exchange is and cite at least one example of a government-run exchange.

ANSWER: A health care insurance exchange is a digital marketplace available in every state where individuals can shop for health insurance and receive government subsidies, making it more affordable. The so-called Obamacare is one plan, but several other states have their own exchanges, such as the plan in California, which is called “Covered California.”

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 1-2b - The Key Elements of the ACA DATE CREATED: 1/24/2022 3:21 AM DATE MODIFIED: 2/9/2022 7:43 AM 7. Since ACA was passed in 2010, there have been many efforts to have the bill thrown out or at least watered down.

Most attempts have been unsuccessful. However, one key elements of ACA was successful, which was to: a. overturn expanded Medicaid availability. b. eliminate health care exchanges. c. eliminate the tax penalty for the individual mandate. d. reduce Medicare spending to fund coverage for non-Medicare recipients. e. expand regulation of the private health insurance market.

ANSWER: c FEEDBACK: a. Incorrect. Four of the five choices were accomplished in some respect, with the exception of the elimination of the tax penalty, which has been set at $0. The tax penalty was eliminated after the end of 2018, under the terms of the Tax Cuts and Jobs Act of 2017. b. Incorrect. Four of the five choices were accomplished in some respect, with the exception of the elimination of the tax penalty, which has been set at $0. The tax penalty was eliminated after the end of 2018, under the terms of the Tax Cuts and Jobs Act of 2017. c. Correct. Four of the five choices were accomplished in some respect, with the exception of the elimination of the tax penalty, which has been set at $0. The tax penalty was eliminated after the end of 2018, under the terms of the Tax Cuts and Jobs Act of 2017.

d. Incorrect. Four of the five choices were accomplished in some respect, with the exception of the elimination of the tax penalty, which has been set at $0. The tax penalty was eliminated after the end of 2018, under the terms of the Tax Cuts and Jobs Act of 2017. e. Incorrect. Four of the five choices were accomplished in some respect, with the exception of the elimination of the tax penalty, which has been set at $0. The tax penalty was eliminated after the end of 2018, under the terms of the Tax Cuts and Jobs Act of 2017.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 1-2e - Changes in the System Since Passage DATE CREATED: 1/24/2022 3:22 AM DATE MODIFIED: 2/9/2022 7:43 AM 8. Self-insurance refers to the practice of setting aside funds to pay for medical care expenses instead of paying premiums to an insurance company. Approximately, how many of all employees who participate in group insurance plans work for firms that self-insure? a. one-fourth b. one-third c. one-half d. two-thirds e. three-fourths ANSWER: d FEEDBACK: a. Incorrect. Of the 157.6 million individuals insured by employer-sponsored plans in 2016, over 105 million received their coverage in self-insured plans. See Edmund Haislmaier and Drew Gonshorowski, “2016 Health Insurance Enrollment: Private Coverage Declined, Medicaid Growth Slowed,” Heritage Foundation, Issue Brief No. 4743, July 26, 2017. b. Incorrect. Of the 157.6 million individuals insured by employer-sponsored plans in 2016, over 105 million received their coverage in self-insured plans. See Edmund Haislmaier and Drew Gonshorowski, “2016 Health Insurance Enrollment: Private Coverage Declined, Medicaid Growth Slowed,” Heritage Foundation, Issue Brief No. 4743, July 26, 2017. c. Incorrect. Of the 157.6 million individuals insured by employer-sponsored plans in 2016, over 105 million received their coverage in self-insured plans. See Edmund Haislmaier and Drew Gonshorowski, “2016 Health Insurance Enrollment: Private Coverage Declined, Medicaid Growth Slowed,” Heritage Foundation, Issue Brief No. 4743, July 26, 2017. d. Correct. Of the 157.6 million individuals insured by employer-sponsored plans in 2016, over 105 million received their coverage in self-insured plans. See Edmund Haislmaier and Drew Gonshorowski, “2016 Health Insurance Enrollment: Private Coverage Declined, Medicaid Growth Slowed,” Heritage Foundation, Issue Brief No. 4743, July 26, 2017. e. Incorrect. Of the 157.6 million individuals insured by employer-sponsored plans in 2016, over 105 million received their coverage in self-insured plans. See Edmund Haislmaier and Drew Gonshorowski, “2016 Health Insurance Enrollment: Private Coverage Declined, Medicaid Growth Slowed,” Heritage Foundation, Issue Brief No. 4743, July 26, 2017.

POINTS: QUESTION TYPE: HAS VARIABLES:

1 Multiple Choice False

LEARNING OBJECTIVES: 1-1b - Recent Changes in Medical Care Delivery DATE CREATED: 1/24/2022 3:36 AM DATE MODIFIED: 2/9/2022 7:43 AM 9. Since 1950, U.S. health care spending has grown from an average of 4.5 percent of GDP to an estimated forecast of percent of GDP in 2020. a. 5 b. 10 c. 12 d. 18 e. 25 ANSWER: d FEEDBACK: a. Incorrect. Since 1950, U.S. health care spending has grown from an average of 4.5 percent to an estimated forecast of 18 percent of GDP, according to the Centers for Medicare and Medicaid Services (April 2020). b. Incorrect. Since 1950, U.S. health care spending has grown from an average of 4.5 percent to an estimated forecast of 18 percent of GDP, according to the Centers for Medicare and Medicaid Services (April 2020). c. Incorrect. Since 1950, U.S. health care spending has grown from an average of 4.5 percent to an estimated forecast of 18 percent of GDP, according to the Centers for Medicare and Medicaid Services (April 2020). d. Correct. Since 1950, U.S. health care spending has grown from an average of 4.5 percent to an estimated forecast of 18 percent of GDP, according to the Centers for Medicare and Medicaid Services (April 2020). e. Incorrect. Since 1950, U.S. health care spending has grown from an average of 4.5 percent to an estimated forecast of 18 percent of GDP, according to the Centers for Medicare and Medicaid Services (April 2020).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 1-1a - Emergence of the Modern Medical System DATE CREATED: 1/24/2022 3:42 AM DATE MODIFIED: 2/9/2022 7:44 AM 10. Even in the US, approximately, what percent of medical care is purchased through insurance, government programs or other third party insurers? a. 50 b. 60 c. 75 d. 90 e. 100 ANSWER: d FEEDBACK: a. Incorrect. In the United States, out-of-pocket costs only account for 10.6 percent of health care spending, while the other 89.4 percent is made up of insurance or government-run institutions in 2020. b. Incorrect. In the United States, out-of-pocket costs only account for 10.6 percent of health care spending, while the other 89.4 percent is made up of insurance or government-run institutions in 2020. c. Incorrect. In the United States, out-of-pocket costs only account for 10.6 percent of health care spending, while the other 89.4 percent is made up of

insurance or government-run institutions in 2020.

d. Correct. In the United States, out-of-pocket costs only account for 10.6 percent of health care spending, while the other 89.4 percent is made up of insurance or government-run institutions in 2020. e. Incorrect. In the United States, out-of-pocket costs only account for 10.6 percent of health care spending, while the other 89.4 percent is made up of insurance or government-run institutions in 2020.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 1-1c - Recent Changes in the Payment Structure DATE CREATED: 1/24/2022 4:04 AM DATE MODIFIED: 2/9/2022 7:44 AM 11. Opportunity cost measures: a. foregone opportunities. b. value-based prices. c. value in terms of the cost of production. d. the difference between production cost and resource cost. e. total accounting cost.

ANSWER: a FEEDBACK: a. Correct. Opportunity cost is the cost of a decision based on the value of the next best alternative use of the resources. b. Incorrect. Opportunity cost is the cost of a decision based on the value of the next best alternative use of the resources. c. Incorrect. Opportunity cost is the cost of a decision based on the value of the next best alternative use of the resources. d. Incorrect. Opportunity cost is the cost of a decision based on the value of the next best alternative use of the resources. e. Incorrect. Opportunity cost is the cost of a decision based on the value of the next best alternative use of the resources.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 1-3 - Ten Key Economic Concepts DATE CREATED: 1/24/2022 4:38 AM DATE MODIFIED: 2/28/2022 8:11 AM 12. The opportunity cost of investing in a new lithotripter (a machine that pulverizes kidney stones with sound waves) is: a. defined by the dollar cost of the equipment. b. the same for every health care provider. c. measured by the difference between the expected revenues from selling the services of the lithotripter and the invoice cost of the machine. d. defined by the next best use of the money invested in the equipment. e. impossible to calculate.

ANSWER: d FEEDBACK: a. Incorrect. Opportunity cost is the cost of a decision based on the value of the next-best alternative use of the resources.

b. Incorrect. Opportunity cost is the cost of a decision based on the value of the next-best alternative use of the resources. c. Incorrect. Opportunity cost is the cost of a decision based on the value of the next-best alternative use of the resources. d. Correct. Opportunity cost is the cost of a decision based on the value of the next-best alternative use of the resources. e. Incorrect. Opportunity cost is the cost of a decision based on the value of the next-best alternative use of the resources.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 1-3 - Ten Key Economic Concepts DATE CREATED: 1/24/2022 4:43 AM DATE MODIFIED: 2/9/2022 7:45 AM 13. According to Adam Smith’s terminology, the “invisible hand” refers to: a. government control of the market. b. market forces working through the price mechanism. c. the money supply that serves to keep the economy working smoothly. d. the role of innovation in maintaining a steady rate of growth. e. “behind-the-scenes” policymaking to influence how markets allocate scarce resources.

ANSWER: b FEEDBACK: a. Incorrect. The term is a metaphor used by Adam Smith in his 1776 treatise The Wealth of Nations. It refers to the interaction of the forces of supply and demand in competitive markets that result in a free market equilibrium. Buyers willing to pay the equilibrium price can find willing providers to sell to them at that price. The market clears and resources are allocated efficiently. b. Correct. The term is a metaphor used by Adam Smith in his 1776 treatise The Wealth of Nations. It refers to the interaction of the forces of supply and demand in competitive markets that result in a free market equilibrium. Buyers willing to pay the equilibrium price can find willing providers to sell to them at that price. The market clears and resources are allocated efficiently. c. Incorrect. The term is a metaphor used by Adam Smith in his 1776 treatise The Wealth of Nations. It refers to the interaction of the forces of supply and demand in competitive markets that result in a free market equilibrium. Buyers willing to pay the equilibrium price can find willing providers to sell to them at that price. The market clears and resources are allocated efficiently. d. Incorrect. The term is a metaphor used by Adam Smith in his 1776 treatise The Wealth of Nations. It refers to the interaction of the forces of supply and demand in competitive markets that result in a free market equilibrium. Buyers willing to pay the equilibrium price can find willing providers to sell to them at that price. The market clears and resources are allocated efficiently. e. Incorrect. The term is a metaphor used by Adam Smith in his 1776 treatise The Wealth of Nations. It refers to the interaction of the forces of supply and demand in competitive markets that result in a free market equilibrium. Buyers willing to pay the equilibrium price can find willing providers to sell to them at that price. The market clears and resources are allocated efficiently.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 1-3 - Ten Key Economic Concepts

DATE CREATED: DATE MODIFIED:

1/24/2022 4:47 AM 2/9/2022 7:45 AM

14. Economists use the term marginal to describe costs and benefits: a. that are minimal and hardly worth noting. b. that are incremental and thus relevant to decision making. c. that are noteworthy but not the most important. d. whose importance can be minimized through hard work. e. that are poorly defined.

ANSWER: b FEEDBACK: a. Incorrect. Marginal analysis is the economic way of thinking about optimal decision making. Choices are seldom all-or-none propositions—decisions are made at the margin. Real-world decisions are usually a matter of trading off one option for another. Resources are scarce. There are never enough resources to satisfy everyone with everything they want. b. Correct. Marginal analysis is the economic way of thinking about optimal decision making. Choices are seldom all-or-none propositions—decisions are made at the margin. Real-world decisions are usually a matter of trading off one option for another. Resources are scarce. There are never enough resources to satisfy everyone with everything they want. c. Incorrect. Marginal analysis is the economic way of thinking about optimal decision making. Choices are seldom all-or-none propositions—decisions are made at the margin. Real-world decisions are usually a matter of trading off one option for another. Resources are scarce. There are never enough resources to satisfy everyone with everything they want. d. Incorrect. Marginal analysis is the economic way of thinking about optimal decision making. Choices are seldom all-or-none propositions—decisions are made at the margin. Real-world decisions are usually a matter of trading off one option for another. Resources are scarce. There are never enough resources to satisfy everyone with everything they want. e. Incorrect. Marginal analysis is the economic way of thinking about optimal decision making. Choices are seldom all-or-none propositions—decisions are made at the margin. Real-world decisions are usually a matter of trading off one option for another. Resources are scarce. There are never enough resources to satisfy everyone with everything they want.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 1-3 - Ten Key Economic Concepts DATE CREATED: 1/24/2022 4:50 AM DATE MODIFIED: 2/9/2022 7:45 AM 15. In spite of its early popularity, the Patient Protection And Affordable Care Act of 2010 (ACA) had not improved by 2020. What percentage of Americans considered its complete repeal a good thing? a. 20 percent b. 30 percent c. 40 percent d. 50 percent e. 60 percent ANSWER: c FEEDBACK: a. Incorrect. According to a study by Rasmussen in 2020, 40 percent considered

the complete repeal of ACA a good thing for most Americans, whereas 41 percent thought it would be bad. This negativity toward the ACA may be the result of the increased popularity of the single-payer approach. b. Incorrect. According to a study by Rasmussen in 2020, 40 percent considered the complete repeal of ACA a good thing for most Americans, whereas 41 percent thought it would be bad. This negativity toward the ACA may be the result of the increased popularity of the single-payer approach. c. Correct. According to a study by Rasmussen in 2020, 40 percent considered the complete repeal of ACA a good thing for most Americans, whereas 41 percent thought it would be bad. This negativity toward the ACA may be the result of the increased popularity of the single-payer approach. d. Incorrect. According to a study by Rasmussen in 2020, 40 percent considered the complete repeal of ACA a good thing for most Americans, whereas 41 percent thought it would be bad. This negativity toward the ACA may be the result of the increased popularity of the single-payer approach. e. Incorrect. According to a study by Rasmussen in 2020, 40 percent considered the complete repeal of ACA a good thing for most Americans, whereas 41 percent thought it would be bad. This negativity toward the ACA may be the result of the increased popularity of the single-payer approach.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 1-4a - Summary and Conclusion DATE CREATED: 1/24/2022 4:56 AM DATE MODIFIED: 2/9/2022 7:45 AM

Chapter 02: Health Care Spending Issues 1. Which of the following is NOT a personal health care expenditure? a. Hospital care. b. Prescription drugs. c. Program administration. d. Physicians’ services. e. Dentists’ services.

ANSWER: c FEEDBACK: a. Incorrect. Personal care spending is the purchase of all goods and services related to individual health care. This portion includes expenditures such as hospital care, the services of physicians and dentists, prescription drugs, vision care, home health care, and nursing home care. b. Incorrect. Personal care spending is the purchase of all goods and services related to individual health care. This portion includes expenditures such as hospital care, the services of physicians and dentists, prescription drugs, vision care, home health care, and nursing home care. c. Correct. Personal care spending is the purchase of all goods and services related to individual health care. This portion includes expenditures such as hospital care, the services of physicians and dentists, prescription drugs, vision care, home health care, and nursing home care. d. Incorrect. Personal care spending is the purchase of all goods and services related to individual health care. This portion includes expenditures such as hospital care, the services of physicians and dentists, prescription drugs, vision care, home health care, and nursing home care. e. Incorrect. Personal care spending is the purchase of all goods and services related to individual health care. This portion includes expenditures such as hospital care, the services of physicians and dentists, prescription drugs, vision care, home health care, and nursing home care.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 2-1c - Spending by Category DATE CREATED: 1/24/2022 5:04 AM DATE MODIFIED: 2/9/2022 7:30 AM 2. Which of the following represents the largest category of health care spending in the United States? a. Physicians’ services b. Hospital care c. Prescription drugs d. Home health care e. Public health ANSWER: b FEEDBACK: a. Incorrect. Hospital care is the largest single category of health care spending. It makes up almost one-third of health care spending in the United States, accounting for $1,316.4 billion in 2020. b. Correct. Hospital care is the largest single category of health care spending. It makes up almost one-third of health care spending in the United States, accounting for $1,316.4 billion in 2020. c. Incorrect. Hospital care is the largest single category of health care spending. It makes up almost one-third of health care spending in the United States,

accounting for $1,316.4 billion in 2020.

d. Incorrect. Hospital care is the largest single category of health care spending. It makes up almost one-third of health care spending in the United States, accounting for $1,316.4 billion in 2020. e. Incorrect. Hospital care is the largest single category of health care spending. It makes up almost one-third of health care spending in the United States, accounting for $1,316.4 billion in 2020.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 2-1c - Spending by Category DATE CREATED: 1/24/2022 5:09 AM DATE MODIFIED: 2/9/2022 7:52 AM 3. Which of the following is NOT considered to be a factor in the recent slowing of health care spending? a. The Affordable Care Act (ACA) b. Growing U.S. gross domestic product (GDP) c. The Great Recession d. Introduction of prospective payment e. Higher deductibles ANSWER: b FEEDBACK: a. Incorrect. The Affordable Care Act (ACA), the Great Recession, prospective payment, and higher deductibles have all been put forward as factors contributing to the slowing of national health care spending. A growing GDP should conversely mean that a country has more resources available to divert to health care spending and other areas of the economy. b. Correct. The Affordable Care Act (ACA), the Great Recession, prospective payment, and higher deductibles have all been put forward as factors contributing to the slowing of national health care spending. A growing GDP should conversely mean that a country has more resources available to divert to health care spending and other areas of the economy. c. Incorrect. The Affordable Care Act (ACA), the Great Recession, prospective payment, and higher deductibles have all been put forward as factors contributing to the slowing of national health care spending. A growing GDP should conversely mean that a country has more resources available to divert to health care spending and other areas of the economy. d. Incorrect. The Affordable Care Act (ACA), the Great Recession, prospective payment, and higher deductibles have all been put forward as factors contributing to the slowing of national health care spending. A growing GDP should conversely mean that a country has more resources available to divert to health care spending and other areas of the economy. e. Incorrect. The Affordable Care Act (ACA), the Great Recession, prospective payment, and higher deductibles have all been put forward as factors contributing to the slowing of national health care spending. A growing GDP should conversely mean that a country has more resources available to divert to health care spending and other areas of the economy.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 2-1b - The Growth in Spending DATE CREATED: 1/24/2022 10:24 AM

DATE MODIFIED:

2/9/2022 7:52 AM

4. Which of the following measurements of health care spending adjusts for the population size? a. Nominal b. Real Terms c. Per capita d. Percentage of GDP e. National ANSWER: c FEEDBACK: a. Incorrect. Nominal and real terms of measurement indicate data with and without inflation, respectively. The proportion of national spending on health care is commonly represented as a percentage of GDP, and national measurements indicate total spending across the country. The per capita measurement yields the average health care spending by an individual in the designated population. b. Incorrect. Nominal and real terms of measurement indicate data with and without inflation, respectively. The proportion of national spending on health care is commonly represented as a percentage of GDP, and national measurements indicate total spending across the country. The per capita measurement yields the average health care spending by an individual in the designated population. c. Correct. Nominal and real terms of measurement indicate data with and without inflation, respectively. The proportion of national spending on health care is commonly represented as a percentage of GDP, and national measurements indicate total spending across the country. The per capita measurement yields the average health care spending by an individual in the designated population. d. Incorrect. Nominal and real terms of measurement indicate data with and without inflation, respectively. The proportion of national spending on health care is commonly represented as a percentage of GDP, and national measurements indicate total spending across the country. The per capita measurement yields the average health care spending by an individual in the designated population. e. Incorrect. Nominal and real terms of measurement indicate data with and without inflation, respectively. The proportion of national spending on health care is commonly represented as a percentage of GDP, and national measurements indicate total spending across the country. The per capita measurement yields the average health care spending by an individual in the designated population.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 2-1a - Metrics of Health Care Spending DATE CREATED: 1/24/2022 6:16 AM DATE MODIFIED: 2/9/2022 7:53 AM 5. Discuss why the United States spends such a large percentage of its GDP on health care and whether it is desirable to do so.

ANSWER: In 2020, national health expenditures in the United States were 18 percent of its GDP percentage much higher than other developed countries. Although there is no ideal ratio of health care spending to GDP, it is believed that a country with a higher GDP can afford to spend more on health care. As the United States displays one of the highest income rates in the world, it should also be one of the top spenders on health care. However, it is also important to ensure that funding is being spent efficiently to avoid unnecessary waste

because there is an opportunity cost associated with health care spending.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 2-1a - Metrics of Health Care Spending DATE CREATED: 1/24/2022 6:23 AM DATE MODIFIED: 2/9/2022 7:54 AM 6. Give a brief breakdown of where health care spending goes.

ANSWER: According to 2020 data, 84 percent of overall health care spending went toward personal health care. Within this portion, the largest expenditure category was hospital care, at 32.8 percent, which represented almost one-third of overall spending. The second-largest category was physicians’ services, at 19.8 percent. Prescription drugs come third, at 8.9 percent. Apart from personal health care, the other 16 percent goes toward public and private administration, research, public health initiatives, and infrastructure.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 2-1c - Spending by Category DATE CREATED: 1/24/2022 6:25 AM DATE MODIFIED: 2/9/2022 7:54 AM 7. Which of the following does NOT contribute to wasteful spending in medical care? a. Lack of coordination of care b. Fraud and abuse c. Overtreatment d. Price transparency e. Excessive administration costs ANSWER: d FEEDBACK: a. Incorrect. Lack of coordination of care, fraud and abuse, overtreatment, and excessive administration costs all result in unnecessary medical spending.

Price transparency would help patients value and rank alternative treatment options as well as make informed decisions on the care they choose to receive, which could help reduce wasteful spending. b. Incorrect. Lack of coordination of care, fraud and abuse, overtreatment, and excessive administration costs all result in unnecessary medical spending.

Price transparency would help patients value and rank alternative treatment options as well as make informed decisions on the care they choose to receive, which could help reduce wasteful spending. c. Incorrect. Lack of coordination of care, fraud and abuse, overtreatment, and excessive administration costs all result in unnecessary medical spending.

Price transparency would help patients value and rank alternative treatment options as well as make informed decisions on the care they choose to receive, which could help reduce wasteful spending. d. Correct. Lack of coordination of care, fraud and abuse, overtreatment, and excessive administration costs all result in unnecessary medical spending.

Price transparency would help patients value and rank alternative treatment options as well as make informed decisions on the care they choose to receive,

which could help reduce wasteful spending.

e. Incorrect. Lack of coordination of care, fraud and abuse, overtreatment, and excessive administration costs all result in unnecessary medical spending.

Price transparency would help patients value and rank alternative treatment options as well as make informed decisions on the care they choose to receive, which could help reduce wasteful spending.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 2-2a - The Health Care Spending Problem DATE CREATED: 1/24/2022 6:36 AM DATE MODIFIED: 2/9/2022 7:55 AM 8. The cost to society resulting from taxation to finance government spending is called: a. price discrimination. b. deadweight loss. c. price transparency. d. GDP. e. third-party payers.

ANSWER: b FEEDBACK: a. Incorrect. The dead weight loss is the cost to society stemming from a market failure to efficiently allocate resources. The resulting equilibrium fails to produce the socially optimum quantity of a good or service. Often caused by government actions such as taxes, subsidies, price controls, or other restrictions on the market. b. Correct. The dead weight loss is the cost to society stemming from a market failure to efficiently allocate resources. The resulting equilibrium fails to produce the socially optimum quantity of a good or service. Often caused by government actions such as taxes, subsidies, price controls, or other restrictions on the market. c. Incorrect. The dead weight loss is the cost to society stemming from a market failure to efficiently allocate resources. The resulting equilibrium fails to produce the socially optimum quantity of a good or service. Often caused by government actions such as taxes, subsidies, price controls, or other restrictions on the market. d. Incorrect. The dead weight loss is the cost to society stemming from a market failure to efficiently allocate resources. The resulting equilibrium fails to produce the socially optimum quantity of a good or service. Often caused by government actions such as taxes, subsidies, price controls, or other restrictions on the market. e. Incorrect. The dead weight loss is the cost to society stemming from a market failure to efficiently allocate resources. The resulting equilibrium fails to produce the socially optimum quantity of a good or service. Often caused by government actions such as taxes, subsidies, price controls, or other restrictions on the market.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 2-2a - The Health Care Spending Problem DATE CREATED: 1/24/2022 6:45 AM DATE MODIFIED: 2/9/2022 7:55 AM

9. Suppose you are a politician being criticized in a debate for your commitment to reducing the growth of medical spending. Which of the following is the most appropriate response? a. There is empirical evidence that medical spending should be capped at 15 percent of GDP. b. High health care spending is harmful to our economic well-being. c. Other developed nations spend far less of their GDP on health care. d. Fixing treatment prices will lead to greater innovation. e. Reducing wasteful health care spending could provide additional funding to the education sector.

ANSWER: e FEEDBACK: a. Incorrect. There is no evidence thus far of an ideal level of medical spending, nor that high levels of spending are damaging to the economy. In fact, it is a common trend among developed nations to spend a high proportion of their GDP on health care. High health care prices have also been suggested as important incentives for the development of new treatments and technology.

And as resources are scarce, there is an opportunity cost associated with increasing medical spending, which leaves fewer funds for other sectors. b. Incorrect. There is no evidence thus far of an ideal level of medical spending, nor that high levels of spending are damaging to the economy. In fact, it is a common trend among developed nations to spend a high proportion of their GDP on health care. High health care prices have also been suggested as important incentives for the development of new treatments and technology.

And as resources are scarce, there is an opportunity cost associated with increasing medical spending, which leaves fewer funds for other sectors. c. Incorrect. There is no evidence thus far of an ideal level of medical spending, nor that high levels of spending are damaging to the economy. In fact, it is a common trend among developed nations to spend a high proportion of their GDP on health care. High health care prices have also been suggested as important incentives for the development of new treatments and technology.

And as resources are scarce, there is an opportunity cost associated with increasing medical spending, which leaves fewer funds for other sectors. d. Incorrect. There is no evidence thus far of an ideal level of medical spending, nor that high levels of spending are damaging to the economy. In fact, it is a common trend among developed nations to spend a high proportion of their GDP on health care. High health care prices have also been suggested as important incentives for the development of new treatments and technology.

And as resources are scarce, there is an opportunity cost associated with increasing medical spending, which leaves fewer funds for other sectors. e. Correct. There is no evidence thus far of an ideal level of medical spending, nor that high levels of spending are damaging to the economy. In fact, it is a common trend among developed nations to spend a high proportion of their GDP on health care. High health care prices have also been suggested as important incentives for the development of new treatments and technology.

And as resources are scarce, there is an opportunity cost associated with increasing medical spending, which leaves fewer funds for other sectors.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 2-2b - Concerns over High and Rising Spending DATE CREATED: 1/24/2022 7:00 AM DATE MODIFIED: 2/9/2022 7:56 AM 10. Which of the following is NOT a potential result of ever-increasing health care pricing? a. Insurance premiums outpacing salary and wage growth. b. Reduced incentives for innovation.

c. Individuals unable to afford insurance bearing the full burden of expensive procedures. d. Reduced access to high-priced procedures. e. Increase in taxation.

ANSWER: b FEEDBACK: a. Incorrect. Continually increasing health care prices could result in reduced affordability and accessibility to care, a greater share of the population without insurance, and a tax increase to cover the growing burden of health care.

However, high prices in health care serve as a financial incentive to innovation. b. Correct. Continually increasing health care prices could result in reduced affordability and accessibility to care, a greater share of the population without insurance, and a tax increase to cover the growing burden of health care.

However, high prices in health care serve as a financial incentive to innovation. c. Incorrect. Continually increasing health care prices could result in reduced affordability and accessibility to care, a greater share of the population without insurance, and a tax increase to cover the growing burden of health care.

However, high prices in health care serve as a financial incentive to innovation. d. Incorrect. Continually increasing health care prices could result in reduced affordability and accessibility to care, a greater share of the population without insurance, and a tax increase to cover the growing burden of health care.

However, high prices in health care serve as a financial incentive to innovation. e. Incorrect. Continually increasing health care prices could result in reduced affordability and accessibility to care, a greater share of the population without insurance, and a tax increase to cover the growing burden of health care.

However, high prices in health care serve as a financial incentive to innovation.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 2-2a - The Health Care Spending Problem DATE CREATED: 1/24/2022 7:04 AM DATE MODIFIED: 2/9/2022 7:56 AM 11. A health insurance arrangement where individuals have access to health care in exchange for a set premium is called: a. managed care organization. b. price transparency system. c. price discrimination system. d. accountable care organization (ACO). e. third-party payment system.

ANSWER: e FEEDBACK: a. Incorrect. A third-party payer system is a health insurance arrangement where the individual, or an agent of the individual, pays a set premium to a third party (an insurance company, a managed care organization, or the government), which in turn pays for health care services. A managed care organization is an example of a third-party payer, and an ACO is a type of health care provider.

Price transparency and price discrimination are simple pricing strategies. b. Incorrect. A third-party payer system is a health insurance arrangement where the individual, or an agent of the individual, pays a set premium to a third party (an insurance company, a managed care organization, or the government), which in turn pays for health care services. A managed care organization is an example of a third-party payer, and an ACO is a type of health care provider.

Price transparency and price discrimination are simple pricing strategies. c. Incorrect. A third-party payer system is a health insurance arrangement where the individual, or an agent of the individual, pays a set premium to a third party

(an insurance company, a managed care organization, or the government), which in turn pays for health care services. A managed care organization is an example of a third-party payer, and an ACO is a type of health care provider.

Price transparency and price discrimination are simple pricing strategies. d. Incorrect. A third-party payer system is a health insurance arrangement where the individual, or an agent of the individual, pays a set premium to a third party (an insurance company, a managed care organization, or the government), which in turn pays for health care services. A managed care organization is an example of a third-party payer, and an ACO is a type of health care provider.

Price transparency and price discrimination are simple pricing strategies. e. Correct. Third-party payers is a health insurance arrangement where the individual, or an agent of the individual, pays a set premium to a third party (an insurance company, a managed care organization, or the government), which in turn pays for health care services. A managed care organization is an example of a third-party payer, and an ACO is a type of health care provider.

Price transparency and price discrimination are simple pricing strategies.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 2-2a - The Health Care Spending Problem DATE CREATED: 1/24/2022 7:07 AM DATE MODIFIED: 2/9/2022 7:57 AM 12. Outline the six categories of waste in the U.S. health care system.

ANSWER: Research by Shrank, Rogstad, and Parekh (2019) compiled waste estimates in six categories, including failure in the delivery and coordination of care, overtreatment, provision of low-valued care, pricing failure, and fraud and abuse. Other sources of waste include the dead weight loss incurred by society through taxation for the government to fund health care initiatives as well as commonly cited administrative errors. In total, it is estimated that almost one-quarter of all health care spending is lost to waste.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 2-2a - The Health Care Spending Problem DATE CREATED: 1/24/2022 10:05 AM DATE MODIFIED: 2/9/2022 7:58 AM 13. Assuming that providers will only accommodate patient desires up to a point, what effect would a binding price ceiling have on the health care market? a. Price of health care would not be affected. b. Quantity of health care supplied would increase. c. Quantity of health care supplied would fall. d. Price of health care would increase. e. Quantity of health care would not be affected.

ANSWER: c FEEDBACK: a. Incorrect. Because the price ceiling is binding, the control would be effective in reducing price in the health care market. Under the assumption that health care providers will only accommodate patient desires up to a point, we can infer that a lesser quantity of health services will be offered at the restricted price.

b. Incorrect. Because the price ceiling is binding, the control would be effective in reducing price in the health care market. Under the assumption that health care providers will only accommodate patient desires up to a point, we can infer that a lesser quantity of health services will be offered at the restricted price. c. Correct. Because the price ceiling is binding, the control would be effective in reducing price in the health care market. Under the assumption that health care providers will only accommodate patient desires up to a point, we can infer that a lesser quantity of health services will be offered at the restricted price. d. Incorrect. Because the price ceiling is binding, the control would be effective in reducing price in the health care market. Under the assumption that health care providers will only accommodate patient desires up to a point, we can infer that a lesser quantity of health services will be offered at the restricted price. e. Incorrect. Because the price ceiling is binding, the control would be effective in reducing price in the health care market. Under the assumption that health care providers will only accommodate patient desires up to a point, we can infer that a lesser quantity of health services will be offered at the restricted price.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 2-2b - Concerns over High and Rising Spending DATE CREATED: 1/24/2022 10:07 AM DATE MODIFIED: 2/9/2022 8:13 AM 14. Assuming providers will accommodate patient desires, what effect would a binding price ceiling have on the health care market? a. Price will decrease to adhere to the price ceiling and quantity will decrease. b. Price will decrease to adhere to the price ceiling and quantity will increase. c. Price will increase to adhere to the price ceiling and quantity will decrease. d. Price will increase to adhere to the price ceiling and quantity will increase. e. Neither price nor quantity will change.

ANSWER: b FEEDBACK: a. Incorrect. Because the price ceiling is binding, the control would be effective in reducing price in the health care market. Under the assumption that health care providers will accommodate patient desires, we can infer that a greater quantity of health services will be offered at the restricted price. b. Correct. Because the price ceiling is binding, the control would be effective in reducing price in the health care market. Under the assumption that health care providers will accommodate patient desires, we can infer that a greater quantity of health services will be offered at the restricted price. c. Incorrect. Because the price ceiling is binding, the control would be effective in reducing price in the health care market. Under the assumption that health care providers will accommodate patient desires, we can infer that a greater quantity of health services will be offered at the restricted price. d. Incorrect. Because the price ceiling is binding, the control would be effective in reducing price in the health care market. Under the assumption that health care providers will accommodate patient desires, we can infer that a greater quantity of health services will be offered at the restricted price. e. Incorrect. Because the price ceiling is binding, the control would be effective in reducing price in the health care market. Under the assumption that health care providers will accommodate patient desires, we can infer that a greater quantity of health services will be offered at the restricted price.

POINTS:

1

QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 2-2b - Concerns over High and Rising Spending DATE CREATED: 1/24/2022 10:10 AM DATE MODIFIED: 2/9/2022 8:14 AM 15. Suppose you are a consultant advising the U.S. government on reducing national health care spending. Assuming that providers will accommodate patient desires, what advice could you offer concerning the implementation of a price ceiling? a. A binding price ceiling will always reduce total spending. b. Total spending may rise if providers intensify services and create new technology for the uncontrolled sector. c. Total spending will fall as long as adequate resources are dedicated to the enforcement of the price ceiling. d. Total spending will not change. e. A binding price ceiling will always increase total spending.

ANSWER: b FEEDBACK: a. Incorrect. A binding price ceiling will cause the quantity of health care provided to fall when providers accommodate patient desires up to a point. But when providers are willing to accommodate patient desires, spending is actually likely to rise if providers intensify their services and increase demand. By expanding the size of the eligible population and creating new technology for the uncontrolled sector of the market, total spending can shift demand to the right and increase total spending. b. Correct. A binding price ceiling will cause the quantity of health care provided to fall when providers accommodate patient desires up to a point. But when providers are willing to accommodate patient desires, spending is actually likely to rise if providers intensify their services and increase demand. By expanding the size of the eligible population and creating new technology for the uncontrolled sector of the market, total spending can shift demand to the right and increase total spending. c. Incorrect. A binding price ceiling will cause the quantity of health care provided to fall when providers accommodate patient desires up to a point. But when providers are willing to accommodate patient desires, spending is actually likely to rise if providers intensify their services and increase demand. By expanding the size of the eligible population and creating new technology for the uncontrolled sector of the market, total spending can shift demand to the right and increase total spending. d. Incorrect. A binding price ceiling will cause the quantity of health care provided to fall when providers accommodate patient desires up to a point. But when providers are willing to accommodate patient desires, spending is actually likely to rise if providers intensify their services and increase demand. By expanding the size of the eligible population and creating new technology for the uncontrolled sector of the market, total spending can shift demand to the right and increase total spending. e. Incorrect. A binding price ceiling will cause the quantity of health care provided to fall when providers accommodate patient desires up to a point. But when providers are willing to accommodate patient desires, spending is actually likely to rise if providers intensify their services and increase demand. By expanding the size of the eligible population and creating new technology for the uncontrolled sector of the market, total spending can shift demand to the right and increase total spending.

POINTS: QUESTION TYPE: HAS VARIABLES:

1 Multiple Choice False

LEARNING OBJECTIVES: 2-2b - Concerns over High and Rising Spending DATE CREATED: 1/24/2022 10:13 AM DATE MODIFIED: 2/9/2022 8:16 AM 16. Which of the following indexes are best suited to adjusting medical spending for inflation for the typical consumer? a. Medical care price index (MCPI) b. Consumer price index (CPI) c. Personal consumption expenditure (PCE) price index d. Cost of living adjustments (COLAs) e. CPI-U ANSWER: a FEEDBACK: a. Correct. The MCPI is the best index to use for typical consumers as it measures price changes in those health care items that consumers purchase with their own money. The CPI is a general consumer index that comprises the MCPI and the CPI-U simply limits data to urban consumers. The PCE price index is better suited for use on national and macro-level data, and COLAs are measurements that account for adjustments to wages and benefits. b. Incorrect. The MCPI is the best index to use for typical consumers as it measures price changes in those health care items that consumers purchase with their own money. The CPI is a general consumer index that comprises the MCPI and the CPI-U simply limits data to urban consumers. The PCE price index is better suited for use on national and macro-level data, and COLAs are measurements that account for adjustments to wages and benefits. c. Incorrect. The MCPI is the best index to use for typical consumers as it measures price changes in those health care items that consumers purchase with their own money. The CPI is a general consumer index that comprises the MCPI and the CPI-U simply limits data to urban consumers. The PCE price index is better suited for use on national and macro-level data, and COLAs are measurements that account for adjustments to wages and benefits. d. Incorrect. The MCPI is the best index to use for typical consumers as it measures price changes in those health care items that consumers purchase with their own money. The CPI is a general consumer index that comprises the MCPI and the CPI-U simply limits data to urban consumers. The PCE price index is better suited for use on national and macro-level data, and COLAs are measurements that account for adjustments to wages and benefits. e. Incorrect. The MCPI is the best index to use for typical consumers as it measures price changes in those health care items that consumers purchase with their own money. The CPI is a general consumer index that comprises the MCPI and the CPI-U simply limits data to urban consumers. The PCE price index is better suited for use on national and macro-level data, and COLAs are measurements that account for adjustments to wages and benefits.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 2-Appendix 2A - Using Indexes to Adjust Medical Spending for Inflation DATE CREATED: 1/24/2022 10:15 AM DATE MODIFIED: 2/9/2022 8:17 AM 17. List 5 supply factors and 5 demand factors that contribute to a rise in health care spending.

ANSWER: On the supply-side, factors such as a greater number of specialists, improved diagnostic tools, advanced surgical interventions, new treatments, and better prescription drugs are contributing to a sustained growth in health care spending. On the demand side, factors

related to common health problems facing current generations, such as obesity, are resulting in a greater demand for health care services. Moreover, a large proportion of the U.S. population is aging and beginning to demand greater quantities of goods and services provided by the health care industry.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 2-2b - Concerns over High and Rising Spending DATE CREATED: 1/24/2022 10:17 AM DATE MODIFIED: 2/9/2022 8:18 AM

Chapter 03: Health Care Markets: Can They Work?

1. Within the framework of economics, optimization means providing a good or service until: a. total benefits are maximized. b. total benefits and total costs are equal. c. marginal benefits exceed marginal costs by the greatest amount possible. d. marginal benefits and marginal costs are equal. e. total benefits are greater than total costs.

ANSWER: FEEDBACK:

d a. Incorrect. Marginal benefits are zero at the output level where total benefits are maximized. Unless marginal costs are zero at this level, consumption is greater than optimal. Net benefits are zero where total benefits and total costs are equal. Using the decision-making calculus of economics correctly, consumers will continue consuming a product or service as long as the extra benefit they receive exceeds the extra cost they must pay. In other words, they consume until marginal benefits equal marginal costs. b. Incorrect. Marginal benefits are zero at the output level where total benefits are maximized. Unless marginal costs are zero at this level, consumption is greater than optimal. Net benefits are zero where total benefits and total costs are equal. Using the decision-making calculus of economics correctly, consumers will continue consuming a product or service as long as the extra benefit they receive exceeds the extra cost they must pay. In other words, they consume until marginal benefits equal marginal costs. c. Incorrect. Marginal benefits are zero at the output level where total benefits are maximized. Unless marginal costs are zero at this level, consumption is greater than optimal. Net benefits are zero where total benefits and total costs are equal. Using the decision-making calculus of economics correctly, consumers will continue consuming a product or service as long as the extra benefit they receive exceeds the extra cost they must pay. In other words, they consume until marginal benefits equal marginal costs. d. Correct. Marginal benefits are zero at the output level where total benefits are maximized. Unless marginal costs are zero at this level, consumption is greater than optimal. Net benefits are zero where total benefits and total costs are equal. Using the decision-making calculus of economics correctly, consumers will continue consuming a product or service as long as the extra benefit they receive exceeds the extra cost they must pay. In other words, they consume until marginal benefits equal marginal costs. e. Incorrect. Marginal benefits are zero at the output level where total benefits are maximized. Unless marginal costs are zero at this level, consumption is greater than optimal. Net benefits are zero where total benefits and total costs are equal. Using the decision-making calculus of economics correctly, consumers will continue consuming a product or service as long as the extra benefit they receive exceeds the extra cost they must pay. In other words, they consume until marginal benefits equal marginal costs.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-1a - Methods and Practice of Economics DATE CREATED: 2/7/2022 1:50 AM DATE MODIFIED: 2/7/2022 1:55 AM 2. Summarize why opportunity costs and incentives are essential considerations in the field of economics.

ANSWER: In economics, it is important to measure every decision or action by the cost of the

foregone opportunities. Making a choice is equivalent to not choosing the other options. There are always trade-offs in our decisions, and we must remember that resources are scarce when judging between alternatives. Incentives are also important because people are self-seeking and make decisions based on their own self-interests. Incorporating costs into the decision-making process can be an effective way of encouraging cost-conscious choices, which can help to increase social welfare.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 3-1b - All You Need to Know About Economics DATE CREATED: 2/7/2022 2:02 AM DATE MODIFIED: 2/7/2022 2:03 AM 3. An inferior good: a. has an income elasticity between zero and one. b. causes the demand curve to shift to the left when income rises. c. exists only in theory. d. is only purchased by people who do not recognize quality. e. is sometimes called a “lemon.”

ANSWER: b FEEDBACK: a. Incorrect. An inferior good has an income elasticity that is less than one (negative). When a person’s income increases, their demand for the good decreases. The demand curve actually shifts to the left when income increases because individuals often prefer higher-quality alternatives when they have more money. Most people would prefer a new car to a used one. b. Correct. An inferior good has an income elasticity that is less than one (negative). When a person’s income increases, their demand for the good decreases. The demand curve actually shifts to the left when income increases because individuals often prefer higher-quality alternatives when they have more money. Most people would prefer a new car to a used one. c. Incorrect. An inferior good has an income elasticity that is less than one (negative). When a person’s income increases, their demand for the good decreases. The demand curve actually shifts to the left when income increases because individuals often prefer higher-quality alternatives when they have more money. Most people would prefer a new car to a used one. d. Incorrect. An inferior good has an income elasticity that is less than one (negative). When a person’s income increases, their demand for the good decreases. The demand curve actually shifts to the left when income increases because individuals often prefer higher-quality alternatives when they have more money. Most people would prefer a new car to a used one. e. Incorrect. An inferior good has an income elasticity that is less than one (negative). When a person’s income increases, their demand for the good decreases. The demand curve actually shifts to the left when income increases because individuals often prefer higher-quality alternatives when they have more money. Most people would prefer a new car to a used one.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-2a - The Law of Demand

DATE CREATED: DATE MODIFIED:

2/7/2022 8:28 AM 2/7/2022 9:03 AM

4. All of the following will change the demand for office visits to a physician, except: a. Unusually cold and damp weather during the winter b. Layoffs at the local plant, causing a decrease in the number of people with health insurance in the community c. A change in the price of an office visit d. Television advertising by drug manufacturers to promote a new over-the-counter influenza treatment e. A sudden illness ANSWER: FEEDBACK:

c a. Incorrect. Price changes cause changes in quantity demanded and result in a movement along a stationary demand curve. When economists refer to changes in demand, they mean changes in the level of demand or shifts in the demand curve. Things such as changes in income, circumstances, health, and consumer preferences are capable of shifting the demand curve. b. Incorrect. Price changes cause changes in quantity demanded and result in a movement along a stationary demand curve. When economists refer to changes in demand, they mean changes in the level of demand or shifts in the demand curve. Things such as changes in income, circumstances, health, and consumer preferences are capable of shifting the demand curve. c. Correct. Price changes cause changes in quantity demanded and result in a movement along a stationary demand curve. When economists refer to changes in demand, they mean changes in the level of demand or shifts in the demand curve. Things such as changes in income, circumstances, health, and consumer preferences are capable of shifting the demand curve. d. Incorrect. Price changes cause changes in quantity demanded and result in a movement along a stationary demand curve. When economists refer to changes in demand, they mean changes in the level of demand or shifts in the demand curve. Things such as changes in income, circumstances, health, and consumer preferences are capable of shifting the demand curve. e. Incorrect. Price changes cause changes in quantity demanded and result in a movement along a stationary demand curve. When economists refer to changes in demand, they mean changes in the level of demand or shifts in the demand curve. Things such as changes in income, circumstances, health, and consumer preferences are capable of shifting the demand curve.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-2a - The Law of Demand DATE CREATED: 2/9/2022 1:01 AM DATE MODIFIED: 2/9/2022 1:12 AM 5. A physician’s office expenses increase by 10 percent, so the doctor decides to raise the price of office visits. Assuming the demand curve for office visits does not shift, what will happen to the total number of office visits and practice revenues? a. Office visits and total revenue stay the same if demand is elastic. b. Office visits and total revenue rise if demand is inelastic. c. Office visits and total revenue fall if demand is inelastic. d. Office visits will fall and total revenue will rise if demand is inelastic. e. Office visits will rise and total revenue will fall if demand is elastic.

ANSWER:

d

FEEDBACK:

a. Incorrect. An increase in the cost of providing a product or service will shift the supply curve to the left. As the equilibrium price rises, over time, the quantity of office visits will fall. If demand is inelastic (which is likely the case for most medical services), the percentage decrease in quantity (due to the price increase) will be less than the 10 percent increase in price. Total revenue will increase. b. Incorrect. An increase in the cost of providing a product or service will shift the supply curve to the left. As the equilibrium price rises, over time, the quantity of office visits will fall. If demand is inelastic (which is likely the case for most medical services), the percentage decrease in quantity (due to the price increase) will be less than the 10 percent increase in price. Total revenue will increase. c. Incorrect. An increase in the cost of providing a product or service will shift the supply curve to the left. As the equilibrium price rises, over time, the quantity of office visits will fall. If demand is inelastic (which is likely the case for most medical services), the percentage decrease in quantity (due to the price increase) will be less than the 10 percent increase in price. Total revenue will increase. d. Correct. An increase in the cost of providing a product or service will shift the supply curve to the left. As the equilibrium price rises, over time, the quantity of office visits will fall. If demand is inelastic (which is likely the case for most medical services), the percentage decrease in quantity (due to the price increase) will be less than the 10 percent increase in price. Total revenue will increase. e. Incorrect. An increase in the cost of providing a product or service will shift the supply curve to the left. As the equilibrium price rises, over time, the quantity of office visits will fall. If demand is inelastic (which is likely the case for most medical services), the percentage decrease in quantity (due to the price increase) will be less than the 10 percent increase in price. Total revenue will increase.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-2a - The Law of Demand DATE CREATED: 2/9/2022 1:15 AM DATE MODIFIED: 2/9/2022 1:21 AM 6. If price elasticity is known to be –0.15, what happens to quantity when the price of services at Urban General falls by 10 percent? a. Quantity demanded increases by 15.0 percent. b. Quantity demanded increases by 1.5 percent. c. Quantity demanded falls by 2.5 percent. d. Quantity demanded falls by 5.0 percent. e. Quantity demanded rises by 5.0 percent.

ANSWER: FEEDBACK:

b a. Incorrect. The relevant elasticity in this case is price elasticity. The direct approach in determining the answer is to use the simple definition of price elasticity: εp = percentage change in Q/percentage change in p. Simply fill in the formula. We know the value for εp is –0.15 and the percentage change in price is -0.10 (or a 10 percent decrease). To solve for the percentage change in quantity, multiply -0.10 times -0.15. Your answer is +0.015, or a 1.5 percent increase.

b. Correct. The relevant elasticity in this case is price elasticity. The direct approach in determining the answer is to use the simple definition of price elasticity: εp = percentage change in Q/percentage change in p. Simply fill in the formula. We know the value for εp is –0.15 and the percentage change in price is -0.10 (or a 10 percent decrease). To solve for the percentage change in quantity, multiply -0.10 times -0.15. Your answer is +0.015, or a 1.5 percent increase. c. Incorrect. The relevant elasticity in this case is price elasticity. The direct approach in determining the answer is to use the simple definition of price elasticity: εp = percentage change in Q/percentage change in p. Simply fill in the formula. We know the value for εp is –0.15 and the percentage change in price is -0.10 (or a 10 percent decrease). To solve for the percentage change in quantity, multiply -0.10 times -0.15. Your answer is +0.015, or a 1.5 percent increase. d. Incorrect. The relevant elasticity in this case is price elasticity. The direct approach in determining the answer is to use the simple definition of price elasticity: εp = percentage change in Q/percentage change in p. Simply fill in the formula. We know the value for εp is –0.15 and the percentage change in price is -0.10 (or a 10 percent decrease). To solve for the percentage change in quantity, multiply -0.10 times -0.15. Your answer is +0.015, or a 1.5 percent increase. e. Incorrect. The relevant elasticity in this case is price elasticity. The direct approach in determining the answer is to use the simple definition of price elasticity: εp = percentage change in Q/percentage change in p. Simply fill in the formula. We know the value for εp is –0.15 and the percentage change in price is -0.10 (or a 10 percent decrease). To solve for the percentage change in quantity, multiply -0.10 times -0.15. Your answer is +0.015, or a 1.5 percent increase.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-2a - The Law of Demand DATE CREATED: 2/9/2022 1:22 AM DATE MODIFIED: 2/25/2022 5:39 AM 7. Suppose the demand curve for medical care services is perfectly inelastic. What will happen to the equilibrium price and quantity if supply increases? a. Price and quantity will rise. b. Price will stay the same and quantity will rise. c. Price and quantity will fall. d. Price will fall and quantity will increase. e. Price will fall and quantity will stay the same.

ANSWER: FEEDBACK:

e a. Incorrect. A perfectly inelastic demand curve implies that consumers are insensitive to changes in price (likely because they have 100 percent insurance coverage with zero out-of-pocket expenses). An increase in supply will shift the supply curve to the right, resulting in lower prices. However, there will be no consumer response as far as quantity demanded is concerned. Because the demand curve is drawn as a vertical line, any shift in the supply curve resulting

in a price change to the payer does not mean much to the consumer who is already receiving free care. b. Incorrect. A perfectly inelastic demand curve implies that consumers are insensitive to changes in price (likely because they have 100 percent insurance coverage with zero out-of-pocket expenses). An increase in supply will shift the supply curve to the right, resulting in lower prices. However, there will be no consumer response as far as quantity demanded is concerned. Because the demand curve is drawn as a vertical line, any shift in the supply curve resulting in a price change to the payer does not mean much to the consumer who is already receiving free care. c. Incorrect. A perfectly inelastic demand curve implies that consumers are insensitive to changes in price (likely because they have 100 percent insurance coverage with zero out-of-pocket expenses). An increase in supply will shift the supply curve to the right, resulting in lower prices. However, there will be no consumer response as far as quantity demanded is concerned. Because the demand curve is drawn as a vertical line, any shift in the supply curve resulting in a price change to the payer does not mean much to the consumer who is already receiving free care. d. Incorrect. A perfectly inelastic demand curve implies that consumers are insensitive to changes in price (likely because they have 100 percent insurance coverage with zero out-of-pocket expenses). An increase in supply will shift the supply curve to the right, resulting in lower prices. However, there will be no consumer response as far as quantity demanded is concerned. Because the demand curve is drawn as a vertical line, any shift in the supply curve resulting in a price change to the payer does not mean much to the consumer who is already receiving free care. e. Correct. A perfectly inelastic demand curve implies that consumers are insensitive to changes in price (likely because they have 100 percent insurance coverage with zero out-of-pocket expenses). An increase in supply will shift the supply curve to the right, resulting in lower prices. However, there will be no consumer response as far as quantity demanded is concerned. Because the demand curve is drawn as a vertical line, any shift in the supply curve resulting in a price change to the payer does not mean much to the consumer who is already receiving free care.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-2a - The Law of Demand DATE CREATED: 2/9/2022 1:33 AM DATE MODIFIED: 2/9/2022 1:39 AM 8. Suppose angioplasty (with stents) and coronary artery bypass graft (CABG) surgery are substitute treatment alternatives for coronary artery disease. What should happen to the equilibrium price and quantity of angioplasty procedures performed if a new CABG technique is introduced that is less invasive (requiring a 4-inch incision under the breast bone rather than cracking open the patient’s rib cage) and requires one-third the recovery period of regular CABG surgery? a. Both price and quantity will increase. b. Both price and quantity will decrease. c. Price will increase and quantity will decrease. d. Price will decrease and quantity will increase. e. There will be no effect on either the price or quantity of angioplasty procedures.

ANSWER: FEEDBACK:

b a. Incorrect. Because of the introduction of the new CABG technique, some patients who are candidates for either technique will likely adjust their

preferences to favor bypass surgery. This shift in preferences will increase the

demand for CABG and reduce the demand for angioplasty. The decrease in demand for angioplasty shifts the demand curve to the left, and the resulting equilibrium will be at a lower price and quantity. b. Correct. Because of the introduction of the new CABG technique, some patients who are candidates for either technique will likely adjust their preferences to favor bypass surgery. This shift in preferences will increase the demand for CABG and reduce the demand for angioplasty. The decrease in demand for angioplasty shifts the demand curve to the left, and the resulting equilibrium will be at a lower price and quantity. c. Incorrect. Because of the introduction of the new CABG technique, some patients who are candidates for either technique will likely adjust their preferences to favor bypass surgery. This shift in preferences will increase the demand for CABG and reduce the demand for angioplasty. The decrease in demand for angioplasty shifts the demand curve to the left, and the resulting equilibrium will be at a lower price and quantity. d. Incorrect. Because of the introduction of the new CABG technique, some patients who are candidates for either technique will likely adjust their preferences to favor bypass surgery. This shift in preferences will increase the demand for CABG and reduce the demand for angioplasty. The decrease in demand for angioplasty shifts the demand curve to the left, and the resulting equilibrium will be at a lower price and quantity. e. Incorrect. Because of the introduction of the new CABG technique, some patients who are candidates for either technique will likely adjust their preferences to favor bypass surgery. This shift in preferences will increase the demand for CABG and reduce the demand for angioplasty. The decrease in demand for angioplasty shifts the demand curve to the left, and the resulting equilibrium will be at a lower price and quantity.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-2a - The Law of Demand DATE CREATED: 2/9/2022 1:40 AM DATE MODIFIED: 2/9/2022 1:47 AM 9. All of the following will cause a shift in the medical care supply curve, except: a. A change in the cost of medical school tuition b. A change in the percentage of the population with health insurance c. A change in student aid available to promising undergraduate students studying biology d. A change in the number of high-profile medical malpractice lawsuits brought against physicians, increasing the premiums on malpractice insurance

e. A wave of union activity that increases the average salaries of nurses nationwide ANSWER: b FEEDBACK: a. Incorrect. Anything affecting the cost of inputs required to provide medical care services will have an impact on the supply of medical care. This includes changes in the cost of training future providers, the cost of opening a medical practice, the salaries of clinical assistants, and anything affecting the desirability of pursuing a medical career. Changing the ability to pay for medical care services will change the level of demand, not the supply. b. Correct. Anything affecting the cost of inputs required to provide medical care services will have an impact on the supply of medical care. This includes changes in the cost of training future providers, the cost of opening a medical practice, the salaries of clinical assistants, and anything affecting the desirability of pursuing a medical career. Changing the ability to pay for medical care services will change the level of demand, not the supply.

c. Incorrect. Anything affecting the cost of inputs required to provide medical care services will have an impact on the supply of medical care. This includes changes in the cost of training future providers, the cost of opening a medical practice, the salaries of clinical assistants, and anything affecting the desirability of pursuing a medical career. Changing the ability to pay for medical care services will change the level of demand, not the supply. d. Incorrect. Anything affecting the cost of inputs required to provide medical care services will have an impact on the supply of medical care. This includes changes in the cost of training future providers, the cost of opening a medical practice, the salaries of clinical assistants, and anything affecting the desirability of pursuing a medical career. Changing the ability to pay for medical care services will change the level of demand, not the supply. e. Incorrect. Anything affecting the cost of inputs required to provide medical care services will have an impact on the supply of medical care. This includes changes in the cost of training future providers, the cost of opening a medical practice, the salaries of clinical assistants, and anything affecting the desirability of pursuing a medical career. Changing the ability to pay for medical care services will change the level of demand, not the supply.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-2b - The Law of Supply DATE CREATED: 2/9/2022 1:49 AM DATE MODIFIED: 2/9/2022 1:57 AM 10. Supply curves are positively sloped because of: a. the inefficient allocation of resources. b. the law of increasing returns. c. economies of scale. d. self-interested suppliers seeking economic profit. e. the increasing opportunity cost of resources.

ANSWER: e FEEDBACK: a. Incorrect. Changes in the cost of resources affect the ability to provide a product or service. Providers desiring to produce more of an item must secure more resources to do so. Because all resources are scarce, they must be bid away from other alternative uses. Better alternatives result in higher opportunity costs, resulting in positively sloping supply curves. b. Incorrect. Changes in the cost of resources affect the ability to provide a product or service. Providers desiring to produce more of an item must secure more resources to do so. Because all resources are scarce, they must be bid away from other alternative uses. Better alternatives result in higher opportunity costs, resulting in positively sloping supply curves. c. Incorrect. Changes in the cost of resources affect the ability to provide a product or service. Providers desiring to produce more of an item must secure more resources to do so. Because all resources are scarce, they must be bid away from other alternative uses. Better alternatives result in higher opportunity costs, resulting in positively sloping supply curves. d. Incorrect. Changes in the cost of resources affect the ability to provide a product or service. Providers desiring to produce more of an item must secure more resources to do so. Because all resources are scarce, they must be bid away from other alternative uses. Better alternatives result in higher opportunity costs, resulting in positively sloping supply curves. e. Correct. Changes in the cost of resources affect the ability to provide a product

or service. Providers desiring to produce more of an item must secure more resources to do so. Because all resources are scarce, they must be bid away from other alternative uses. Better alternatives result in higher opportunity costs, resulting in positively sloping supply curves.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-2b - The Law of Supply DATE CREATED: 2/9/2022 1:58 AM DATE MODIFIED: 2/9/2022 2:06 AM 11. The direct effect of a shortage of hospital beds in a hospital services market is: a. an increase in the supply of hospital beds. b. a decrease in the demand for hospital beds. c. upward pressure on the price of a hospital stay. d. downward pressure on the price of a hospital stay. e. a construction boom to eliminate the shortage.

ANSWER: c FEEDBACK: a. Incorrect. A shortage exists when the quantity demanded exceeds the quantity supplied. Hospitals will begin to experience pressure when physicians attempt to admit injured or acutely ill patients from the emergency departments. Waiting lines will form for elective procedures that require inpatient stays. Adding to existing facilities or building new hospitals will take several years; in the meantime, the only way to ease the shortage is to raise the price of a hospital stay to discourage or postpone some elective procedures. b. Incorrect. A shortage exists when the quantity demanded exceeds the quantity supplied. Hospitals will begin to experience pressure when physicians attempt to admit injured or acutely ill patients from the emergency departments. Waiting lines will form for elective procedures that require inpatient stays. Adding to existing facilities or building new hospitals will take several years; in the meantime, the only way to ease the shortage is to raise the price of a hospital stay to discourage or postpone some elective procedures. c. Correct. A shortage exists when the quantity demanded exceeds the quantity supplied. Hospitals will begin to experience pressure when physicians attempt to admit injured or acutely ill patients from the emergency departments. Waiting lines will form for elective procedures that require inpatient stays. Adding to existing facilities or building new hospitals will take several years; in the meantime, the only way to ease the shortage is to raise the price of a hospital stay to discourage or postpone some elective procedures. d. Incorrect. A shortage exists when the quantity demanded exceeds the quantity supplied. Hospitals will begin to experience pressure when physicians attempt to admit injured or acutely ill patients from the emergency departments. Waiting lines will form for elective procedures that require inpatient stays. Adding to existing facilities or building new hospitals will take several years; in the meantime, the only way to ease the shortage is to raise the price of a hospital stay to discourage or postpone some elective procedures. e. Incorrect. A shortage exists when the quantity demanded exceeds the quantity supplied. Hospitals will begin to experience pressure when physicians attempt to admit injured or acutely ill patients from the emergency departments. Waiting lines will form for elective procedures that require inpatient stays. Adding to existing facilities or building new hospitals will take several years; in the meantime, the only way to ease the shortage is to raise the price of a hospital stay to discourage or postpone some elective procedures.

POINTS:

1

QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-2c - Equilibrium: The Basic Model DATE CREATED: 2/9/2022 2:37 AM DATE MODIFIED: 2/9/2022 2:44 AM 12. Suppose the U.S. Food and Drug Administration restricts the amount of prescription opiates produced and sold in the U.S. market.

What is the likely effect on the market for drugs used to control chronic pain in the United States? a. The price of heroin (an illegal opiate) and its quantity imported will both decrease.

b. The price of prescription opiates will increase and the quantity consumed will decrease. c. Marijuana prices, a cocaine substitute grown domestically, will fall. d. The policy will result in fewer individuals overdosing from heroin. e. Demand for drugs is highly elastic, and these policies have little or no effect on consumption.

ANSWER: b FEEDBACK: a. Incorrect. Restricting the supply of prescription opiates will shift the supply curve to the left, resulting in higher prices and less availability. Those consumers with more elastic demand will substitute other pain killing drugs for the now higher-priced prescription opiates (including marijuana and illegal heroin), increasing their demand. The prices of marijuana and heroin will go up, but the ultimate supply response will be to increase production and importation. b. Correct. Restricting the supply of prescription opiates will shift the supply curve to the left, resulting in higher prices and less availability. Those consumers with more elastic demand will substitute other pain killing drugs for the now higherpriced prescription opiates (including marijuana and illegal heroin), increasing their demand. The prices of marijuana and heroin will go up, but the ultimate supply response will be to increase production and importation. c. Incorrect. Restricting the supply of prescription opiates will shift the supply curve to the left, resulting in higher prices and less availability. Those consumers with more elastic demand will substitute other pain killing drugs for the now higher-priced prescription opiates (including marijuana and illegal heroin), increasing their demand. The prices of marijuana and heroin will go up, but the ultimate supply response will be to increase production and importation. d. Incorrect. Restricting the supply of prescription opiates will shift the supply curve to the left, resulting in higher prices and less availability. Those consumers with more elastic demand will substitute other pain killing drugs for the now higher-priced prescription opiates (including marijuana and illegal heroin), increasing their demand. The prices of marijuana and heroin will go up, but the ultimate supply response will be to increase production and importation. e. Incorrect. Restricting the supply of prescription opiates will shift the supply curve to the left, resulting in higher prices and less availability. Those consumers with more elastic demand will substitute other pain killing drugs for the now higher-priced prescription opiates (including marijuana and illegal heroin), increasing their demand. The prices of marijuana and heroin will go up, but the ultimate supply response will be to increase production and importation.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-2c - Equilibrium: The Basic Model DATE CREATED: 2/9/2022 2:46 AM DATE MODIFIED: 2/9/2022 2:54 AM 13. Suppose robotic technology improves the results of abdominal surgery—less time to perform the surgery, faster recovery times,

and fewer mistakes. What is the impact of this new technology on the market for abdominal surgery? a. Demand for robot-assisted surgery will increase, and prices will rise.

b. Demand for robot-assisted surgery will increase, and prices will fall. c. Hospitals will be slow to adopt the new technology, fearing that it may result in lower prices. d. The demand for surgical assistants will increase.

ANSWER: a FEEDBACK: a. Correct. The new technology will increase consumer demand for the robotassisted surgery. The demand curve will shift to the right and both the equilibrium price and quantity will increase. b. Incorrect. The new technology will increase consumer demand for the robotassisted surgery. The demand curve will shift to the right and both the equilibrium price and quantity will increase. c. Incorrect. The new technology will increase consumer demand for the robotassisted surgery. The demand curve will shift to the right and both the equilibrium price and quantity will increase. d. Incorrect. The new technology will increase consumer demand for the robotassisted surgery. The demand curve will shift to the right and both the equilibrium price and quantity will increase.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-2c - Equilibrium: The Basic Model DATE CREATED: 2/9/2022 2:55 AM DATE MODIFIED: 2/9/2022 3:01 AM 14. In 5-10 sentences, outline the three elements essential to a competitive market.

First of all, individuals must have the freedom to interact with one another in an open exchange.

ANSWER: This condition includes enforceable property rights and the desire for sellers to put their goods on the market. Buyers must also have the means and a willingness to purchase these goods. Secondly, there must be a free flow of information. Buyers must be informed as to the quality of goods so that they may rank them and allocate their money in a way that maximizes their utility. Lastly, buyers must allocate their scarce resources in a cost-conscious and rational manner that will bring the greatest increase in wellbeing.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 3-2d - Essential Elements for Markets to Work DATE CREATED: 2/9/2022 3:04 AM DATE MODIFIED: 2/28/2022 5:00 AM 15. Inoculation programs against certain diseases such as small pox, polio, and whooping cough create: a. public goods. b. positive externalities in consumption. c. nonrival goods. d. nonexcludable goods. e. external costs to society equal to the costs of the program.

ANSWER: FEEDBACK:

b a. Incorrect. Widespread immunization programs create general immunity across

a population. A positive externality exists if enough people receive the vaccine.

Even those individuals who are not immunized benefit from the program because they interact with people who have. This immunization effect significantly lowers their risk of exposure. Those who are not immunized receive the benefit at zero cost and enjoy this positive externality. Those who pay do not capture this benefit. Thus, less than the optimal number of people are immunized. b. Correct. Widespread immunization programs create general immunity across a population. A positive externality exists if enough people receive the vaccine.

Even those individuals who are not immunized benefit from the program because they interact with people who have. This immunization effect significantly lowers their risk of exposure. Those who are not immunized receive the benefit at zero cost and enjoy this positive externality. Those who pay do not capture this benefit. Thus, less than the optimal number of people are immunized. c. Incorrect. Widespread immunization programs create general immunity across a population. A positive externality exists if enough people receive the vaccine.

Even those individuals who are not immunized benefit from the program because they interact with people who have. This immunization effect significantly lowers their risk of exposure. Those who are not immunized receive the benefit at zero cost and enjoy this positive externality. Those who pay do not capture this benefit. Thus, less than the optimal number of people are immunized. d. Incorrect. Widespread immunization programs create general immunity across a population. A positive externality exists if enough people receive the vaccine.

Even those individuals who are not immunized benefit from the program because they interact with people who have. This immunization effect significantly lowers their risk of exposure. Those who are not immunized receive the benefit at zero cost and enjoy this positive externality. Those who pay do not capture this benefit. Thus, less than the optimal number of people are immunized. e. Incorrect. Widespread immunization programs create general immunity across a population. A positive externality exists if enough people receive the vaccine.

Even those individuals who are not immunized benefit from the program because they interact with people who have. This immunization effect significantly lowers their risk of exposure. Those who are not immunized receive the benefit at zero cost and enjoy this positive externality. Those who pay do not capture this benefit. Thus, less than the optimal number of people are immunized.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-3 - The Medical Care Marketplace DATE CREATED: 2/9/2022 3:16 AM DATE MODIFIED: 2/9/2022 3:25 AM 16. How different is medical care from other commodities? Arrow (1963) based his thesis on a number of

characteristics that contribute to the unique nature of medical care. All of the following characteristics were listed by Arrow, except: a. Trust b. Barriers to entry c. Primary payment from insurance d. Asymmetric information e. Preponderance of not-for-profit providers

ANSWER: FEEDBACK:

e a. Incorrect. While some analysts consider the preponderance of non-profit providers an important difference between medical markets and the typical market, it was not on Arrow’s list. He listed trust, barriers to entry, primary method of payment using insurance, asymmetric information, and overall unpredictability. b. Incorrect. While some analysts consider the preponderance of non-profit providers an important difference between medical markets and the typical market, it was not on Arrow’s list. He listed trust, barriers to entry, primary method of payment using insurance, asymmetric information, and overall unpredictability. c. Incorrect. While some analysts consider the preponderance of non-profit providers an important difference between medical markets and the typical market, it was not on Arrow’s list. He listed trust, barriers to entry, primary method of payment using insurance, asymmetric information, and overall unpredictability. d. Incorrect. While some analysts consider the preponderance of non-profit providers an important difference between medical markets and the typical market, it was not on Arrow’s list. He listed trust, barriers to entry, primary method of payment using insurance, asymmetric information, and overall unpredictability. e. Correct. While some analysts consider the preponderance of non-profit providers an important difference between medical markets and the typical market, it was not on Arrow’s list. He listed trust, barriers to entry, primary method of payment using insurance, asymmetric information, and overall unpredictability.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-3a - Should Medical Care Markets Exist?

DATE CREATED: 2/9/2022 4:17 AM DATE MODIFIED: 2/9/2022 4:26 AM 17. What term is used when physicians know more about alternative treatments than their patients do? a. rational ignorance b. perfect information c. asymmetric information d. moral hazard e. adverse selection ANSWER: FEEDBACK:

c a. Incorrect. When information is unequally distributed between individuals involved in a transaction, there is asymmetric information. Because of their extensive training, physicians typically know more about the diagnosis and treatment options than their patients do. b. Incorrect. When information is unequally distributed between individuals involved in a transaction, there is asymmetric information. Because of their extensive training, physicians typically know more about the diagnosis and treatment options than their patients do. c. Correct. When information is unequally distributed between individuals involved in a transaction, there is asymmetric information. Because of their extensive training, physicians typically know more about the diagnosis and treatment options than their patients do.

d. Incorrect. When information is unequally distributed between individuals involved in a transaction, there is asymmetric information. Because of their extensive training, physicians typically know more about the diagnosis and treatment options than their patients do. e. Incorrect. When information is unequally distributed between individuals involved in a transaction, there is asymmetric information. Because of their extensive training, physicians typically know more about the diagnosis and treatment options than their patients do.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-3a - Should Medical Care Markets Exist?

DATE CREATED: 2/9/2022 4:27 AM DATE MODIFIED: 2/9/2022 4:35 AM 18. In 5-10 sentences, outline the five characteristics of medical care that make it distinct from other commodities.

The first unique characteristic of medical care is its unpredictability. Because the majority of health ANSWER: care is provided following injury or the onset of illness, it is impossible to predict an individual’s demand. Secondly, there is asymmetric information due to the complexity of products and procedures, which makes it difficult for consumers to be well informed. The third characteristic is the trust patients put into their physicians. They believe that their doctors will prescribe the best products and treatments regardless of any personal gain. Fourth, licensing for physicians, behavioral codes, and accreditation standards for facilities provide barriers to entry into the medical care marketplace. Lastly, products and services are widely paid by third parties, which discourages costconscious decision making and insulates patients from pricing.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 3-3a - Should Medical Care Markets Exist?

DATE CREATED: 2/9/2022 4:38 AM DATE MODIFIED: 2/28/2022 5:02 AM 19. In 5-10 sentences, discuss the relevance of each of Arrow’s five characteristics that make medical care unique.

Unpredictability is a common feature in many other commodity markets and not unique to health ANSWER: care. Though accidents and illness cannot be predicted, modern forecasting methods have been developed to estimate the incidence of disease and demand for medical care in a given population.

The existence of asymmetric information is also common in most exchanges, such as when we shop for electronics, computers, or automobile repair. Furthermore, we put our trust not only in doctors, but others as well, like airline pilots, bus drivers, and financial advisors. Licensing and accreditation are also not specific to health care and exist in sectors such as law, accounting, and hairdressing.

Lastly, third-party payment is still a relevant issue, but Arrow’s solution of introducing a government-run insurance model would tend to exacerbate the problem and further insulate patients from health care pricing.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 3-3b - Relevance for Today DATE CREATED: 2/9/2022 4:41 AM DATE MODIFIED: 2/28/2022 5:03 AM

20. Compare and contrast the principle activities of health economists in and outside of the United States in 5-10 sentences.

Outside of the United States, the main activity of health economists is the evaluation of alternate ANSWER: treatments and procedures. Because budgets are fixed, it is important to identify the most costefficient methods of diagnosis and treatment options. Within the United States, the principle activity is the analysis of health care markets. Research is focused on the production and demand for health care. Early research in this area centered on the idea that improving health care makes people healthier as well as more productive.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 3-3c - Health Economics Defined DATE CREATED: 2/9/2022 4:44 AM DATE MODIFIED: 2/28/2022 5:04 AM 21. An observational study provides a biased estimate of the true effect of a treatment on a medical outcome

because: a. the treatment group and the control group are too similar. b. it is difficult to find a control group that is equivalent to the treatment group. c. the treatment and control groups are randomly selected. d. no one wants to serve as a guinea pig for randomized trials. e. everyone wants to be in the treatment group.

ANSWER: FEEDBACK:

b a. Incorrect. Observational studies use data collected from individuals who voluntarily choose whether to accept the treatment. Thus, individuals self-select into the treatment or the control group based largely on individual preferences.

The bias exists because individuals in the treatment and control groups differ from each other due to unobserved characteristics correlated with the clinical outcome and the actual treatment. b. Correct. Observational studies use data collected from individuals who voluntarily choose whether to accept the treatment. Thus, individuals self-select into the treatment or the control group based largely on individual preferences.

The bias exists because individuals in the treatment and control groups differ from each other due to unobserved characteristics correlated with the clinical outcome and the actual treatment. c. Incorrect. Observational studies use data collected from individuals who voluntarily choose whether to accept the treatment. Thus, individuals self-select into the treatment or the control group based largely on individual preferences.

The bias exists because individuals in the treatment and control groups differ from each other due to unobserved characteristics correlated with the clinical outcome and the actual treatment. d. Incorrect. Observational studies use data collected from individuals who voluntarily choose whether to accept the treatment. Thus, individuals self-select into the treatment or the control group based largely on individual preferences.

The bias exists because individuals in the treatment and control groups differ from each other due to unobserved characteristics correlated with the clinical outcome and the actual treatment. e. Incorrect. Observational studies use data collected from individuals who voluntarily choose whether to accept the treatment. Thus, individuals self-select into the treatment or the control group based largely on individual preferences.

The bias exists because individuals in the treatment and control groups differ from each other due to unobserved characteristics correlated with the clinical

outcome and the actual treatment.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-Appendix 3A: - Causal Inference in Economics DATE CREATED: 2/9/2022 4:53 AM DATE MODIFIED: 2/9/2022 5:01 AM 22. Randomized sampling is not feasible in many policy studies, so researchers turn to different strategies to

estimate causality from observational data. One such approach is difference-in-differences (DiD). Which of the following statements best describes DiD? a. DiD uses differences in individual characteristics to divide the data into two groups. b. DiD is a hybrid approach that utilizes a cross-section of individuals across time to measure differences. c. DiD is the only approach that uses data from individuals in both groups that are exposed to the treatment. d. DiD does not require the two groups do not need to experience similar trends in the outcome variable during the pretreatment time period.

ANSWER: FEEDBACK:

b a. Incorrect. DiD requires cross-section data from two time periods (preferably more) that feature similar time trends (for the outcome variable) during the pretreatment period in each of the groups. In all of these approaches used to estimate causality, only the treatment group is exposed to the treatment. b. Correct. DiD requires cross-section data from two time periods (preferably more) that feature similar time trends (for the outcome variable) during the pretreatment period in each of the groups. In all of these approaches used to estimate causality, only the treatment group is exposed to the treatment. c. Incorrect. DiD requires cross-section data from two time periods (preferably more) that feature similar time trends (for the outcome variable) during the pretreatment period in each of the groups. In all of these approaches used to estimate causality, only the treatment group is exposed to the treatment. d. Incorrect. DiD requires cross-section data from two time periods (preferably more) that feature similar time trends (for the outcome variable) during the pretreatment period in each of the groups. In all of these approaches used to estimate causality, only the treatment group is exposed to the treatment.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-Appendix 3A: - Causal Inference in Economics DATE CREATED: 2/9/2022 5:02 AM DATE MODIFIED: 2/9/2022 5:07 AM 23. The major difference between propensity score matching and synthetic control is that: a. propensity score matching is an application of the methodology used in the comparative case study. b. synthetic control uses logit regression to match individuals in the treatment group with individuals

with similar characteristics to create a control group. c. propensity score matching requires the researcher to identify qualified donor pools in choosing a control group.

d. the way in which the control groups are identified is different.

ANSWER: FEEDBACK:

d a. Incorrect. Control group identification is the main difference between the two techniques. Propensity score matching uses logit regression to estimate from observed characteristics the individual probability of receiving the treatment.

Each person in the treatment group is assigned someone in the control group that has a similar probability. The average treatment effect is estimated from the matched samples. Synthetic control uses an algorithm that constructs a control group from a weighted combination of the available (donor) pool of potential controls. b. Incorrect. Control group identification is the main difference between the two techniques. Propensity score matching uses logit regression to estimate from observed characteristics the individual probability of receiving the treatment.

Each person in the treatment group is assigned someone in the control group that has a similar probability. The average treatment effect is estimated from the matched samples. Synthetic control uses an algorithm that constructs a control group from a weighted combination of the available (donor) pool of potential controls. c. Incorrect. Control group identification is the main difference between the two techniques. Propensity score matching uses logit regression to estimate from observed characteristics the individual probability of receiving the treatment.

Each person in the treatment group is assigned someone in the control group that has a similar probability. The average treatment effect is estimated from the matched samples. Synthetic control uses an algorithm that constructs a control group from a weighted combination of the available (donor) pool of potential controls. d. Correct. Control group identification is the main difference between the two techniques. Propensity score matching uses logit regression to estimate from observed characteristics the individual probability of receiving the treatment.

Each person in the treatment group is assigned someone in the control group that has a similar probability. The average treatment effect is estimated from the matched samples. Synthetic control uses an algorithm that constructs a control group from a weighted combination of the available (donor) pool of potential controls.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 3-Appendix 3A: - Causal Inference in Economics DATE CREATED: 2/9/2022 5:31 AM DATE MODIFIED: 2/9/2022 5:36 AM

Chapter 04: Welfare Implications in Medical Markets 1. In the nation of Pavlova, a significant proportion of the population suffers from breathing difficulties later in life. Pavlova Medical produces the only prescription drug that is effective in treating the condition. Which of the following terms best describes the situation in the market? a. Monopsony b. Monopoly c. Bilateral monopoly d. Price discrimination e. Lack of price transparency

ANSWER: FEEDBACK:

b a. Incorrect. Price transparency refers to a situation where information on actual prices are available and easy to understand, whereas price discrimination is the selling of the same good or service to different consumers at different prices. A monopsony is the situation where there is only one buyer in the market, and conversely, a monopoly is the situation where there is only one seller. A bilateral monopoly occurs when there is both a monopoly and a monopsony, or more simply, only one buyer and one seller. b. Correct. Price transparency refers to a situation where information on actual prices are available and easy to understand, whereas price discrimination is the selling of the same good or service to different consumers at different prices. A monopsony is the situation where there is only one buyer in the market, and conversely, a monopoly is the situation where there is only one seller. A bilateral monopoly occurs when there is both a monopoly and a monopsony, or more simply, only one buyer and one seller. c. Incorrect. Price transparency refers to a situation where information on actual prices are available and easy to understand, whereas price discrimination is the selling of the same good or service to different consumers at different prices. A monopsony is the situation where there is only one buyer in the market, and conversely, a monopoly is the situation where there is only one seller. A bilateral monopoly occurs when there is both a monopoly and a monopsony, or more simply, only one buyer and one seller. d. Incorrect. Price transparency refers to a situation where information on actual prices are available and easy to understand, whereas price discrimination is the selling of the same good or service to different consumers at different prices. A monopsony is the situation where there is only one buyer in the market, and conversely, a monopoly is the situation where there is only one seller. A bilateral monopoly occurs when there is both a monopoly and a monopsony, or more simply, only one buyer and one seller. e. Incorrect. Price transparency refers to a situation where information on actual prices are available and easy to understand, whereas price discrimination is the selling of the same good or service to different consumers at different prices. A monopsony is the situation where there is only one buyer in the market, and conversely, a monopoly is the situation where there is only one seller. A bilateral monopoly occurs when there is both a monopoly and a monopsony, or more simply, only one buyer and one seller.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 4-1 - Welfare Implications in Competitive Markets DATE CREATED: 2/9/2022 5:44 AM DATE MODIFIED: 2/9/2022 5:52 AM 2. In 5-10 sentences, discuss how economists evaluate markets.

ANSWER:

Markets are generally evaluated in terms of efficiency and equity. Efficiency can be divided into two categories: technical and allocative. Technical efficiency refers to efficiency in production, or cost efficiency. Allocative efficiency refers to the situation in which producers provide goods and services desired by consumers. For every item produced and sold on the market, the marginal cost of production is less than or equal to the marginal benefit received by consumers. Equity is commonly accepted as a standard of fairness, such as equal access to health care, but strong ideological differences exist concerning the concepts of equality of opportunity versus equality of outcome.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 4-1 - Welfare Implications in Competitive Markets DATE CREATED: 2/9/2022 5:56 AM DATE MODIFIED: 2/28/2022 5:25 AM 3. Assuming that a market is perfectly competitive and in a state of equilibrium, which of the following statements is always true when the price changes? a. Consumer surplus increases. b. Consumer surplus decreases. c. Producer surplus increases. d. Producer surplus decreases. e. Social welfare decreases.

ANSWER: FEEDBACK:

e a. Incorrect. When the price increases above its equilibrium value, consumer surplus decreases and producer surplus may increase or decrease depending on the size of the dead weight loss. When the price decreases below its equilibrium value, producer surplus decreases and consumer surplus increase or decrease depending on the size of the dead weight loss. However, social welfare will always decrease when the market moves out of equilibrium. b. Incorrect. When the price increases above its equilibrium value, consumer surplus decreases and producer surplus may increase or decrease depending on the size of the dead weight loss. When the price decreases below its equilibrium value, producer surplus decreases and consumer surplus increase or decrease depending on the size of the dead weight loss. However, social welfare will always decrease when the market moves out of equilibrium. c. Incorrect. When the price increases above its equilibrium value, consumer surplus decreases and producer surplus may increase or decrease depending on the size of the dead weight loss. When the price decreases below its equilibrium value, producer surplus decreases and consumer surplus increase or decrease depending on the size of the dead weight loss. However, social welfare will always decrease when the market moves out of equilibrium. d. Incorrect. When the price increases above its equilibrium value, consumer surplus decreases and producer surplus may increase or decrease depending on the size of the dead weight loss. When the price decreases below its equilibrium value, producer surplus decreases and consumer surplus increase or decrease depending on the size of the dead weight loss. However, social welfare will always decrease when the market moves out of equilibrium. e. Correct. When the price increases above its equilibrium value, consumer surplus decreases and producer surplus may increase or decrease depending on the size of the dead weight loss. When the price decreases below its equilibrium value, producer surplus decreases and consumer surplus increase or decrease depending on the size of the dead weight loss. However, social welfare will always decrease when the market moves out of equilibrium.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 4-2b - Producer Surplus DATE CREATED: 2/9/2022 6:06 AM DATE MODIFIED: 2/9/2022 6:23 AM 4. If a hospital is experiencing economies of scale: a. its average cost curve is positively sloped as output increases. b. its average cost curve is negatively sloped as output increases. c. it should reduce its output level to lower costs. d. quality is falling as output is rising. e. prices are obviously too high.

ANSWER: b FEEDBACK: a. Incorrect. The downward sloping portion of a firm’s long-run average cost curve indicates that the per-unit cost of producing its output is decreasing. Production costs are declining as the amount produced increases. Clarify this concept in your mind by considering the cost differences of making a one-of-a-kind item as opposed to mass-producing the same item. b. Correct. The downward sloping portion of a firm’s long-run average cost curve indicates that the per-unit cost of producing its output is decreasing. Production costs are declining as the amount produced increases. Clarify this concept in your mind by considering the cost differences of making a one-of-a-kind item as opposed to mass-producing the same item. c. Incorrect. The downward sloping portion of a firm’s long-run average cost curve indicates that the per-unit cost of producing its output is decreasing. Production costs are declining as the amount produced increases. Clarify this concept in your mind by considering the cost differences of making a one-of-a-kind item as opposed to mass-producing the same item. d. Incorrect. The downward sloping portion of a firm’s long-run average cost curve indicates that the per-unit cost of producing its output is decreasing. Production costs are declining as the amount produced increases. Clarify this concept in your mind by considering the cost differences of making a one-of-a-kind item as opposed to mass-producing the same item. e. Incorrect. The downward sloping portion of a firm’s long-run average cost curve indicates that the per-unit cost of producing its output is decreasing. Production costs are declining as the amount produced increases. Clarify this concept in your mind by considering the cost differences of making a one-of-a-kind item as opposed to mass-producing the same item.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 4-3a - Market Imperfections DATE CREATED: 2/9/2022 6:28 AM DATE MODIFIED: 2/9/2022 6:33 AM 5. The optimal level of output may be defined as that level of output where: a. average benefit exceeds average cost by the greatest amount. b. total benefit equals total cost. c. marginal benefit exceeds marginal cost by the greatest amount.

d. the marginal benefit of the last unit purchased equals its marginal cost. e. it is impossible to define optimal in any meaningful way.

ANSWER: d FEEDBACK: a. Incorrect. Optimal output is the result of a competitive market equilibrium. The marginal benefit from every unit purchased exceeds its marginal cost of production. All transactions that benefit both buyer and seller take place. Every provider who wants to transact a sale at the going price finds a willing buyer and every buyer willing to pay the price finds a willing seller. b. Incorrect. Optimal output is the result of a competitive market equilibrium. The marginal benefit from every unit purchased exceeds its marginal cost of production. All transactions that benefit both buyer and seller take place. Every provider who wants to transact a sale at the going price finds a willing buyer and every buyer willing to pay the price finds a willing seller. c. Incorrect. Optimal output is the result of a competitive market equilibrium. The marginal benefit from every unit purchased exceeds its marginal cost of production. All transactions that benefit both buyer and seller take place. Every provider who wants to transact a sale at the going price finds a willing buyer and every buyer willing to pay the price finds a willing seller. d. Correct. Optimal output is the result of a competitive market equilibrium. The marginal benefit from every unit purchased exceeds its marginal cost of production. All transactions that benefit both buyer and seller take place. Every provider who wants to transact a sale at the going price finds a willing buyer and every buyer willing to pay the price finds a willing seller. e. Incorrect. Optimal output is the result of a competitive market equilibrium. The marginal benefit from every unit purchased exceeds its marginal cost of production. All transactions that benefit both buyer and seller take place. Every provider who wants to transact a sale at the going price finds a willing buyer and every buyer willing to pay the price finds a willing seller.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 4-3a - Market Imperfections DATE CREATED: 2/9/2022 6:34 AM DATE MODIFIED: 2/9/2022 6:37 AM 6. Which of the following statements is based on positive analysis? a. Everyone should have the same access to medical care services regardless of the ability to pay for it. b. High health care prices are one of the primary reasons that the United States spends more on medical care than other countries.

c. Employers should be required to provide health insurance for all full-time workers and their dependents. d. Universal insurance coverage should be the goal of every country. e. Pharmaceutical prices ought to be lower.

ANSWER: b FEEDBACK: a. Incorrect. Positive statements are factually based statements that can be verified empirically. Normative statements are based on desired outcomes, usually preceded by “should” or “ought.” b. Correct. Positive statements are factually based statements that can be verified empirically. Normative statements are based on desired outcomes, usually preceded by “should” or “ought.” c. Incorrect. Positive statements are factually based statements that can be verified empirically. Normative statements are based on desired outcomes, usually preceded by “should” or “ought.”

d. Incorrect. Positive statements are factually based statements that can be verified empirically. Normative statements are based on desired outcomes, usually preceded by “should” or “ought.” e. Incorrect. Positive statements are factually based statements that can be verified empirically. Normative statements are based on desired outcomes, usually preceded by “should” or “ought.”

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 4-3a - Market Imperfections DATE CREATED: 2/9/2022 6:39 AM DATE MODIFIED: 2/9/2022 6:42 AM 7. If a hospital dumps its biohazardous waste into the ocean and it pollutes the neighboring state, this is an example of: a. a negative externality. b. a positive externality. c. a merit good. d. a public health program.

ANSWER: a FEEDBACK: a. Correct. By not paying for the proper disposal of the waste, the market does not account for this cost and the hospital passes it on to the neighboring state. An externality is a cost or benefit that is incurred by third parties who are not involved in the transaction and therefore ignored by the buyer and seller.

Externalities can be either positive or negative, depending on whether it adds a benefit or a cost. b. Incorrect. By not paying for the proper disposal of the waste, the market does not account for this cost and the hospital passes it on to the neighboring state.

An externality is a cost or benefit that is incurred by third parties who are not involved in the transaction and therefore ignored by the buyer and seller.

Externalities can be either positive or negative, depending on whether it adds a benefit or a cost. c. Incorrect. By not paying for the proper disposal of the waste, the market does not account for this cost and the hospital passes it on to the neighboring state.

An externality is a cost or benefit that is incurred by third parties who are not involved in the transaction and therefore ignored by the buyer and seller.

Externalities can be either positive or negative, depending on whether it adds a benefit or a cost. d. Incorrect. By not paying for the proper disposal of the waste, the market does not account for this cost and the hospital passes it on to the neighboring state.

An externality is a cost or benefit that is incurred by third parties who are not involved in the transaction and therefore ignored by the buyer and seller.

Externalities can be either positive or negative, depending on whether it adds a benefit or a cost.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 4-3a - Market Imperfections DATE CREATED: 2/9/2022 6:43 AM DATE MODIFIED: 2/9/2022 6:47 AM 8. Which of the following is a viable way of eliminating the problem of the free rider in the provision of a public good that is both non-rival and nonexcludable?

a. Letting the private sector supply the good b. Financing its provision through crowd funding c. Funding through a federal tax d. Not supplying the good ANSWER: c FEEDBACK: a. Incorrect. Individuals have an incentive to understate their marginal valuations of the public good and to choose to be a free rider. It is generally not in the interest of private firms to provide nonexcludable goods, and because its provision increases social welfare, it is beneficial for the government to produce it. By funding it through taxation, the government can eliminate the problem of the free rider. b. Incorrect. Individuals have an incentive to understate their marginal valuations of the public good and to choose to be a free rider. It is generally not in the interest of private firms to provide nonexcludable goods, and because its provision increases social welfare, it is beneficial for the government to produce it. By funding it through taxation, the government can eliminate the problem of the free rider. c. Correct. Individuals have an incentive to understate their marginal valuations of the public good and to choose to be a free rider. It is generally not in the interest of private firms to provide nonexcludable goods, and because its provision increases social welfare, it is beneficial for the government to produce it. By funding it through taxation, the government can eliminate the problem of the free rider. d. Incorrect. Individuals have an incentive to understate their marginal valuations of the public good and to choose to be a free rider. It is generally not in the interest of private firms to provide nonexcludable goods, and because its provision increases social welfare, it is beneficial for the government to produce it. By funding it through taxation, the government can eliminate the problem of the free rider.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 4-3a - Market Imperfections DATE CREATED: 2/9/2022 6:48 AM DATE MODIFIED: 2/9/2022 6:51 AM 9. In 5-10 sentences, explain some of the common imperfections in markets.

Market power can distort the efficiency and equity of competitive markets. It can exist on both the ANSWER: seller’s and the buyer’s side, which we can see by comparing perfectly competitive markets to those where a monopoly or monopsony are present, respectively. Positive and negative externalities also create problems in markets. Without including these benefits and costs, the markets will find equilibrium other than that which renders the socially optimal levels of price and quantity. Finally, markets for public goods tend to be imperfect. Being non-rival and nonexcludable, private producers generally provide less than the optimum quantity. The best solution is perhaps for the government to step in and augment production. They are also particularly suited to fund public goods as they can use tax money, which can overcome the problem of the free rider.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 4-3a - Market Imperfections DATE CREATED: 2/9/2022 6:52 AM

DATE MODIFIED:

2/28/2022 5:30 AM

10. Suppose the market for hospital outpatient treatment is in equilibrium when a price ceiling is set below the

equilibrium price. What do you expect to happen? a. A surplus will develop. b. A shortage will develop. c. Quantity demanded will decrease. d. Quantity supplied will increase. e. The number of outpatient visits will rise.

ANSWER: FEEDBACK:

b a. Incorrect. A shortage exists when the quantity demanded exceeds the quantity supplied. Equilibrium price exists where quantity demanded is equal to quantity supplied. A price ceiling below equilibrium will increase quantity demanded and at the same time decrease quantity supplied. Receiving lower payments for their services, outpatient clinics will scale back their operating hours, hire fewer clinicians, and delay all nonessential services. It will take longer to schedule procedures and waiting lists will develop. b. Correct. A shortage exists when the quantity demanded exceeds the quantity supplied. Equilibrium price exists where quantity demanded is equal to quantity supplied. A price ceiling below equilibrium will increase quantity demanded and at the same time decrease quantity supplied. Receiving lower payments for their services, outpatient clinics will scale back their operating hours, hire fewer clinicians, and delay all nonessential services. It will take longer to schedule procedures and waiting lists will develop. c. Incorrect. A shortage exists when the quantity demanded exceeds the quantity supplied. Equilibrium price exists where quantity demanded is equal to quantity supplied. A price ceiling below equilibrium will increase quantity demanded and at the same time decrease quantity supplied. Receiving lower payments for their services, outpatient clinics will scale back their operating hours, hire fewer clinicians, and delay all nonessential services. It will take longer to schedule procedures and waiting lists will develop. d. Incorrect. A shortage exists when the quantity demanded exceeds the quantity supplied. Equilibrium price exists where quantity demanded is equal to quantity supplied. A price ceiling below equilibrium will increase quantity demanded and at the same time decrease quantity supplied. Receiving lower payments for their services, outpatient clinics will scale back their operating hours, hire fewer clinicians, and delay all nonessential services. It will take longer to schedule procedures and waiting lists will develop. e. Incorrect. A shortage exists when the quantity demanded exceeds the quantity supplied. Equilibrium price exists where quantity demanded is equal to quantity supplied. A price ceiling below equilibrium will increase quantity demanded and at the same time decrease quantity supplied. Receiving lower payments for their services, outpatient clinics will scale back their operating hours, hire fewer clinicians, and delay all nonessential services. It will take longer to schedule procedures and waiting lists will develop.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 4-3b - Government Intervention in Medical Markets DATE CREATED: 2/9/2022 6:54 AM DATE MODIFIED: 2/9/2022 7:03 AM 11. The dead-weight loss from an excise tax:

a. is greater if demand is perfectly inelastic. b. is caused by a shift in consumer preferences when the tax is raised. c. is the lost surplus that results from higher prices and lower output resulting from the tax. d. is of little concern to policy makers since all excise taxes are “sin” taxes. e. is the difference between consumer surplus and producer surplus.

ANSWER: b FEEDBACK: a. Incorrect. Taxes raise prices and lower consumption. Consumers and producers lose surplus to the government equal to the amount of the excise tax and the resulting quantity of output purchased by consumers. The dead weight loss is found by calculating its area, which as a triangle is equal to half of the product of the excise tax times the change in quantity. b. Correct. Taxes raise prices and lower consumption. Consumers and producers lose surplus to the government equal to the amount of the excise tax and the resulting quantity of output purchased by consumers. The dead weight loss is found by calculating its area, which as a triangle is equal to half of the product of the excise tax times the change in quantity. c. Incorrect. Taxes raise prices and lower consumption. Consumers and producers lose surplus to the government equal to the amount of the excise tax and the resulting quantity of output purchased by consumers. The dead weight loss is found by calculating its area, which as a triangle is equal to half of the product of the excise tax times the change in quantity. d. Incorrect. Taxes raise prices and lower consumption. Consumers and producers lose surplus to the government equal to the amount of the excise tax and the resulting quantity of output purchased by consumers. The dead weight loss is found by calculating its area, which as a triangle is equal to half of the product of the excise tax times the change in quantity. e. Incorrect. Taxes raise prices and lower consumption. Consumers and producers lose surplus to the government equal to the amount of the excise tax and the resulting quantity of output purchased by consumers. The dead weight loss is found by calculating its area, which as a triangle is equal to half of the product of the excise tax times the change in quantity.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 4-3b - Government Intervention in Medical Markets DATE CREATED: 2/9/2022 7:14 AM DATE MODIFIED: 2/9/2022 7:18 AM 12. The following graph depicts the market for CT scanners in the United States.

Assume an initial equilibrium at D1 and S1 with a price of $1.20 million per machine. If the government places a $100,000 excise tax on each new scanner sold, the new equilibrium price will be: a. at least $1.30 million.

b. exactly $1.30 million. c. less than $1.30 million. d. the same and stay at $1.30 million to increase demand.

ANSWER: c FEEDBACK: a. Incorrect. Unless the demand curve is perfectly inelastic (drawn as a vertical line), the entire $100,000 excise tax will not be passed on to the consumer.

Both consumer and producer will share the tax. The new equilibrium will be between $1.20 and $1.30 million, depending on the relative elasticities of supply and demand. b. Incorrect. Unless the demand curve is perfectly inelastic (drawn as a vertical line), the entire $100,000 excise tax will not be passed on to the consumer.

Both consumer and producer will share the tax. The new equilibrium will be between $1.20 and $1.30 million, depending on the relative elasticities of supply and demand. c. Correct. Unless the demand curve is perfectly inelastic (drawn as a vertical line), the entire $100,000 excise tax will not be passed on to the consumer.

Both consumer and producer will share the tax. The new equilibrium will be between $1.20 and $1.30 million, depending on the relative elasticities of supply and demand. d. Incorrect. Unless the demand curve is perfectly inelastic (drawn as a vertical line), the entire $100,000 excise tax will not be passed on to the consumer.

Both consumer and producer will share the tax. The new equilibrium will be between $1.20 and $1.30 million, depending on the relative elasticities of supply and demand.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 4-3b - Government Intervention in Medical Markets DATE CREATED: 2/9/2022 7:23 AM DATE MODIFIED: 2/25/2022 5:42 AM 13. Which of the following might cause a market to produce less than the optimal quantity? a. A price ceiling above the market equilibrium price b. Market control by a monopolist c. A subsidy to low-income consumers d. A cost to society that is not included in the transactions cost ANSWER: b FEEDBACK: a. Incorrect. A monopolist will charge a profit-maximizing price that is above the competitive equilibrium and produce at an output level that is below the optimal level. In contrast, policies that result in the price paid by consumers to fall below the competitive equilibrium encourage consumers to overspend, consuming at a level where marginal benefit is less than marginal cost. b. Correct. A monopolist will charge a profit-maximizing price that is above the competitive equilibrium and produce at an output level that is below the optimal level. In contrast, policies that result in the price paid by consumers to fall below the competitive equilibrium encourage consumers to overspend, consuming at a level where marginal benefit is less than marginal cost. c. Incorrect. A monopolist will charge a profit-maximizing price that is above the competitive equilibrium and produce at an output level that is below the optimal level. In contrast, policies that result in the price paid by consumers to fall below the competitive equilibrium encourage consumers to overspend, consuming at a level where marginal benefit is less than marginal cost.

d. Incorrect. A monopolist will charge a profit-maximizing price that is above the competitive equilibrium and produce at an output level that is below the optimal level. In contrast, policies that result in the price paid by consumers to fall below the competitive equilibrium encourage consumers to overspend, consuming at a level where marginal benefit is less than marginal cost.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 4-3b - Government Intervention in Medical Markets DATE CREATED: 2/9/2022 8:11 AM DATE MODIFIED: 2/9/2022 8:15 AM 14. Discuss the costs and benefits of entry restrictions in the medical care sector.

ANSWER: The government oversees an extensive system of licensing, certifying, and accrediting in the medical care sector. Ostensibly, these restrictions have been put in place to protect consumers from unqualified health care providers. However, regulation has extended to prevent activities such as advertising and price cutting, which are considered unprofessional in the medical care sector. An example of licensing restrictions is the quota set on the number of seats available in medical schools, which results in a higher price and lower quantity supplied as compared to equilibrium unrestricted market with perfect competition.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 4-3b - Government Intervention in Medical Markets DATE CREATED: 2/9/2022 8:17 AM DATE MODIFIED: 2/28/2022 5:35 AM 15. In 5-10 sentences, discuss how the government can increase social welfare in markets dominated by monopolies.

ANSWER: In the case of a monopoly, it is in the company’s best interests to produce less than in a perfectly competitive market in order to maximize profits. Because the monopoly foregoes transactions with willing buyers, there is a deadweight loss to society equal to the additional producer and consumer surplus that would have been obtained at optimal equilibrium. To increase social welfare, the government can intervene in the market with a price ceiling to increase the price and reduce dead weight loss. Moreover, if the government sets the price correctly (i.e., the equilibrium price with perfect competition), the dead weight loss will be completely eliminated. However, it is unlikely that the price will be perfectly adjusted as regulators may overcompensate with prices below equilibrium.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 4-3b - Government Intervention in Medical Markets DATE CREATED: 2/9/2022 8:20 AM DATE MODIFIED: 2/28/2022 5:35 AM 16. If two women receive the same hip replacement procedure at a hospital, but are charged differently, it is an

example of: a. asymmetric information. b. price transparency. c. price discrimination. d. third-party payers.

ANSWER: FEEDBACK:

c a. Incorrect. Asymmetric information refers to a transaction where information is unequally distributed between the buyer and the seller, giving one of them an unfair advantage. Price transparency is the availability of information on actual pricing so that consumers can value and rank alternatives in order to make informed decisions. Third-party payers is a payment system where insurance companies, the government, or another organization pay for medical care services when required in exchange for a set premium. Price discrimination is the practice of selling the same good and service to different consumers at different prices in the absence of varying costs. b. Incorrect. Asymmetric information refers to a transaction where information is unequally distributed between the buyer and the seller, giving one of them an unfair advantage. Price transparency is the availability of information on actual pricing so that consumers can value and rank alternatives in order to make informed decisions. Third-party payers is a payment system where insurance companies, the government, or another organization pay for medical care services when required in exchange for a set premium. Price discrimination is the practice of selling the same good and service to different consumers at different prices in the absence of varying costs. c. Correct. Asymmetric information refers to a transaction where information is unequally distributed between the buyer and the seller, giving one of them an unfair advantage. Price transparency is the availability of information on actual pricing so that consumers can value and rank alternatives in order to make informed decisions. Third-party payers is a payment system where insurance companies, the government, or another organization pay for medical care services when required in exchange for a set premium. Price discrimination is the practice of selling the same good and service to different consumers at different prices in the absence of varying costs. d. Incorrect. Asymmetric information refers to a transaction where information is unequally distributed between the buyer and the seller, giving one of them an unfair advantage. Price transparency is the availability of information on actual pricing so that consumers can value and rank alternatives in order to make informed decisions. Third-party payers is a payment system where insurance companies, the government, or another organization pay for medical care services when required in exchange for a set premium. Price discrimination is the practice of selling the same good and service to different consumers at different prices in the absence of varying costs.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 4-4b - Pricing Practices: Price Transparency and Price Discrimination DATE CREATED: 2/9/2022 8:22 AM DATE MODIFIED: 2/9/2022 8:25 AM 17. Describe the problem and significance of asymmetric information in medical markets.

ANSWER: Information asymmetries are one of the largest violations to perfect competition in medical markets. Patients are understandably overwhelmed with the information and knowledge necessary to comprehend their condition and the treatment options available. Two important market defects related to this asymmetry of information are the inability to judge

price and quality differences among providers and a problem of agency. With the first defect, providers can increase their fees above prevailing prices for higher quality care, or below those given prices for a lesser quality. Secondly, the problem of agency is associated with a greater trust placed in physicians. Their patients have full confidence that only the best and most appropriate treatments will be prescribed, and they will not consider their own financial incentives. However, licensing restrictions and the threat of malpractice lawsuits help minimize the negative effects of these defects in the market.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 4-4a - Information Asymmetries DATE CREATED: 2/9/2022 8:25 AM DATE MODIFIED: 2/28/2022 5:36 AM 18. In 5-10 sentences, discuss how price discrimination may improve equity in medical care.

ANSWER: Certain proponents argue that price discrimination may be an effective way to improve equity in health care. By charging separate prices to those with private insurance and those without, they claim that lower-income persons will be allowed greater access to medical services and lead to an increase in welfare. However, this theory does not address the added administration costs, which are likely to cause a dead weight loss. Moreover, there is not much support for this theory as insurance pricing already varies depending on the type of coverage purchased.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 4-4b - Pricing Practices: Price Transparency and Price Discrimination DATE CREATED: 2/9/2022 8:27 AM DATE MODIFIED: 2/28/2022 5:37 AM 19. In 5-10 sentences, explain how we can graphically determine consumer choice.

ANSWER: Consumer choice can be graphically depicted by combining consumer preferences and the budget line. Consumer preferences refer to what a consumer is willing to buy and are themselves plotted as indifference curves. Along these curves, different combinations of goods are represented that yield the same level of utility, and the consumer is indifferent between them. The budget line refers to what the consumer is able to buy and is plotted as a straight line. Every point along this line represents the maximum use of resources possible. Knowing that consumers adjust their consumption so that they achieve the maximum utility possible with the given budget, we can determine consumer choice at the point of tangency between the budget line and the highest attainable indifference curve.

This point is in equilibrium because it is the only point where the slope of the indifference curve equals the slope of the budget line. Any point above this equilibrium is unattainable, and any point below is inefficient.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 4-Appendix 4A: - The Economics of Consumer Choice

DATE CREATED: DATE MODIFIED:

2/9/2022 8:29 AM 2/28/2022 5:37 AM

20. Assuming that inputs are perfect complements, how will the production isoquants be graphically depicted? a. Concave curves b. Convex curves c. Straight lines d. L-shaped curves ANSWER: d FEEDBACK: a. Incorrect. Convex isoquant curves are common, as they show that efficiency increases when the two inputs are used together. Concave curves are less common and depict a situation where the two inputs actually increase efficiency when employed separately. Straight lines represent perfect substitutes and Lshaped curves represent perfect complements. b. Incorrect. Convex isoquant curves are common, as they show that efficiency increases when the two inputs are used together. Concave curves are less common and depict a situation where the two inputs actually increase efficiency when employed separately. Straight lines represent perfect substitutes and Lshaped curves represent perfect complements. c. Incorrect. Convex isoquant curves are common, as they show that efficiency increases when the two inputs are used together. Concave curves are less common and depict a situation where the two inputs actually increase efficiency when employed separately. Straight lines represent perfect substitutes and Lshaped curves represent perfect complements. d. Correct. Convex isoquant curves are common, as they show that efficiency increases when the two inputs are used together. Concave curves are less common and depict a situation where the two inputs actually increase efficiency when employed separately. Straight lines represent perfect substitutes and Lshaped curves represent perfect complements.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 4-Appendix 4B: - Production and Cost in the For-Profit Sector DATE CREATED: 2/9/2022 8:30 AM DATE MODIFIED: 2/9/2022 8:34 AM

Chapter 05: Economic Evaluation in Health Care 1. Government decision makers worldwide are concerned with the excessive growth in medical care spending. When looking for areas to cut, they typically rely on the low-hanging fruit, which includes: a. surgeries treating acute conditions that are not life threatening. b. pharmaceutical drugs targeting chronic conditions. c. preventive care. d. end-of-life care. e. basic diagnostic screenings.

ANSWER: d FEEDBACK: a. Incorrect. There is always a lot of hand wringing about the amount of money spent during the last six months of a person’s life, maybe as much as one-third of all Medicare spending. The beginning-of-life and the end-of-life medical episodes are typically the most expensive in any person’s life. The timing of the former is predictable. The problem for medical providers is that the latter is not.

When medical research develops a good tool to accurately predict when the last six months of life begins, we will clearly face the decision of low-cost palliative care or high-cost acute care. b. Incorrect. There is always a lot of hand wringing about the amount of money spent during the last six months of a person’s life, maybe as much as one-third of all Medicare spending. The beginning-of-life and the end-of-life medical episodes are typically the most expensive in any person’s life. The timing of the former is predictable. The problem for medical providers is that the latter is not.

When medical research develops a good tool to accurately predict when the last six months of life begins, we will clearly face the decision of low-cost palliative care or high-cost acute care. c. Incorrect. There is always a lot of hand wringing about the amount of money spent during the last six months of a person’s life, maybe as much as one-third of all Medicare spending. The beginning-of-life and the end-of-life medical episodes are typically the most expensive in any person’s life. The timing of the former is predictable. The problem for medical providers is that the latter is not.

When medical research develops a good tool to accurately predict when the last six months of life begins, we will clearly face the decision of low-cost palliative care or high-cost acute care. d. Correct. There is always a lot of hand wringing about the amount of money spent during the last six months of a person’s life, maybe as much as one-third of all Medicare spending. The beginning-of-life and the end-of-life medical episodes are typically the most expensive in any person’s life. The timing of the former is predictable. The problem for medical providers is that the latter is not.

When medical research develops a good tool to accurately predict when the last six months of life begins, we will clearly face the decision of low-cost palliative care or high-cost acute care. e. Incorrect. There is always a lot of hand wringing about the amount of money spent during the last six months of a person’s life, maybe as much as one-third of all Medicare spending. The beginning-of-life and the end-of-life medical episodes are typically the most expensive in any person’s life. The timing of the former is predictable. The problem for medical providers is that the latter is not.

When medical research develops a good tool to accurately predict when the last six months of life begins, we will clearly face the decision of low-cost palliative care or high-cost acute care.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-1 - Rationale for Economic Evaluation DATE CREATED: 2/8/2022 11:42 PM

DATE MODIFIED:

2/8/2022 11:50 PM

2. Researchers use cost-of-illness studies for all of the following except to: a. study the burden of a disease. b. determine the low-cost option to treat a disease. c. compare two or more treatment options when the medical outcome is identical. d. increase public awareness of the cost of treating certain diseases. e. compare the relative efficiency of treating various conditions.

ANSWER: e FEEDBACK: a. Incorrect. A cost-of-illness study measures the overall cost to society of a particular health condition. The study examines total spending, direct and indirect, without comparing it to any other option. The other options are true of cost-of-illness studies. b. Incorrect. A cost-of-illness study measures the overall cost to society of a particular health condition. The study examines total spending, direct and indirect, without comparing it to any other option. The other options are true of cost-of-illness studies. c. Incorrect. A cost-of-illness study measures the overall cost to society of a particular health condition. The study examines total spending, direct and indirect, without comparing it to any other option. The other options are true of cost-of-illness studies. d. Incorrect. A cost-of-illness study measures the overall cost to society of a particular health condition. The study examines total spending, direct and indirect, without comparing it to any other option. The other options are true of cost-of-illness studies. e. Correct. A cost-of-illness study measures the overall cost to society of a particular health condition. The study examines total spending, direct and indirect, without comparing it to any other option. The other options are true of cost-of-illness studies.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-2a - Cost of Illness (Burden of Disease) DATE CREATED: 2/9/2022 12:01 AM DATE MODIFIED: 2/9/2022 12:32 AM 3. The primary tasks required to conduct a successful cost effectiveness study are all of the following except: a. identifying and measuring all relevant costs. b. adequately measuring the effectiveness of the procedures evaluated. c. identifying the overall cost of a health condition on society. d. establishing the relevant alternative(s) for comparison. e. ranking the alternatives in terms of overall costs.

ANSWER: c FEEDBACK: a. Incorrect. Identifying the overall cost to society, or burden of a disease, is the objective of a cost-of-illness study. The other options are required to successfully complete a cost-effectiveness study. b. Incorrect. Identifying the overall cost to society, or burden of a disease, is the objective of a cost-of-illness study. The other options are required to successfully complete a cost-effectiveness study. c. Correct. Identifying the overall cost to society, or burden of a disease, is the objective of a cost-of-illness study. The other options are required to

successfully complete a cost-effectiveness study.

d. Incorrect. Identifying the overall cost to society, or burden of a disease, is the objective of a cost-of-illness study. The other options are required to successfully complete a cost-effectiveness study. e. Incorrect. Identifying the overall cost to society, or burden of a disease, is the objective of a cost-of-illness study. The other options are required to successfully complete a cost-effectiveness study.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-2c - Cost-Effectiveness Analysis DATE CREATED: 2/9/2022 12:32 AM DATE MODIFIED: 2/9/2022 12:36 AM 4. According to Finkelstein et al. (2003), approximately what portion of national medical spending is directed toward the treatment of conditions attributed to obesity? a. One-eighth b. One-sixth c. One-quarter d. One-third e. One-half ANSWER: d FEEDBACK: a. Incorrect. In a study by Finkelstein et al. (2003), they estimated that over onethird of national health care spending is directed toward the treatment of conditions attributed to obesity, such as type 2 diabetes, cardiovascular disease, musculoskeletal disorders, sleep apnea, gallbladder disease, and several types of cancer. b. Incorrect. In a study by Finkelstein et al. (2003), they estimated that over onethird of national health care spending is directed toward the treatment of conditions attributed to obesity, such as type 2 diabetes, cardiovascular disease, musculoskeletal disorders, sleep apnea, gallbladder disease, and several types of cancer. c. Incorrect. In a study by Finkelstein et al. (2003), they estimated that over onethird of national health care spending is directed toward the treatment of conditions attributed to obesity, such as type 2 diabetes, cardiovascular disease, musculoskeletal disorders, sleep apnea, gallbladder disease, and several types of cancer. d. Correct. In a study by Finkelstein et al. (2003), they estimated that over onethird of national health care spending is directed toward the treatment of conditions attributed to obesity, such as type 2 diabetes, cardiovascular disease, musculoskeletal disorders, sleep apnea, gallbladder disease, and several types of cancer. e. Incorrect. In a study by Finkelstein et al. (2003), they estimated that over onethird of national health care spending is directed toward the treatment of conditions attributed to obesity, such as type 2 diabetes, cardiovascular disease, musculoskeletal disorders, sleep apnea, gallbladder disease, and several types of cancer.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-2a - Cost of Illness (Burden of Disease)

DATE CREATED: DATE MODIFIED:

2/9/2022 12:37 AM 2/9/2022 12:40 AM

5. Suppose you must rely exclusively on cost-effectiveness analysis (CEA) to determine whether a category of people receives an expensive, potentially life-saving, intervention. Which of the following considerations must you keep in mind when making your decision? a. CEA determines the efficient threshold above which treatments are unnecessarily expensive. b. CEA ignores the possibility that certain unidentified individuals in a group may have a greater than normal positive response to the treatment. c. CEA studies take a long time to conduct and are expensive to evaluate. d. CEA studies are subjective and rely on the judgment of clinicians and researchers. e. CEA studies are considered the gold standard as far as evaluation studies are concerned.

ANSWER: b FEEDBACK: a. Incorrect. The CEA approach compares the average cost of a treatment relative to the average response of the treated with its alternatives. The approach may take into consideration the dispersion around those averages, but it does not take into account how individuals may deviate from the average.

A super responder can have a much better outcome than the typical patient can. This is the reason it is important to consider other confounding factors that may contribute to differences in response when considering individual resource allocation decisions. b. Correct. The CEA approach compares the average cost of a treatment relative to the average response of the treated with its alternatives. The approach may take into consideration the dispersion around those averages, but it does not take into account how individuals may deviate from the average. A super responder can have a much better outcome than the typical patient can. This is the reason it is important to consider other confounding factors that may contribute to differences in response when considering individual resource allocation decisions. c. Incorrect. The CEA approach compares the average cost of a treatment relative to the average response of the treated with its alternatives. The approach may take into consideration the dispersion around those averages, but it does not take into account how individuals may deviate from the average.

A super responder can have a much better outcome than the typical patient can. This is the reason it is important to consider other confounding factors that may contribute to differences in response when considering individual resource allocation decisions. d. Incorrect. The CEA approach compares the average cost of a treatment relative to the average response of the treated with its alternatives. The approach may take into consideration the dispersion around those averages, but it does not take into account how individuals may deviate from the average.

A super responder can have a much better outcome than the typical patient can. This is the reason it is important to consider other confounding factors that may contribute to differences in response when considering individual resource allocation decisions. e. Incorrect. The CEA approach compares the average cost of a treatment relative to the average response of the treated with its alternatives. The approach may take into consideration the dispersion around those averages, but it does not take into account how individuals may deviate from the average.

A super responder can have a much better outcome than the typical patient can. This is the reason it is important to consider other confounding factors that may contribute to differences in response when considering individual resource allocation decisions.

POINTS: QUESTION TYPE:

1 Multiple Choice

HAS VARIABLES: False LEARNING OBJECTIVES: 5-2c - Cost-Effectiveness Analysis DATE CREATED: 2/9/2022 12:41 AM DATE MODIFIED: 2/9/2022 12:44 AM 6. All of the following types of analyses address the questions related to optimal resource allocation, except: a. Cost–benefit analysis b. Economic efficiency c. Cost-effectiveness analysis d. Comparative-effectiveness analysis ANSWER: d FEEDBACK: a. Incorrect. Comparative effectiveness examines the clinical efficiency of alternative treatment options. It does not address resource use and spending of the alternatives. b. Incorrect. Comparative effectiveness examines the clinical efficiency of alternative treatment options. It does not address resource use and spending of the alternatives. c. Incorrect. Comparative effectiveness examines the clinical efficiency of alternative treatment options. It does not address resource use and spending of the alternatives. d. Correct. Comparative effectiveness examines the clinical efficiency of alternative treatment options. It does not address resource use and spending of the alternatives.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-2d - Comparative Effectiveness Analysis DATE CREATED: 2/9/2022 12:45 AM DATE MODIFIED: 2/9/2022 12:47 AM 7. In 4-6 sentences, compare the terms efficacy and effectiveness as used in medical research.

ANSWER: In medical research, the efficacy of medical intervention refers to the ability to achieve the desired result in an ideal setting under controlled conditions. During trials, patients are carefully screened, and researchers follow strict protocols and monitor participants closely.

Conversely, effectiveness refers to the ability to achieve the desired result under real-world conditions. Many interventions that worked in trials do not work in actual practice for a number of reasons, which is often due to patient noncompliance with the treatment.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 5-2d - Comparative Effectiveness Analysis DATE CREATED: 2/9/2022 12:48 AM DATE MODIFIED: 2/9/2022 12:49 AM 8. Explain the measure used in cost-effectiveness analysis to compare two treatment options in 4-6 sentences.

ANSWER: The incremental cost-effectiveness ratio (ICER) is the measure used in CEA to compare the expected costs to the expected benefits of a treatment option. The ICER is calculated

by the following formula:

, where treatment B is the option under

study. If treatment B is less costly and more effective than treatment A, then treatment B dominates, and the same is true if treatment A is less costly and more effective. However, if treatment B is more costly and more effective, or less costly and less effective, then the choice is less obvious and further information provided by the CEA must be considered.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 5-2c - Cost-Effectiveness Analysis DATE CREATED: 2/9/2022 12:49 AM DATE MODIFIED: 2/28/2022 5:55 AM 9. The usefulness of cost-effectiveness analysis can be limited when the effectiveness of different treatment options are measured differently. In 4-6 sentences, describe why this is a problem and provide a solution.

ANSWER: When different measurements are used or treatment options are measured differently, CEA may be limited in its usefulness. For example, if one treatment option prevents premature death and the other reduces the number of days lost to disability, it is difficult to compare the two. Assuming we don’t assign monetary values and use cost–benefit analysis, one method of overcoming this limitation is the use of utility measures, which represent health preferences for health outcomes. This type of CEA is called cost–utility analysis and uses QALYs (quality-adjusted life years) to account for intangible costs such as pain.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 5-2c - Cost-Effectiveness Analysis DATE CREATED: 2/9/2022 12:56 AM DATE MODIFIED: 2/9/2022 12:57 AM 10. In 4-6 sentences, explain why it is necessary to place monetary values on health care and how the value of benefits are set.

ANSWER: Cost–benefit analysis is an important method of evaluation that helps decision makers choose between health programs and treatment options. It requires the monetization of all costs and benefits associated with each of the options being assessed in order to estimate their respective cost-benefit ratios. The willingness-to-pay approach is typically used to determine the price of benefits. The wealth, life expectancy, current health status, and the possibility of substituting current consumption for future consumption have been suggested as factors contributing to how much individuals are willing to pay for health improvements (Bleichrodt and Quiggin, 1999).

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 5-2b - Cost-Benefit DATE CREATED: 2/9/2022 12:57 AM DATE MODIFIED: 2/9/2022 12:59 AM

11. In 4-6 sentences, explain why the discount rate is important to cost–benefit analysis and what it theoretically represents.

ANSWER: The discount rate is very important to cost–benefit analysis in medical care, as it plays a significant role in the calculation of the net present value of programs or interventions.

More specifically, the discount rate and the net present value are inversely related. A large discount rate places more weight on short-term benefits, and it follows that future costs and benefits are given less consideration. Theoretically, the discount rate represents the opportunity cost of fund, or the risk-adjusted rate of return on the next-best investment alternative.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 5-2b - Cost-Benefit DATE CREATED: 2/9/2022 12:59 AM DATE MODIFIED: 2/9/2022 1:00 AM 12. The standard cut-off for cost per quality-adjusted life year (QALY) used by most governmental decision

makers is set in terms of a multiple of national per capita income. The value of the threshold is usually what percent of national per capita income? a. 100 b. 150 c. 200 d. 250 e. 300 ANSWER: FEEDBACK:

a a. Correct. Government payers that rely on the cost-effectiveness approach in determining what procedures and drugs to cover under the national plan establish the threshold at 100 percent of per capita national income. The rationale is simple. Adding one quality-adjusted life year (QALY) to a person’s life will allow that individual to remain a productive member of society, contributing on average an amount equal to per capita income. b. Incorrect. Government payers that rely on the cost-effectiveness approach in determining what procedures and drugs to cover under the national plan establish the threshold at 100 percent of per capita national income. The rationale is simple. Adding one quality-adjusted life year (QALY) to a person’s life will allow that individual to remain a productive member of society, contributing on average an amount equal to per capita income. c. Incorrect. Government payers that rely on the cost-effectiveness approach in determining what procedures and drugs to cover under the national plan establish the threshold at 100 percent of per capita national income. The rationale is simple. Adding one quality-adjusted life year (QALY) to a person’s life will allow that individual to remain a productive member of society, contributing on average an amount equal to per capita income. d. Incorrect. Government payers that rely on the cost-effectiveness approach in determining what procedures and drugs to cover under the national plan establish the threshold at 100 percent of per capita national income. The rationale is simple. Adding one quality-adjusted life year (QALY) to a person’s life will allow that individual to remain a productive member of society, contributing on average an amount equal to per capita income. e. Incorrect. Government payers that rely on the cost-effectiveness approach in determining what procedures and drugs to cover under the national plan

establish the threshold at 100 percent of per capita national income. The rationale is simple. Adding one quality-adjusted life year (QALY) to a person’s life will allow that individual to remain a productive member of society, contributing on average an amount equal to per capita income.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-Appendix 5A - Modeling Cost Effectiveness DATE CREATED: 2/9/2022 1:03 AM DATE MODIFIED: 2/9/2022 1:09 AM 13. Many European countries are now requiring that data for an economic evaluation be collected

simultaneously with the clinical trials conducted for pharmaceutical approval. This practice is so common that it is being referred to as: a. the fourth hurdle. b. pharmacoeconomics. c. clinical economics. d. phase III economics. e. randomized control trials.

ANSWER: a FEEDBACK:

a. Correct. The first three phases of human trials demonstrate respectively the safety, efficacy, and effectiveness of pharmaceuticals, biologics, and other medical technology (the first three hurdles). Government payers are now requiring that innovators assess the market potential and justify reimbursement, the fourth hurdle. b. Incorrect. The first three phases of human trials demonstrate respectively the safety, efficacy, and effectiveness of pharmaceuticals, biologics, and other medical technology (the first three hurdles). Government payers are now requiring that innovators assess the market potential and justify reimbursement, the fourth hurdle. c. Incorrect. The first three phases of human trials demonstrate respectively the safety, efficacy, and effectiveness of pharmaceuticals, biologics, and other medical technology (the first three hurdles). Government payers are now requiring that innovators assess the market potential and justify reimbursement, the fourth hurdle. d. Incorrect. The first three phases of human trials demonstrate respectively the safety, efficacy, and effectiveness of pharmaceuticals, biologics, and other medical technology (the first three hurdles). Government payers are now requiring that innovators assess the market potential and justify reimbursement, the fourth hurdle. e. Incorrect. The first three phases of human trials demonstrate respectively the safety, efficacy, and effectiveness of pharmaceuticals, biologics, and other medical technology (the first three hurdles). Government payers are now requiring that innovators assess the market potential and justify reimbursement, the fourth hurdle.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-4 - Summary and Conclusions DATE CREATED: 2/9/2022 1:10 AM DATE MODIFIED: 2/28/2022 8:12 AM

14. The direct costs in an economic evaluation include all of the following except: a. hospitalization. b. medical devices. c. transportation to and from the physician’s office. d. reduced productivity at work. e. the cost of home remodeling to accommodate a physical handicap.

ANSWER: d FEEDBACK: a. Incorrect. Reduced productivity is an indirect cost measured by the estimated value of the productive hours of work lost due to illness or injury (often measured by hours of work lost multiplied by the hourly wage). The other costs listed are costs directly related to the provision of medical services or borne by the individual to access care and complement the recovery process. b. Incorrect. Reduced productivity is an indirect cost measured by the estimated value of the productive hours of work lost due to illness or injury (often measured by hours of work lost multiplied by the hourly wage). The other costs listed are costs directly related to the provision of medical services or borne by the individual to access care and complement the recovery process. c. Incorrect. Reduced productivity is an indirect cost measured by the estimated value of the productive hours of work lost due to illness or injury (often measured by hours of work lost multiplied by the hourly wage). The other costs listed are costs directly related to the provision of medical services or borne by the individual to access care and complement the recovery process. d. Correct. Reduced productivity is an indirect cost measured by the estimated value of the productive hours of work lost due to illness or injury (often measured by hours of work lost multiplied by the hourly wage). The other costs listed are costs directly related to the provision of medical services or borne by the individual to access care and complement the recovery process. e. Incorrect. Reduced productivity is an indirect cost measured by the estimated value of the productive hours of work lost due to illness or injury (often measured by hours of work lost multiplied by the hourly wage). The other costs listed are costs directly related to the provision of medical services or borne by the individual to access care and complement the recovery process.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-Appendix 5A - Modeling Cost Effectiveness DATE CREATED: 2/9/2022 1:22 AM DATE MODIFIED: 2/9/2022 1:26 AM 15. When measuring the effectiveness of a treatment, surrogate measures reflect clinical efficacy and include: a. recurrence of the disease. b. death. c. bone-mass density (BMD). d. hip fractures. e. scores on standard evaluative exams such as EuroQol or SF-36.

ANSWER: c FEEDBACK: a. Incorrect. Surrogate measures examine the clinical effect of a treatment for a specific medical condition, such as the reduction of high blood pressure and cholesterol levels or improvement in bone mass density. The other options are intermediate outcomes and events that the treatment is designed to delay or

avoid completely.

b. Incorrect. Surrogate measures examine the clinical effect of a treatment for a specific medical condition, such as the reduction of high blood pressure and cholesterol levels or improvement in bone mass density. The other options are intermediate outcomes and events that the treatment is designed to delay or avoid completely. c. Correct. Surrogate measures examine the clinical effect of a treatment for a specific medical condition, such as the reduction of high blood pressure and cholesterol levels or improvement in bone mass density. The other options are intermediate outcomes and events that the treatment is designed to delay or avoid completely. d. Incorrect. Surrogate measures examine the clinical effect of a treatment for a specific medical condition, such as the reduction of high blood pressure and cholesterol levels or improvement in bone mass density. The other options are intermediate outcomes and events that the treatment is designed to delay or avoid completely. e. Incorrect. Surrogate measures examine the clinical effect of a treatment for a specific medical condition, such as the reduction of high blood pressure and cholesterol levels or improvement in bone mass density. The other options are intermediate outcomes and events that the treatment is designed to delay or avoid completely.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-Appendix 5A - Modeling Cost Effectiveness DATE CREATED: 2/9/2022 1:33 AM DATE MODIFIED: 2/9/2022 1:36 AM 16. Which of the following measures of effectiveness is an intermediate measure? a. Cholesterol level b. Blood pressure c. Tumor size d. Hip fracture e. Bone-mass density (BMD) ANSWER: d FEEDBACK: a. Incorrect. Intermediate measures are events that the treatment is designed to delay or avoid. Intermediate measures include heart attack, stroke, hip fracture, recurrence of disease, and death. The other options are surrogate measures that examine the clinical effect of a treatment. b. Incorrect. Intermediate measures are events that the treatment is designed to delay or avoid. Intermediate measures include heart attack, stroke, hip fracture, recurrence of disease, and death. The other options are surrogate measures that examine the clinical effect of a treatment. c. Incorrect. Intermediate measures are events that the treatment is designed to delay or avoid. Intermediate measures include heart attack, stroke, hip fracture, recurrence of disease, and death. The other options are surrogate measures that examine the clinical effect of a treatment. d. Correct. Intermediate measures are events that the treatment is designed to delay or avoid. Intermediate measures include heart attack, stroke, hip fracture, recurrence of disease, and death. The other options are surrogate measures that examine the clinical effect of a treatment. e. Incorrect. Intermediate measures are events that the treatment is designed to delay or avoid. Intermediate measures include heart attack, stroke, hip fracture,

recurrence of disease, and death. The other options are surrogate measures that examine the clinical effect of a treatment.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-Appendix 5A - Modeling Cost Effectiveness DATE CREATED: 2/9/2022 1:37 AM DATE MODIFIED: 2/9/2022 1:41 AM 17. The intangible costs associated with reduced quality of life include: a. pain and suffering. b. lost productivity at work. c. the cost of home remodeling to accommodate a physical handicap. d. potential income lost due to premature death. e. household services that must be replaced, such as housework.

ANSWER: a FEEDBACK: a. Correct. Intangible costs are associated with reductions in the quality of life.

They are based almost exclusively on individual preferences and are difficult to measure with certainty. The other options can be valued with an acceptable degree of accuracy. b. Incorrect. Intangible costs are associated with reductions in the quality of life.

They are based almost exclusively on individual preferences and are difficult to measure with certainty. The other options can be valued with an acceptable degree of accuracy. c. Incorrect. Intangible costs are associated with reductions in the quality of life.

They are based almost exclusively on individual preferences and are difficult to measure with certainty. The other options can be valued with an acceptable degree of accuracy. d. Incorrect. Intangible costs are associated with reductions in the quality of life.

They are based almost exclusively on individual preferences and are difficult to measure with certainty. The other options can be valued with an acceptable degree of accuracy. e. Incorrect. Intangible costs are associated with reductions in the quality of life.

They are based almost exclusively on individual preferences and are difficult to measure with certainty. The other options can be valued with an acceptable degree of accuracy.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-Appendix 5A - Modeling Cost Effectiveness DATE CREATED: 2/9/2022 1:42 AM DATE MODIFIED: 2/9/2022 1:45 AM 18. Suppose your assignment is to use the standard time trade-off approach to measure quality of life. You are given the following information: An individual is faced with living the remaining 10 years of their life suffering from severe osteoporosis. The individual reveals that they would be willing to give up four of those years to live the remaining six in perfect health. What is the utility of one year in a chronic health state relative to perfect health? a. 4 b. 6 c. 0.4

d. 0.6 e. 40 ANSWER: FEEDBACK:

d a. Incorrect. The respondent values each year of living with the chronic condition at 60 percent of an illness-free year (6/10 or 0.60). b. Incorrect. The respondent values each year of living with the chronic condition at 60 percent of an illness-free year (6/10 or 0.60). c. Incorrect. The respondent values each year of living with the chronic condition at 60 percent of an illness-free year (6/10 or 0.60). d. Correct. The respondent values each year of living with the chronic condition at 60 percent of an illness-free year (6/10 or 0.60). e. Incorrect. The respondent values each year of living with the chronic condition at 60 percent of an illness-free year (6/10 or 0.60).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-Appendix 5A - Modeling Cost Effectiveness DATE CREATED: 2/9/2022 1:45 AM DATE MODIFIED: 2/9/2022 1:48 AM 19. Researchers estimate quality-adjusted life years (QALYs) in a number of different ways. One popular approach is called: a. the probability approach. b. the quality of life (QoL) approach. c. the standard gamble. d. the standard measure of well-being. e. the utility of life approach.

ANSWER: c FEEDBACK: a. Incorrect. In the standard gamble, the survey provides a detailed description of the effect of the condition on health. Respondents then complete the following statement: If my life expectancy with this condition were 10 years, I would be willing to accept a treatment with the expectation of living an additional x years in perfect health (x<10). The respondent has revealed that QALYs per year spent with the condition would be x/10. The other options do not represent a specific methodological approach to estimating QALYs. b. Incorrect. In the standard gamble, the survey provides a detailed description of the effect of the condition on health. Respondents then complete the following statement: If my life expectancy with this condition were 10 years, I would be willing to accept a treatment with the expectation of living an additional x years in perfect health (x<10). The respondent has revealed that QALYs per year spent with the condition would be x/10. The other options do not represent a specific methodological approach to estimating QALYs. c. Correct. In the standard gamble, the survey provides a detailed description of the effect of the condition on health. Respondents then complete the following statement: If my life expectancy with this condition were 10 years, I would be willing to accept a treatment with the expectation of living an additional x years in perfect health (x<10). The respondent has revealed that QALYs per year spent with the condition would be x/10. The other options do not represent a specific methodological approach to estimating QALYs. d. Incorrect. In the standard gamble, the survey provides a detailed description of the effect of the condition on health. Respondents then complete the following statement: If my life expectancy with this condition were 10 years, I would be

willing to accept a treatment with the expectation of living an additional x years in perfect health (x<10). The respondent has revealed that QALYs per year spent with the condition would be x/10. The other options do not represent a specific methodological approach to estimating QALYs. e. Incorrect. In the standard gamble, the survey provides a detailed description of the effect of the condition on health. Respondents then complete the following statement: If my life expectancy with this condition were 10 years, I would be willing to accept a treatment with the expectation of living an additional x years in perfect health (x<10). The respondent has revealed that QALYs per year spent with the condition would be x/10. The other options do not represent a specific methodological approach to estimating QALYs.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-Appendix 5A - Modeling Cost Effectiveness DATE CREATED: 2/9/2022 1:50 AM DATE MODIFIED: 2/9/2022 1:54 AM 20. The best explanation of a quality-adjusted life year (QALY) is that it: a. measures quality-of-life improvements from an intervention. b. measures life-years saved in a straightforward way. c. incorporates quality-of-life improvements and length-of-life extensions into one measure. d. measures quality-of-life improvements from randomized control trial data.

ANSWER: c FEEDBACK: a. Incorrect. Quality of life measures are the choice of researchers performing cost–utility analysis. The goal is to increase both quality and quantity of life. In other words, the goal is an increase in life expectancy with a preference for better health at the same time. QALYs are a probability-weighted measure of the quality of life associated with each health state. b. Incorrect. Quality of life measures are the choice of researchers performing cost–utility analysis. The goal is to increase both quality and quantity of life. In other words, the goal is an increase in life expectancy with a preference for better health at the same time. QALYs are a probability-weighted measure of the quality of life associated with each health state. c. Correct. Quality of life measures are the choice of researchers performing cost–utility analysis. The goal is to increase both quality and quantity of life. In other words, the goal is an increase in life expectancy with a preference for better health at the same time. QALYs are a probability-weighted measure of the quality of life associated with each health state. d. Incorrect. Quality of life measures are the choice of researchers performing cost–utility analysis. The goal is to increase both quality and quantity of life. In other words, the goal is an increase in life expectancy with a preference for better health at the same time. QALYs are a probability-weighted measure of the quality of life associated with each health state.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-Appendix 5A - Modeling Cost Effectiveness DATE CREATED: 2/9/2022 1:55 AM DATE MODIFIED: 2/9/2022 1:58 AM 21. The standard cut-off for cost per quality-adjusted life year (QALY) used by most governmental decision makers is set

in terms of a multiple of national per capita income. The value of the threshold is usually what percent of national per capita income? a. 100 b. 150 c. 200 d. 250 e. 300 ANSWER: a FEEDBACK: a. Correct. Government payers that rely on the cost-effectiveness approach in determining what procedures and drugs to cover under the national plan establish the threshold at 100 percent of per capita national income. The rationale is simple. Adding one quality-adjusted life year (QALY) to a person’s life will allow that individual to remain a productive member of society, contributing on average an amount equal to per capita income. b. Incorrect. Government payers that rely on the cost-effectiveness approach in determining what procedures and drugs to cover under the national plan establish the threshold at 100 percent of per capita national income. The rationale is simple. Adding one quality-adjusted life year (QALY) to a person’s life will allow that individual to remain a productive member of society, contributing on average an amount equal to per capita income. c. Incorrect. Government payers that rely on the cost-effectiveness approach in determining what procedures and drugs to cover under the national plan establish the threshold at 100 percent of per capita national income. The rationale is simple. Adding one quality-adjusted life year (QALY) to a person’s life will allow that individual to remain a productive member of society, contributing on average an amount equal to per capita income. d. Incorrect. Government payers that rely on the cost-effectiveness approach in determining what procedures and drugs to cover under the national plan establish the threshold at 100 percent of per capita national income. The rationale is simple. Adding one quality-adjusted life year (QALY) to a person’s life will allow that individual to remain a productive member of society, contributing on average an amount equal to per capita income. e. Incorrect. Government payers that rely on the cost-effectiveness approach in determining what procedures and drugs to cover under the national plan establish the threshold at 100 percent of per capita national income. The rationale is simple. Adding one quality-adjusted life year (QALY) to a person’s life will allow that individual to remain a productive member of society, contributing on average an amount equal to per capita income.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 5-Appendix 5A - Modeling Cost Effectiveness DATE CREATED: 2/9/2022 1:58 AM DATE MODIFIED: 2/9/2022 2:01 AM

Chapter 06: Demand for Health and Medical Care 1. What is the relationship between income and health care expenditures? Use evidence from Robert Fogel (2000) to support your theory.

ANSWER: In general, as people earn more income, they spend more of that income improving their health. However, evidence from Fogel (2000) shows the share of income spent on food, clothing, and shelter fell from 74 percent in 1875 to 13 percent by 1995. In contrast, the share of income spent on health care rose from 1 to 9 percent. This implies that long-term income elasticity for health care is well above unity, 1.6 using Fogel’s approach. An income elasticity that is greater than 1 means that as income rises, a larger percentage of that income will be spent on health care. If health care spending were to continue at this pace, clearly something needs to be done to control health care spending. ACA was an attempt to do just that.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 6-1 - Forecasting Medical Care Demand DATE CREATED: 2/9/2022 2:47 AM DATE MODIFIED: 2/28/2022 6:08 AM 2. The accompanying diagram depicts the relationship between health status and medical care spending for a particular country. Assume the current spending level is S1 on TP1. All of the statements below are true?

a. Improvement in health can be done by shifting from TP1 to TP2 than by increasing spending to S2 on TP1. b. S1 levels of spending are often described as spending on the flat of the curve. c. The reason for the curvilinear shape is the law of diminishing returns. d. If consumers start making better lifestyle decisions, this will cause TP1 to shift to TP2.

ANSWER: RATIONALE: FEEDBACK:

b a. Incorrect. The flat of the curve refers to spending at a level that results in the outcome lying on the flat part of the production frontier. In this case, the level of spending that satisfies the statement is S2. Improvements in production possibilities through innovation shift the frontier of possible outcomes and result in greater improvements in the health of the population. b. Correct. The flat of the curve refers to spending at a level that results in the outcome lying on the flat part of the production frontier. In this case, the level of

spending that satisfies the statement is S2. Improvements in production possibilities through innovation shift the frontier of possible outcomes and result in greater improvements in the health of the population. c. Incorrect. The flat of the curve refers to spending at a level that results in the outcome lying on the flat part of the production frontier. In this case, the level of spending that satisfies the statement is S2. Improvements in production possibilities through innovation shift the frontier of possible outcomes and result in greater improvements in the health of the population. d. Incorrect. The flat of the curve refers to spending at a level that results in the outcome lying on the flat part of the production frontier. In this case, the level of spending that satisfies the statement is S2. Improvements in production possibilities through innovation shift the frontier of possible outcomes and result in greater improvements in the health of the population.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-2 - The Production of Health DATE CREATED: 2/9/2022 2:50 AM DATE MODIFIED: 2/25/2022 6:01 AM 3. Health care that actually harms the patient, such as an adverse reaction to a prescription drug, is called: a. morbidity response. b. defensive medicine. c. adverse selection. d. iatrogenic disease. e. moral hazard.

ANSWER: FEEDBACK:

d a. Incorrect. By definition, iatrogenic refers to illness or injury caused by a medical treatment. Longer hospital stays increase the risk of contracting a staph infection. Under certain conditions, expensive pharmaceutical drugs may not improve health outcomes any more than much cheaper alternatives, such as weight loss. b. Incorrect. By definition, iatrogenic refers to illness or injury caused by a medical treatment. Longer hospital stays increase the risk of contracting a staph infection. Under certain conditions, expensive pharmaceutical drugs may not improve health outcomes any more than much cheaper alternatives, such as weight loss. c. Incorrect. By definition, iatrogenic refers to illness or injury caused by a medical treatment. Longer hospital stays increase the risk of contracting a staph infection. Under certain conditions, expensive pharmaceutical drugs may not improve health outcomes any more than much cheaper alternatives, such as weight loss. d. Correct. By definition, iatrogenic refers to illness or injury caused by a medical treatment. Longer hospital stays increase the risk of contracting a staph infection. Under certain conditions, expensive pharmaceutical drugs may not improve health outcomes any more than much cheaper alternatives, such as weight loss. e. Incorrect. By definition, iatrogenic refers to illness or injury caused by a medical treatment. Longer hospital stays increase the risk of contracting a staph infection. Under certain conditions, expensive pharmaceutical drugs may not improve health outcomes any more than much cheaper alternatives, such as weight loss.

POINTS:

1

QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-2 - The Production of Health DATE CREATED: 2/9/2022 3:01 AM DATE MODIFIED: 2/9/2022 3:06 AM 4. If health care spending is already on the flat of the curve, it may not be possible to improve health status by increasing spending. In this situation, the best way to improve health status may be to: a. increase the availability of government health insurance. b. invest in biotechnology to determine the genetic factors that improve health. c. improve lifestyle decisions by reducing smoking, alcohol consumption, and drug use. d. improve access to medical care. e. improve overall educational attainment to better follow advice from the medical community.

ANSWER: FEEDBACK:

c a. Incorrect. In the more developed parts of the world, expanding insurance coverage, increasing education, and spending more on medical care access will not improve health status significantly. Shifts in the frontier improve health more than movements along the flat part of the frontier. Better lifestyle decisions will eventually shift the production possibilities frontier to a higher level and improve health status. b. Incorrect. In the more developed parts of the world, expanding insurance coverage, increasing education, and spending more on medical care access will not improve health status significantly. Shifts in the frontier improve health more than movements along the flat part of the frontier. Better lifestyle decisions will eventually shift the production possibilities frontier to a higher level and improve health status. c. Correct. In the more developed parts of the world, expanding insurance coverage, increasing education, and spending more on medical care access will not improve health status significantly. Shifts in the frontier improve health more than movements along the flat part of the frontier. Better lifestyle decisions will eventually shift the production possibilities frontier to a higher level and improve health status. d. Incorrect. In the more developed parts of the world, expanding insurance coverage, increasing education, and spending more on medical care access will not improve health status significantly. Shifts in the frontier improve health more than movements along the flat part of the frontier. Better lifestyle decisions will eventually shift the production possibilities frontier to a higher level and improve health status. e. Incorrect. In the more developed parts of the world, expanding insurance coverage, increasing education, and spending more on medical care access will not improve health status significantly. Shifts in the frontier improve health more than movements along the flat part of the frontier. Better lifestyle decisions will eventually shift the production possibilities frontier to a higher level and improve health status.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-2 - The Production of Health DATE CREATED: 2/9/2022 3:06 AM DATE MODIFIED: 2/9/2022 3:09 AM 5. According to Grossman (1972), how is the demand for medical care determined?

a. It is derived from the demand for health. b. It is determined primarily by the age of the individual. c. Insurance coverage is the most important factor. d. Genetic factors are all that matter.

ANSWER: FEEDBACK:

a a. Correct. Grossman’s 1972 model emerged from the labor economics literature and treated medical care demand similarly to labor demand. The theory recognizes that the demand for labor is due in large part (derived from) the demand for the final product it produces. Much the same way, the demand for medical care is due to its use as an input in the production of health. In other words, the demand for medical care is derived from the demand for health. b. Incorrect. Grossman’s 1972 model emerged from the labor economics literature and treated medical care demand similarly to labor demand. The theory recognizes that the demand for labor is due in large part (derived from) the demand for the final product it produces. Much the same way, the demand for medical care is due to its use as an input in the production of health. In other words, the demand for medical care is derived from the demand for health. c. Incorrect. Grossman’s 1972 model emerged from the labor economics literature and treated medical care demand similarly to labor demand. The theory recognizes that the demand for labor is due in large part (derived from) the demand for the final product it produces. Much the same way, the demand for medical care is due to its use as an input in the production of health. In other words, the demand for medical care is derived from the demand for health. d. Incorrect. Grossman’s 1972 model emerged from the labor economics literature and treated medical care demand similarly to labor demand. The theory recognizes that the demand for labor is due in large part (derived from) the demand for the final product it produces. Much the same way, the demand for medical care is due to its use as an input in the production of health. In other words, the demand for medical care is derived from the demand for health.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-2 - The Production of Health DATE CREATED: 2/9/2022 3:10 AM DATE MODIFIED: 2/9/2022 3:14 AM 6. Which of the following would likely lead to the greatest improvement in the health status of the population in the United States? a. Higher per capita incomes b. More spending on public health c. More medical care spending overall d. Improved lifestyles changes e. More rural hospitals ANSWER: FEEDBACK:

d a. Incorrect. Most developed countries already provide adequate clean drinking water and sanitation for their residents. Additional health care spending appropriately targeted would likely improve health outcomes somewhat.

However, the largest improvement would result from certain lifestyle changes.

Most experts agree that reductions in the consumption of tobacco, alcohol, and certain illegal drugs, together associated with over 500,000 deaths annually in the United States alone, would have a positive effect on life expectancy.

b. Incorrect. Most developed countries already provide adequate clean drinking

water and sanitation for their residents. Additional health care spending appropriately targeted would likely improve health outcomes somewhat.

However, the largest improvement would result from certain lifestyle changes.

Most experts agree that reductions in the consumption of tobacco, alcohol, and certain illegal drugs, together associated with over 500,000 deaths annually in the United States alone, would have a positive effect on life expectancy. c. Incorrect. Most developed countries already provide adequate clean drinking water and sanitation for their residents. Additional health care spending appropriately targeted would likely improve health outcomes somewhat.

However, the largest improvement would result from certain lifestyle changes.

Most experts agree that reductions in the consumption of tobacco, alcohol, and certain illegal drugs, together associated with over 500,000 deaths annually in the United States alone, would have a positive effect on life expectancy. d. Correct. Most developed countries already provide adequate clean drinking water and sanitation for their residents. Additional health care spending appropriately targeted would likely improve health outcomes somewhat.

However, the largest improvement would result from certain lifestyle changes.

Most experts agree that reductions in the consumption of tobacco, alcohol, and certain illegal drugs, together associated with over 500,000 deaths annually in the United States alone, would have a positive effect on life expectancy. e. Incorrect. Most developed countries already provide adequate clean drinking water and sanitation for their residents. Additional health care spending appropriately targeted would likely improve health outcomes somewhat.

However, the largest improvement would result from certain lifestyle changes.

Most experts agree that reductions in the consumption of tobacco, alcohol, and certain illegal drugs, together associated with over 500,000 deaths annually in the United States alone, would have a positive effect on life expectancy.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-2 - The Production of Health DATE CREATED: 2/9/2022 3:14 AM DATE MODIFIED: 2/9/2022 3:18 AM 7. The top ten causes of death in the United States in 2018 included all of the following but: a. heart disease. b. cancer. c. suicide. d. diabetes. e. AIDS. ANSWER: FEEDBACK:

e a. Incorrect. While AIDS made the list during the peak of the crisis in the 1980s, the use of anti-retroviral therapy (ART) has greatly reduced mortality from HIV/AIDS and it is no longer among the top ten causes. b. Incorrect. While AIDS made the list during the peak of the crisis in the 1980s, the use of anti-retroviral therapy (ART) has greatly reduced mortality from HIV/AIDS and it is no longer among the top ten causes. c. Incorrect. While AIDS made the list during the peak of the crisis in the 1980s, the use of anti-retroviral therapy (ART) has greatly reduced mortality from HIV/AIDS and it is no longer among the top ten causes. d. Incorrect. While AIDS made the list during the peak of the crisis in the 1980s, the use of anti-retroviral therapy (ART) has greatly reduced mortality from HIV/AIDS and it is no longer among the top ten causes.

e. Correct. While AIDS made the list during the peak of the crisis in the 1980s, the use of anti-retroviral therapy (ART) has greatly reduced mortality from HIV/AIDS and it is no longer among the top ten causes.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-2c - Measures of Health Status DATE CREATED: 2/9/2022 3:21 AM DATE MODIFIED: 2/9/2022 3:23 AM 8. The number one cause of death in the United States was a. AIDS; cancer

in 1980. By 2018, it was

.

b. heart disease; heart disease c. cancer; stroke d. stroke; pneumonia and influenza e. homicide and accidents; adult onset diabetes ANSWER: FEEDBACK:

b a. Incorrect. Heart disease remains the number one cause of death in the United States and most of the rest of the developed world. Cancer is close behind. In 1980, twice as many Americans died from heart disease as cancer. By 2018, cancer mortality trailed heart disease by less than 15 deaths per 100,000 per less than four percent. But new causes of death are constantly appearing, including COVID-19, which was listed by the Centers for Disease Control in 2020 as the third-largest cause of death in the United States. b. Correct. Heart disease remains the number one cause of death in the United States and most of the rest of the developed world. Cancer is close behind. In 1980, twice as many Americans died from heart disease as cancer. By 2018, cancer mortality trailed heart disease by less than 15 deaths per 100,000 per less than four percent. But new causes of death are constantly appearing, including COVID-19, which was listed by the Centers for Disease Control in 2020 as the third-largest cause of death in the United States. c. Incorrect. Heart disease remains the number one cause of death in the United States and most of the rest of the developed world. Cancer is close behind. In 1980, twice as many Americans died from heart disease as cancer. By 2018, cancer mortality trailed heart disease by less than 15 deaths per 100,000 per less than four percent. But new causes of death are constantly appearing, including COVID-19, which was listed by the Centers for Disease Control in 2020 as the third-largest cause of death in the United States. d. Incorrect. Heart disease remains the number one cause of death in the United States and most of the rest of the developed world. Cancer is close behind. In 1980, twice as many Americans died from heart disease as cancer. By 2018, cancer mortality trailed heart disease by less than 15 deaths per 100,000 per less than four percent. But new causes of death are constantly appearing, including COVID-19, which was listed by the Centers for Disease Control in 2020 as the third-largest cause of death in the United States. e. Incorrect. Heart disease remains the number one cause of death in the United States and most of the rest of the developed world. Cancer is close behind. In 1980, twice as many Americans died from heart disease as cancer. By 2018, cancer mortality trailed heart disease by less than 15 deaths per 100,000 per less than four percent. But new causes of death are constantly appearing, including COVID-19, which was listed by the Centers for Disease Control in 2020 as the third-largest cause of death in the United States.

POINTS:

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QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-2c - Measures of Health Status DATE CREATED: 2/9/2022 3:24 AM DATE MODIFIED: 2/9/2022 3:33 AM 9. The concept of quality-adjusted life year (QALY): a. is a multidisciplinary approach to measuring health status. b. has little application to medical decision making. c. is used extensively in the United States to evaluate health care programs. d. is used extensively to evaluate medical care resource allocation within government-run programs on fixed budgets, especially in Europe. e. is given an arbitrary value when applied to a real world problem.

ANSWER: FEEDBACK:

d a. Incorrect. One of the most important applications of QALY analysis is its use in evaluating resource allocation decisions within health care systems. It is also useful in setting priorities within an individual program or health sector, especially when budgets are fixed or spending exceeds targets. b. Incorrect. One of the most important applications of QALY analysis is its use in evaluating resource allocation decisions within health care systems. It is also useful in setting priorities within an individual program or health sector, especially when budgets are fixed or spending exceeds targets. c. Incorrect. One of the most important applications of QALY analysis is its use in evaluating resource allocation decisions within health care systems. It is also useful in setting priorities within an individual program or health sector, especially when budgets are fixed or spending exceeds targets. d. Correct. One of the most important applications of QALY analysis is its use in evaluating resource allocation decisions within health care systems. It is also useful in setting priorities within an individual program or health sector, especially when budgets are fixed or spending exceeds targets. e. Incorrect. One of the most important applications of QALY analysis is its use in evaluating resource allocation decisions within health care systems. It is also useful in setting priorities within an individual program or health sector, especially when budgets are fixed or spending exceeds targets.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-2c - Measures of Health Status DATE CREATED: 2/9/2022 3:34 AM DATE MODIFIED: 2/9/2022 3:37 AM 10. Given the three generally accepted measures of health in a nation, which would you choose: mortality, morbidity or quality of life? There is no correct answer, but make sure to defend your answer and say why you chose that particular response.

ANSWER: 1. Morality is the crude death rate for a given population, measured as the number of deaths per population of 100,000. While a common measure of a nation’s health, mortality rates tend to be a poor indicator of the quality of life. A low crude death rate does not always indicate a healthy population. 2. Disability statistics, lost days due to illness, the incidence of high blood pressure, and other measures of morbidity are common measures of health status. Using morbidity measures presents a serious challenge: Because the observed relationship between medical care spending and the incidence of high blood

pressure, for example, is negative, additional medical care reduces the incidence of hypertension. 3. Some consider quality of life measures, including the quality-adjusted life year (QALY) and the disability-adjusted life year (DALE), as appropriate in certain situations. The problem with quality of life as a measure of health is the allocation of resources, and how do you define “quality of life”?

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 6-2c - Measures of Health Status DATE CREATED: 2/9/2022 3:37 AM DATE MODIFIED: 2/9/2022 3:38 AM 11. Which of the following is least responsible for the reduction in mortality rates in Europe and North America? a. Better nutrition and housing b. Improved sanitary conditions c. Clean water and waste disposal d. Reduced exposure to diseases e. More effective medical interventions ANSWER: FEEDBACK:

e a. Incorrect. Most of the decline in mortality rates in the developed world took place before effective medical interventions were discovered. b. Incorrect. Most of the decline in mortality rates in the developed world took place before effective medical interventions were discovered. c. Incorrect. Most of the decline in mortality rates in the developed world took place before effective medical interventions were discovered. d. Incorrect. Most of the decline in mortality rates in the developed world took place before effective medical interventions were discovered. e. Correct. Most of the decline in mortality rates in the developed world took place before effective medical interventions were discovered.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-2d - The Role of Public Health and Nutrition DATE CREATED: 2/9/2022 3:40 AM DATE MODIFIED: 2/9/2022 3:43 AM 12. Research by Thomas McKeown (1976) has served as the basis for most of our understanding concerning the improvement in mortality. In your opinion, what should be the relative importance of the four major sources for secular decline in mortality rates in Europe and North America?

ANSWER: More weight should be given to the importance of improvements in environmental conditions and less on nutrition. In the developing world, the role of nutrition has increased the resistance to disease, and overt types of malnutrition, including rickets and beriberi, contribute to poor health. More importantly, an undernourished population lends itself to more frequent infections and infections that are more serious. However, in the developed world, better lifestyle decisions and a cleaner environment may do more to improve health than nutrition or increased availability of medical care.

POINTS: 1

QUESTION TYPE:

Essay

HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 6-2d - The Role of Public Health and Nutrition DATE CREATED: 2/9/2022 4:20 AM DATE MODIFIED: 2/9/2022 4:43 AM 13. A critical assumption in the model of demand and supply is the independence of the demand and supply curves. If the two are not independent from each other, a shift in the supply curve can lead to a shift in the demand curve referred to as: a. supply-side economics. b. supplier-induced demand. c. supply shocks. d. ceteris paribus. e. the fallacy of supply.

ANSWER: FEEDBACK:

b a. Incorrect. Interdependence of supply and demand can lead to a phenomenon called supplier-induced demand. Physicians provide both medical services and advice. Thus, they can unduly influence patient preferences because of their unique role as provider and advisor. Their superior knowledge allows them to recommend services to uninformed patients who rely on their integrity and honesty to serve as perfect agents for them and recommend only services that the fully informed patient would demand. Less than perfect agency implies that the demand for services is not independent of the supplier. b. Correct. Interdependence of supply and demand can lead to a phenomenon called supplier-induced demand. Physicians provide both medical services and advice. Thus, they can unduly influence patient preferences because of their unique role as provider and advisor. Their superior knowledge allows them to recommend services to uninformed patients who rely on their integrity and honesty to serve as perfect agents for them and recommend only services that the fully informed patient would demand. Less than perfect agency implies that the demand for services is not independent of the supplier. c. Incorrect. Interdependence of supply and demand can lead to a phenomenon called supplier-induced demand. Physicians provide both medical services and advice. Thus, they can unduly influence patient preferences because of their unique role as provider and advisor. Their superior knowledge allows them to recommend services to uninformed patients who rely on their integrity and honesty to serve as perfect agents for them and recommend only services that the fully informed patient would demand. Less than perfect agency implies that the demand for services is not independent of the supplier. d. Incorrect. Interdependence of supply and demand can lead to a phenomenon called supplier-induced demand. Physicians provide both medical services and advice. Thus, they can unduly influence patient preferences because of their unique role as provider and advisor. Their superior knowledge allows them to recommend services to uninformed patients who rely on their integrity and honesty to serve as perfect agents for them and recommend only services that the fully informed patient would demand. Less than perfect agency implies that the demand for services is not independent of the supplier. e. Incorrect. Interdependence of supply and demand can lead to a phenomenon called supplier-induced demand. Physicians provide both medical services and advice. Thus, they can unduly influence patient preferences because of their unique role as provider and advisor. Their superior knowledge allows them to recommend services to uninformed patients who rely on their integrity and honesty to serve as perfect agents for them and recommend only services that the fully informed patient would demand. Less than perfect agency implies that the demand for services is not independent of the supplier.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-3a - Determinants of Demand DATE CREATED: 2/9/2022 4:53 AM DATE MODIFIED: 2/9/2022 4:56 AM 14. There are substantial differences in medical care use by demographic characteristics such as age, sex, and marital status. Which of the following statements is true? a. Infant girls are healthier than infant boys are and consume fewer medical resources. b. Adult women spend more money on medical care than men do. c. People aged80 or more spend about the same amount on medical care as 60 year olds do. d. Single individuals regardless of age are hospitalized less than married people are. e. Average hospital stays are longer for women than men.

ANSWER: FEEDBACK:

b a. Incorrect. Health care spending on children is roughly the same, regardless of sex. Women are hospitalized more often than men are, primarily due to reproductive issues, obstetrical and gynecological related. However, when men are hospitalized, their stays are 50 percent longer. b. Correct. Health care spending on children is roughly the same, regardless of sex. Women are hospitalized more often than men are, primarily due to reproductive issues, obstetrical and gynecological related. However, when men are hospitalized, their stays are 50 percent longer. c. Incorrect. Health care spending on children is roughly the same, regardless of sex. Women are hospitalized more often than men are, primarily due to reproductive issues, obstetrical and gynecological related. However, when men are hospitalized, their stays are 50 percent longer. d. Incorrect. Health care spending on children is roughly the same, regardless of sex. Women are hospitalized more often than men are, primarily due to reproductive issues, obstetrical and gynecological related. However, when men are hospitalized, their stays are 50 percent longer. e. Incorrect. Health care spending on children is roughly the same, regardless of sex. Women are hospitalized more often than men are, primarily due to reproductive issues, obstetrical and gynecological related. However, when men are hospitalized, their stays are 50 percent longer.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-3a - Determinants of Demand DATE CREATED: 2/9/2022 4:56 AM DATE MODIFIED: 2/9/2022 4:59 AM 15. Factors affecting the level of medical care demand include all of the following except: a. health status. b. demographic characteristics. c. economic standing. d. physician factors. e. price of medical care.

ANSWER:

e

FEEDBACK:

a. Incorrect. A change in the price of medical care will change the quantity of medical care demanded (a movement along a stationary demand curve), not the level of demand (a shift in the demand curve). b. Incorrect. A change in the price of medical care will change the quantity of medical care demanded (a movement along a stationary demand curve), not the level of demand (a shift in the demand curve). c. Incorrect. A change in the price of medical care will change the quantity of medical care demanded (a movement along a stationary demand curve), not the level of demand (a shift in the demand curve). d. Incorrect. A change in the price of medical care will change the quantity of medical care demanded (a movement along a stationary demand curve), not the level of demand (a shift in the demand curve). e. Correct. A change in the price of medical care will change the quantity of medical care demanded (a movement along a stationary demand curve), not the level of demand (a shift in the demand curve).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-3a - Determinants of Demand DATE CREATED: 2/9/2022 5:00 AM DATE MODIFIED: 2/9/2022 5:02 AM 16. What is the difference between a deductible, coinsurance, and copayment?

ANSWER: A deductible is the amount of money that an insured person must pay before a health plan begins paying for all or part of the covered expenses. Coinsurance is a standard feature of health insurance policies that requires the insured person to pay a certain percentage of a medical bill, usually 10 to 30 percent, per physician visit or hospital stay. A copayment, or co-pay, is a fixed sum that an individual must pay for each office visit, hospital stay, or prescription drug and is a standard feature of many managed care plans.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 6-3a - Determinants of Demand DATE CREATED: 2/9/2022 5:02 AM DATE MODIFIED: 2/9/2022 5:03 AM 17. A physician’s ability to induce demand is greatly enhanced when: a. patients pay their own medical bills. b. patients request follow-up visits. c. patients have difficulty gathering and processing information. d. the physician follows strict treatment guidelines. e. treatment options are limited.

ANSWER: FEEDBACK:

c a. Incorrect. Information problems affect buyers’ ability to assess the value of additional information gathered prior to a decision. Because the marginal benefit of gathering additional information is less than the marginal cost of the search for more information, consumers make decisions with the best information available to them, even though it may be incomplete. Often, they rely on the advice of the physician who will eventually provide the service.

b. Incorrect. Information problems affect buyers’ ability to assess the value of additional information gathered prior to a decision. Because the marginal benefit of gathering additional information is less than the marginal cost of the search for more information, consumers make decisions with the best information available to them, even though it may be incomplete. Often, they rely on the advice of the physician who will eventually provide the service. c. Correct. Information problems affect buyers’ ability to assess the value of additional information gathered prior to a decision. Because the marginal benefit of gathering additional information is less than the marginal cost of the search for more information, consumers make decisions with the best information available to them, even though it may be incomplete. Often, they rely on the advice of the physician who will eventually provide the service. d. Incorrect. Information problems affect buyers’ ability to assess the value of additional information gathered prior to a decision. Because the marginal benefit of gathering additional information is less than the marginal cost of the search for more information, consumers make decisions with the best information available to them, even though it may be incomplete. Often, they rely on the advice of the physician who will eventually provide the service. e. Incorrect. Information problems affect buyers’ ability to assess the value of additional information gathered prior to a decision. Because the marginal benefit of gathering additional information is less than the marginal cost of the search for more information, consumers make decisions with the best information available to them, even though it may be incomplete. Often, they rely on the advice of the physician who will eventually provide the service.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-3a - Determinants of Demand DATE CREATED: 2/9/2022 5:03 AM DATE MODIFIED: 2/9/2022 5:07 AM 18. Under which of the following circumstances is the principal–agent relationship likely to be most problematic? a. Between general practitioners and patients b. Between surgeons and patients c. Between hospitals and nurses d. Between dentists and physicians e. Between physicians and lawyers ANSWER: FEEDBACK:

b a. Incorrect. Principal–agent relationships are typically more problematic when the two parties involved in the interaction do not know each other well. Patients and their general practitioners usually have frequent contact with each other. A surgeon’s interaction is often a one-time event. There is usually no agency relationship involved in the other examples. b. Correct. Principal–agent relationships are typically more problematic when the two parties involved in the interaction do not know each other well. Patients and their general practitioners usually have frequent contact with each other. A surgeon’s interaction is often a one-time event. There is usually no agency relationship involved in the other examples. c. Incorrect. Principal–agent relationships are typically more problematic when the two parties involved in the interaction do not know each other well. Patients and their general practitioners usually have frequent contact with each other. A surgeon’s interaction is often a one-time event. There is usually no agency relationship involved in the other examples.

d. Incorrect. Principal–agent relationships are typically more problematic when the two parties involved in the interaction do not know each other well. Patients and their general practitioners usually have frequent contact with each other. A surgeon’s interaction is often a one-time event. There is usually no agency relationship involved in the other examples. e. Incorrect. Principal–agent relationships are typically more problematic when the two parties involved in the interaction do not know each other well. Patients and their general practitioners usually have frequent contact with each other. A surgeon’s interaction is often a one-time event. There is usually no agency relationship involved in the other examples.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-3a - Determinants of Demand DATE CREATED: 2/9/2022 5:07 AM DATE MODIFIED: 2/9/2022 5:10 AM 19. Which of the following is the result of providers having more information about treatment alternatives than their patients do? a. Principal–agent problem b. Rational ignorance c. Externalities d. Adverse selection e. The substitution effect ANSWER: FEEDBACK:

a a. Correct. When providers have more information than their patients do about treatment options, they can steer their patients to more expensive alternatives and even unnecessary treatment. The literature often refers to this phenomenon as physician-induced demand. b. Incorrect. When providers have more information than their patients do about treatment options, they can steer their patients to more expensive alternatives and even unnecessary treatment. The literature often refers to this phenomenon as physician-induced demand. c. Incorrect. When providers have more information than their patients do about treatment options, they can steer their patients to more expensive alternatives and even unnecessary treatment. The literature often refers to this phenomenon as physician-induced demand. d. Incorrect. When providers have more information than their patients do about treatment options, they can steer their patients to more expensive alternatives and even unnecessary treatment. The literature often refers to this phenomenon as physician-induced demand. e. Incorrect. When providers have more information than their patients do about treatment options, they can steer their patients to more expensive alternatives and even unnecessary treatment. The literature often refers to this phenomenon as physician-induced demand.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-3a - Determinants of Demand DATE CREATED: 2/9/2022 5:10 AM DATE MODIFIED: 2/9/2022 5:13 AM

20. Looking at the price of physician services vs. the quantity supplied in the graph below, the shift in the demand curve to D1 results in a new equilibrium at point c with P1 and Q1, which would mean:

a. demand would be unchanged. b. an increase in total spending. c. a decrease in total spending. d. an increase in supply of physicians. e. a decrease in supply of physicians.

ANSWER: FEEDBACK:

b a. Incorrect: The demand inducement hypothesis recognizes that physicians, rather than allow their incomes to fall, may recommend additional procedures, perform more surgeries, and schedule more follow-up visits—all increasing the demand for their services. This shift in the demand curve to D1 results in a new equilibrium at point c with P1 and Q1 and an increase in total spending. b. Correct: The demand inducement hypothesis recognizes that physicians, rather than allow their incomes to fall, may recommend additional procedures, perform more surgeries, and schedule more follow-up visits—all increasing the demand for their services. This shift in the demand curve to D1 results in a new equilibrium at point c with P1 and Q1 and an increase in total spending. c. Incorrect: The demand inducement hypothesis recognizes that physicians, rather than allow their incomes to fall, may recommend additional procedures, perform more surgeries, and schedule more follow-up visits—all increasing the demand for their services. This shift in the demand curve to D1 results in a new equilibrium at point c with P1 and Q1 and an increase in total spending. d. Incorrect: The demand inducement hypothesis recognizes that physicians, rather than allow their incomes to fall, may recommend additional procedures, perform more surgeries, and schedule more follow-up visits—all increasing the demand for their services. This shift in the demand curve to D1 results in a new equilibrium at point c with P1 and Q1 and an increase in total spending. e. Incorrect: The demand inducement hypothesis recognizes that physicians, rather than allow their incomes to fall, may recommend additional procedures, perform more surgeries, and schedule more follow-up visits—all increasing the demand for their services. This shift in the demand curve to D1 results in a new equilibrium at point c with P1 and Q1 and an increase in total spending.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-3a - Determinants of Demand DATE CREATED: 2/9/2022 5:16 AM

DATE MODIFIED:

2/25/2022 6:04 AM

21. Many economists consider medical care a superior good. Which of the following statements is true regarding a superior good? a. Consumers want more of a superior good regardless of its price. b. When the price of a superior good increases, consumers demand more of it. c. As consumer income increases, consumers spend more on superior goods. d. A superior good has an income elasticity of demand less than one. e. Superior goods are considered necessities.

ANSWER: FEEDBACK:

c a. Incorrect. Goods are classified as inferior and normal based on the value of the income elasticity of demand—less than 1 (negative) for inferior goods and greater than 1 (positive) for normal goods. Thus, when income goes up, the level of demand for an inferior good decreases. Likewise, when income increases, the level of demand for a normal good goes up. Superior goods are a category of goods overlapping with normal goods. Its income elasticity is greater than 1. This characteristic results not only in an increase in demand when income rises, but also in an increase in the proportion of income spent on the good. b. Incorrect. Goods are classified as inferior and normal based on the value of the income elasticity of demand—less than 1 (negative) for inferior goods and greater than 1 (positive) for normal goods. Thus, when income goes up, the level of demand for an inferior good decreases. Likewise, when income increases, the level of demand for a normal good goes up. Superior goods are a category of goods overlapping with normal goods. Its income elasticity is greater than 1. This characteristic results not only in an increase in demand when income rises, but also in an increase in the proportion of income spent on the good. c. Correct. Goods are classified as inferior and normal based on the value of the income elasticity of demand—less than 1 (negative) for inferior goods and greater than 1 (positive) for normal goods. Thus, when income goes up, the level of demand for an inferior good decreases. Likewise, when income increases, the level of demand for a normal good goes up. Superior goods are a category of goods overlapping with normal goods. Its income elasticity is greater than 1. This characteristic results not only in an increase in demand when income rises, but also in an increase in the proportion of income spent on the good. d. Incorrect. Goods are classified as inferior and normal based on the value of the income elasticity of demand—less than 1 (negative) for inferior goods and greater than 1 (positive) for normal goods. Thus, when income goes up, the level of demand for an inferior good decreases. Likewise, when income increases, the level of demand for a normal good goes up. Superior goods are a category of goods overlapping with normal goods. Its income elasticity is greater than 1. This characteristic results not only in an increase in demand when income rises, but also in an increase in the proportion of income spent on the good. e. Incorrect. Goods are classified as inferior and normal based on the value of the income elasticity of demand—less than 1 (negative) for inferior goods and greater than 1 (positive) for normal goods. Thus, when income goes up, the level of demand for an inferior good decreases. Likewise, when income increases, the level of demand for a normal good goes up. Superior goods are a category of goods overlapping with normal goods. Its income elasticity is greater than 1. This characteristic results not only in an increase in demand when income rises, but also in an increase in the proportion of income spent on the good.

POINTS: QUESTION TYPE:

1 Multiple Choice

HAS VARIABLES:

False

LEARNING OBJECTIVES: 6-3b - Measuring Demand DATE CREATED: 2/9/2022 5:22 AM DATE MODIFIED: 2/9/2022 5:25 AM 22. The RAND Health Insurance Study: a. examined cross-section data to estimate the demand function for medical care. b. was the most extensive controlled experiment in health insurance ever conducted in the United States. c. like most economic studies, was based on individual decisions in voluntarily choosing health insurance coverage. d. provided flawed guidance due to severe self-selection bias. e. was set up to study medical outcomes when individuals were free to choose the type of health coverage they desired.

ANSWER: b FEEDBACK: a. Incorrect. Approximately 7,000 individuals participated in the RAND experiment between 1974 and 1982. In this social experiment dealing with insurance choice, participants were randomly placed into one of 14 separate insurance plans, making it the largest social experiment of its kind in U.S. history. Results from the experiment are being used to this day when policy makers examine the implications of insurance choice on spending and health. b. Correct. Approximately 7,000 individuals participated in the RAND experiment between 1974 and 1982. In this social experiment dealing with insurance choice, participants were randomly placed into one of 14 separate insurance plans, making it the largest social experiment of its kind in U.S. history. Results from the experiment are being used to this day when policy makers examine the implications of insurance choice on spending and health. c. Incorrect. Approximately 7,000 individuals participated in the RAND experiment between 1974 and 1982. In this social experiment dealing with insurance choice, participants were randomly placed into one of 14 separate insurance plans, making it the largest social experiment of its kind in U.S. history. Results from the experiment are being used to this day when policy makers examine the implications of insurance choice on spending and health. d. Incorrect. Approximately 7,000 individuals participated in the RAND experiment between 1974 and 1982. In this social experiment dealing with insurance choice, participants were randomly placed into one of 14 separate insurance plans, making it the largest social experiment of its kind in U.S. history. Results from the experiment are being used to this day when policy makers examine the implications of insurance choice on spending and health. e. Incorrect. Approximately 7,000 individuals participated in the RAND experiment between 1974 and 1982. In this social experiment dealing with insurance choice, participants were randomly placed into one of 14 separate insurance plans, making it the largest social experiment of its kind in U.S. history. Results from the experiment are being used to this day when policy makers examine the implications of insurance choice on spending and health.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-3b - Measuring Demand DATE CREATED: 2/9/2022 5:25 AM DATE MODIFIED: 2/9/2022 5:29 AM 23. When area income increases by 20 percent, what occurs? a. quantity demanded does not change.

b. quantity demanded falls by 10.0 percent. c. quantity demanded rises by 10.0 percent. d. quantity demanded rises by 7.5 percent. e. quantity demanded falls by 7.5 percent.

ANSWER: FEEDBACK:

c a. Incorrect. The relevant elasticity in this case is income elasticity. The direct approach in determining the answer is to use the simple definition of price elasticity εm = Percentage change in quantity demanded/Percentage change in income. Simply fill in the formula. We know the value for εm is +.50 and the percentage change in income is +0.20 (or a 20 percent increase). To solve for the percentage change in quantity, multiply +0.50 times +0.20. Your answer is +0.10, or a 10 percent increase. b. Incorrect. The relevant elasticity in this case is income elasticity. The direct approach in determining the answer is to use the simple definition of price elasticity εm = Percentage change in quantity demanded/Percentage change in income. Simply fill in the formula. We know the value for εm is +.50 and the percentage change in income is +0.20 (or a 20 percent increase). To solve for the percentage change in quantity, multiply +0.50 times +0.20. Your answer is +0.10, or a 10 percent increase. c. Correct. The relevant elasticity in this case is income elasticity. The direct approach in determining the answer is to use the simple definition of price elasticity εm = Percentage change in quantity demanded/Percentage change in income. Simply fill in the formula. We know the value for εm is +.50 and the percentage change in income is +0.20 (or a 20 percent increase). To solve for the percentage change in quantity, multiply +0.50 times +0.20. Your answer is +0.10, or a 10 percent increase. d. Incorrect. The relevant elasticity in this case is income elasticity. The direct approach in determining the answer is to use the simple definition of price elasticity εm = Percentage change in quantity demanded/Percentage change in income. Simply fill in the formula. We know the value for εm is +.50 and the percentage change in income is +0.20 (or a 20 percent increase). To solve for the percentage change in quantity, multiply +0.50 times +0.20. Your answer is +0.10, or a 10 percent increase. e. Incorrect. The relevant elasticity in this case is income elasticity. The direct approach in determining the answer is to use the simple definition of price elasticity εm = Percentage change in quantity demanded/Percentage change in income. Simply fill in the formula. We know the value for εm is +.50 and the percentage change in income is +0.20 (or a 20 percent increase). To solve for the percentage change in quantity, multiply +0.50 times +0.20. Your answer is +0.10, or a 10 percent increase.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-3b - Measuring Demand DATE CREATED: 2/9/2022 5:31 AM DATE MODIFIED: 2/25/2022 6:10 AM 24. What is the cumulative effect of a simultaneous increase in area income of 5 percent and a 10 percent increase in prices at Urban General? a. Quantity demanded falls by 4 percent.

b. Quantity demanded rises by 4 percent. c. Quantity demanded rises by 1 percent. d. Quantity demanded falls by 1 percent. e. Quantity demanded does not change.

ANSWER: FEEDBACK:

c a. Incorrect. In this case, use both price elasticity and income elasticity.

Completing the formula for price elasticity, εp = percentage change in Q/percentage change in P, we know the value for εp is –0.15 and the percentage change in price is +0.10 (or a 10 percent increase). To solve for the percentage change in quantity due to the price change, multiply +0.10 times – 0.15. Your answer is -0.015, or a 1.5 percent decrease. Completing the formula for income elasticity, εp = Percentage change in quantity demanded/Percentage change in income , we know the value for εm is +.50 and the percentage change in income is +0.05 (or a 5 percent increase). To solve for the percentage change in quantity, multiply +0.50 times +0.05. Your answer is +0.025, or a 2.5 percent increase. A simultaneous 2.5 percent increase and a 1.5 percent decrease results in a 1.0 percent increase. b. Incorrect. In this case, use both price elasticity and income elasticity.

Completing the formula for price elasticity, εp = percentage change in Q/percentage change in P, we know the value for εp is –0.15 and the percentage change in price is +0.10 (or a 10 percent increase). To solve for the percentage change in quantity due to the price change, multiply +0.10 times – 0.15. Your answer is -0.015, or a 1.5 percent decrease. Completing the formula for income elasticity, εp = Percentage change in quantity demanded/Percentage change in income, we know the value for εm is +.50 and the percentage change in income is +0.05 (or a 5 percent increase). To solve for the percentage change in quantity, multiply +0.50 times +0.05. Your answer is +0.025, or a 2.5 percent increase. A simultaneous 2.5 percent increase and a 1.5 percent decrease results in a 1.0 percent increase. c. Correct. In this case, use both price elasticity and income elasticity. Completing the formula for price elasticity, εp = percentage change in Q/percentage change in P, we know the value for εp is –0.15 and the percentage change in price is +0.10 (or a 10 percent increase). To solve for the percentage change in quantity due to the price change, multiply +0.10 times –0.15. Your answer is -0.015, or a 1.5 percent decrease. Completing the formula for income elasticity, εp = Percentage change in quantity demanded/Percentage change in income, we know the value for εm is +.50 and the percentage change in income is +0.05 (or a 5 percent increase). To solve for the percentage change in quantity, multiply +0.50 times +0.05. Your answer is +0.025, or a 2.5 percent increase. A simultaneous 2.5 percent increase and a 1.5 percent decrease results in a 1.0 percent increase. d. Incorrect. In this case, use both price elasticity and income elasticity.

Completing the formula for price elasticity, εp = percentage change in Q/percentage change in P, we know the value for εp is –0.15 and the percentage change in price is +0.10 (or a 10 percent increase). To solve for the percentage change in quantity due to the price change, multiply +0.10 times – 0.15. Your answer is -0.015, or a 1.5 percent decrease. Completing the formula for income elasticity, εp = Percentage change in quantity demanded/Percentage change in income, we know the value for εm is +.50 and the percentage change in income is +0.05 (or a 5 percent increase). To solve for the percentage change in quantity, multiply +0.50 times +0.05. Your answer is +0.025, or a 2.5 percent increase. A simultaneous 2.5 percent increase and a 1.5 percent

decrease results in a 1.0 percent increase.

e. Incorrect. In this case, use both price elasticity and income elasticity.

Completing the formula for price elasticity, εp = percentage change in Q/percentage change in P, we know the value for εp is –0.15 and the percentage change in price is +0.10 (or a 10 percent increase). To solve for the percentage change in quantity due to the price change, multiply +0.10 times – 0.15. Your answer is -0.015, or a 1.5 percent decrease. Completing the formula for income elasticity, εp = Percentage change in quantity demanded/Percentage change in income, we know the value for εm is +.50 and the percentage change in income is +0.05 (or a 5 percent increase). To solve for the percentage change in quantity, multiply +0.50 times +0.05. Your answer is +0.025, or a 2.5 percent increase. A simultaneous 2.5 percent increase and a 1.5 percent decrease results in a 1.0 percent increase.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-3b - Measuring Demand DATE CREATED: 2/9/2022 5:36 AM DATE MODIFIED: 2/25/2022 6:19 AM 25. In your opinion, is health care a necessity or a luxury good? Support your answer by citing at least one economic study.

ANSWER: On an individual basis, medical care is a necessity. Studies by Parkin, McGuire, and Yule (1987) establishes this, showing that the income elasticity of demand for medical care was actually less than 1, making it a necessity rather than a luxury good. However, their work does support the conclusion that income elasticities are greater when we estimate across countries rather than across individuals within the same country.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 6-3b - Measuring Demand DATE CREATED: 2/9/2022 5:39 AM DATE MODIFIED: 2/28/2022 6:26 AM

Chapter 07: Population Health 1. What are the three elements that now define population health? In your answer, make sure to cite at least one study that led to these three health priorities.

ANSWER: The three elements that define population health include the level of health of a welldefined population, the experience of care for members of that population, and the per capita cost of providing that care. The work of Porter and Teisberg (2006) examined the concept of value in health care delivery and defined and measured value by health outcomes per dollar spent. Berwick, Nolan, and Whittington (2008) advanced the discussion by emphasizing the importance of the three elements as priorities.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 7-2 - Health System Priorities DATE CREATED: 2/8/2022 11:55 PM DATE MODIFIED: 2/8/2022 11:57 PM 2. Eliminating health disparities across various population groups requires that we: a. initiate health system reform to bring about universal insurance coverage. b. address the source of disparities in behavioral, socioeconomic, and environmental factors. c. focus solely on improving the health of our most vulnerable population groups. d. provide better health and nutritional education. e. expand in-patient hospital access for inner-city residents.

ANSWER: b FEEDBACK: a. Incorrect. There are substantial differences in health-related behavior across different demographic groups. Pregnancy rates are three times higher among African American teens than white teens, and obesity rates are substantially higher. Differences in socioeconomic characteristics are also important; lower incomes, higher high-school dropout rates, and higher unemployment rates are the source of many health disparities. The lesson to remember is that managing the health of a population goes far beyond the actual delivery of medical care. b. Correct. There are substantial differences in health-related behavior across different demographic groups. Pregnancy rates are three times higher among African American teens than white teens, and obesity rates are substantially higher. Differences in socioeconomic characteristics are also important; lower incomes, higher high-school dropout rates, and higher unemployment rates are the source of many health disparities. The lesson to remember is that managing the health of a population goes far beyond the actual delivery of medical care. c. Incorrect. There are substantial differences in health-related behavior across different demographic groups. Pregnancy rates are three times higher among African American teens than white teens, and obesity rates are substantially higher. Differences in socioeconomic characteristics are also important; lower incomes, higher high-school dropout rates, and higher unemployment rates are the source of many health disparities. The lesson to remember is that managing the health of a population goes far beyond the actual delivery of medical care. d. Incorrect. There are substantial differences in health-related behavior across different demographic groups. Pregnancy rates are three times higher among African American teens than white teens, and obesity rates are substantially higher. Differences in socioeconomic characteristics are also important; lower

incomes, higher high-school dropout rates, and higher unemployment rates are the source of many health disparities. The lesson to remember is that managing the health of a population goes far beyond the actual delivery of medical care. e. Incorrect. There are substantial differences in health-related behavior across different demographic groups. Pregnancy rates are three times higher among African American teens than white teens, and obesity rates are substantially higher. Differences in socioeconomic characteristics are also important; lower incomes, higher high-school dropout rates, and higher unemployment rates are the source of many health disparities. The lesson to remember is that managing the health of a population goes far beyond the actual delivery of medical care.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-3 - Health Disparities DATE CREATED: 2/8/2022 11:59 PM DATE MODIFIED: 2/9/2022 12:03 AM 3. In 2001, life expectancy at birth in the United States was 77.2 years, increasing to 78.7 years in 2018. However, there remains a racial gap between Blacks and Whites. White life expectancy in 2018 was at 78.6 years, and Black life expectancy at 74.7 years. Causes of mortality reveals an interesting picture. Among Whites, have a much higher rate than in Blacks, where are much more prevalent. a. cancer and diabetes; suicides and stroke b. homicides and heart disease; accidents and Alzheimer’s c. suicides and chronic respiratory disease; homicides and heart disease d. accidents and strokes; diabetes and suicide e. diabetes and homicides; accidents and cancer ANSWER: c FEEDBACK: a. Incorrect. Whites are much more likely to die from accidents, Alzheimer's, suicide, and chronic respiratory disease than Blacks. Blacks have a higher risk of diabetes, homicides, cancer, heart disease, and stroke. b. Incorrect. Whites are much more likely to die from accidents, Alzheimer's, suicide, and chronic respiratory disease than Blacks. Blacks have a higher risk of diabetes, homicides, cancer, heart disease, and stroke. c. Correct. Whites are much more likely to die from accidents, Alzheimer's, suicide, and chronic respiratory disease than Blacks. Blacks have a higher risk of diabetes, homicides, cancer, heart disease, and stroke. d. Incorrect. Whites are much more likely to die from accidents, Alzheimer's, suicide, and chronic respiratory disease than Blacks. Blacks have a higher risk of diabetes, homicides, cancer, heart disease, and stroke. e. Incorrect. Whites are much more likely to die from accidents, Alzheimer's, suicide, and chronic respiratory disease than Blacks. Blacks have a higher risk of diabetes, homicides, cancer, heart disease, and stroke.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-3a - Mortality Factors DATE CREATED: 2/9/2022 12:03 AM DATE MODIFIED: 2/9/2022 12:09 AM

4. Morbidity is an intermediate outcome, used as a measure of the disease burden for major chronic conditions. One of its measurements is health-related quality of life (QoL). How do individuals measure their quality of life?

ANSWER: The Centers for Disease Control and Prevention (CDC) survey of 2020 asked respondents to rate their general health status on a five-point scale of excellent, very good, good, fair, or poor. Approximately 16 percent of Americans rated their QoL as fair or poor, ranging from 13.3 percent of Whites to 23.3 percent of Blacks and 28.1 percent of Hispanics.

Those individuals who rated their QoL as fair or poor typically experienced more physically and mentally unhealthy days on average. Similarly, there were self-reported health differences with 80.1 percent of Whites saying their health was good or better, whereas only 73.1 percent of Blacks and 75.0 percent of Hispanics agreed.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 7-3b - Morbidity Factors DATE CREATED: 2/9/2022 12:10 AM DATE MODIFIED: 2/9/2022 12:16 AM 5. In 2018, the overall obesity rate in the United States (as measured by BMI > 30) is over percent, with rates reaching higher than percent among African American women. a. 20; 40 b. 30; 40 c. 50; 60 d. 40; 50 ANSWER: d FEEDBACK: a. Incorrect. Obesity rates in the United States are among the highest in the world. Over 43 percent of men and 42 percent of women in considered obese (BMI > 30). Rates are highest among African American females (57 percent). b. Incorrect. Obesity rates in the United States are among the highest in the world. Over 43 percent of men and 42 percent of women in considered obese (BMI > 30). Rates are highest among African American females (57 percent). c. Incorrect. Obesity rates in the United States are among the highest in the world. Over 43 percent of men and 42 percent of women in considered obese (BMI > 30). Rates are highest among African American females (57 percent). d. Correct. Obesity rates in the United States are among the highest in the world.

Over 43 percent of men and 42 percent of women in considered obese (BMI > 30). Rates are highest among African American females (57 percent).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-3c - Individual Factors Confounding Risk DATE CREATED: 2/9/2022 12:17 AM DATE MODIFIED: 2/9/2022 12:19 AM 6. How does household income contribute to one’s health and its delivery? Please include at least one example.

ANSWER: The most common socioeconomic variable that contributes to health and its delivery is household income. Living and working in a high-risk environment increases the probability of injury or death from exposure to those risks. Another example is that trafficrelated air pollution is associated with chronic respiratory illnesses. What’s more, substantial empirical evidence exists indicating that there is a positive correlation between

income and life expectancy. In fact, at every stage of the life cycle, health is associated with various measures of socioeconomic status (SES), such as income, wealth, education, and occupational status.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 7-3c - Individual Factors Confounding Risk DATE CREATED: 2/9/2022 12:20 AM DATE MODIFIED: 2/9/2022 12:21 AM 7. Why is teen pregnancy a concern among public health officials and policymakers?

ANSWER: Teen pregnancy is a concern because of its associated problems, including low birth weight, preterm deliveries, and the risk of infant mortality. The overall pregnancy rate for teens between 15 and 19 years of age was 18.8 percent in 2017 but was over two times higher among Blacks and Hispanics than among Whites. The rates of sexually transmitted infections is another indicator.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 7-3c - Individual Factors Confounding Risk DATE CREATED: 2/9/2022 12:21 AM DATE MODIFIED: 2/9/2022 12:22 AM 8. Which country has the highest health care spending as a percent of gross domestic product? a. Canada b. Japan c. Switzerland d. United States e. United Kingdom ANSWER: d FEEDBACK: a. Incorrect. This statistic does present somewhat of a moving target, but in 2018, the United States had the highest health spending as a percentage of GDP at 16.9 percent. Switzerland (12.2), Germany (11.2), France (11.2), Japan (10.9), and Canada (10.7) were close behind. Arguably, the UK at 9.85 percent of GDP and the Netherlands at 9.9 percent seems to be holding spending down with strict allocation rules. b. Incorrect. This statistic does present somewhat of a moving target, but in 2018, the United States had the highest health spending as a percentage of GDP at 16.9 percent. Switzerland (12.2), Germany (11.2), France (11.2), Japan (10.9), and Canada (10.7) were close behind. Arguably, the UK at 9.85 percent of GDP and the Netherlands at 9.9 percent seems to be holding spending down with strict allocation rules. c. Incorrect. This statistic does present somewhat of a moving target, but in 2018, the United States had the highest health spending as a percentage of GDP at 16.9 percent. Switzerland (12.2), Germany (11.2), France (11.2), Japan (10.9), and Canada (10.7) were close behind. Arguably, the UK at 9.85 percent of GDP and the Netherlands at 9.9 percent seems to be holding spending down with strict allocation rules.

d. Correct. This statistic does present somewhat of a moving target, but in 2018,

the United States had the highest health spending as a percentage of GDP at 16.9 percent. Switzerland (12.2), Germany (11.2), France (11.2), Japan (10.9), and Canada (10.7) were close behind. Arguably, the UK at 9.85 percent of GDP and the Netherlands at 9.9 percent seems to be holding spending down with strict allocation rules. e. Incorrect. This statistic does present somewhat of a moving target, but in 2018, the United States had the highest health spending as a percentage of GDP at 16.9 percent. Switzerland (12.2), Germany (11.2), France (11.2), Japan (10.9), and Canada (10.7) were close behind. Arguably, the UK at 9.85 percent of GDP and the Netherlands at 9.9 percent seems to be holding spending down with strict allocation rules.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-4 - Cross-Country Comparisons DATE CREATED: 2/9/2022 12:23 AM DATE MODIFIED: 2/9/2022 12:26 AM 9. All of the following statements are true regarding infant mortality in the United States? a. Low-birth-weight infants have a better chance of survival in the United States than in either Japan or Norway. b. International comparisons of infant mortality rates are difficult to interpret due to different definitions of infant death. c. Teenage pregnancy and illegitimacy are highly correlated with infant mortality. d. Infant mortality rates are among the lowest in the developed world. e. A primary cause of infant mortality is low birth weight.

ANSWER: d FEEDBACK: a. Incorrect. Infant mortality rates (IMR) are generally very low across the Organization for Economic Cooperation and Development (OECD) countries, but do vary slightly from country to country. In 2018, in most OECD countries, the IMR was between 2.0 and 6.0 deaths per 1000 live births. The U.S. infant mortality rate was highest among eight OECD countries, according to OECD Health Statistics, 2020. b. Incorrect. Infant mortality rates (IMR) are generally very low across the Organization for Economic Cooperation and Development (OECD) countries, but do vary slightly from country to country. In 2018, in most OECD countries, the IMR was between 2.0 and 6.0 deaths per 1000 live births. The U.S. infant mortality rate was highest among eight OECD countries, according to OECD Health Statistics, 2020. c. Incorrect. Infant mortality rates (IMR) are generally very low across the Organization for Economic Cooperation and Development (OECD) countries, but do vary slightly from country to country. In 2018, in most OECD countries, the IMR was between 2.0 and 6.0 deaths per 1000 live births. The U.S. infant mortality rate was highest among eight OECD countries, according to OECD Health Statistics, 2020. d. Correct. Infant mortality rates (IMR) are generally very low across the Organization for Economic Cooperation and Development (OECD) countries, but do vary slightly from country to country. In 2018, in most OECD countries, the IMR was between 2.0 and 6.0 deaths per 1000 live births. The U.S. infant mortality rate was highest among eight OECD countries, according to OECD Health Statistics, 2020. e. Incorrect. Infant mortality rates (IMR) are generally very low across the Organization for Economic Cooperation and Development (OECD) countries, but do vary slightly from country to country. In 2018, in most OECD countries,

the IMR was between 2.0 and 6.0 deaths per 1000 live births. The U.S. infant mortality rate was highest among eight OECD countries, according to OECD Health Statistics, 2020.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-4a - Health Outcomes DATE CREATED: 2/9/2022 12:27 AM DATE MODIFIED: 2/9/2022 12:30 AM 10. The World Health Organization (WHO) reporting guidelines have established a strict definition of a live birth. It includes: a. infants with gestational age greater than 28 weeks. b. infants with birth-weight greater than 1,000 grams. c. infants who have length of survival of more than 24 hours. d. infants who breathe or show signs of life.

ANSWER: d FEEDBACK: a. Incorrect. The WHO definition of a live birth is quite simple: any infant, regardless of gestation age, that “breathes or shows any signs of life.” This definition is not strictly followed across the world in actual practice. The United States is one of the few countries that strictly follows the WHO guidelines.

Many European countries establish minimums in terms of gestation age, birthweight, and length of survival. This reporting difference is responsible for much of the difference in infant mortality rates across the developed world. b. Incorrect. The WHO definition of a live birth is quite simple: any infant, regardless of gestation age, that “breathes or shows any signs of life.” This definition is not strictly followed across the world in actual practice. The United States is one of the few countries that strictly follows the WHO guidelines.

Many European countries establish minimums in terms of gestation age, birthweight, and length of survival. This reporting difference is responsible for much of the difference in infant mortality rates across the developed world. c. Incorrect. The WHO definition of a live birth is quite simple: any infant, regardless of gestation age, that “breathes or shows any signs of life.” This definition is not strictly followed across the world in actual practice. The United States is one of the few countries that strictly follows the WHO guidelines.

Many European countries establish minimums in terms of gestation age, birthweight, and length of survival. This reporting difference is responsible for much of the difference in infant mortality rates across the developed world. d. Correct. The WHO definition of a live birth is quite simple: any infant, regardless of gestation age, that “breathes or shows any signs of life.” This definition is not strictly followed across the world in actual practice. The United States is one of the few countries that strictly follows the WHO guidelines.

Many European countries establish minimums in terms of gestation age, birthweight, and length of survival. This reporting difference is responsible for much of the difference in infant mortality rates across the developed world.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-4a - Health Outcomes DATE CREATED: 2/9/2022 12:30 AM DATE MODIFIED: 2/9/2022 12:34 AM

11. Infant mortality rate is associated with low birth weight. By what percent would the U.S. infant mortality rate fall, if the United States had the same birth weight distribution as Sweden? a. 10 b. 24 c. 34 d. 40 e. 52 ANSWER: c FEEDBACK: a. Incorrect. Data from the early 2000s indicate that if the birthweight distribution in the United States had been the same as that is Sweden, the U.S. rate would have been 4.1 per 1000 live births instead of 6.2, a 34 percent drop. Similar research from an earlier time period projects that the U.S. rate would have been 5.4 instead of 6.9 if its birthweight distribution were the same as Canada’s. b. Incorrect. Data from the early 2000s indicate that if the birthweight distribution in the United States had been the same as that is Sweden, the U.S. rate would have been 4.1 per 1000 live births instead of 6.2, a 34 percent drop. Similar research from an earlier time period projects that the U.S. rate would have been 5.4 instead of 6.9 if its birthweight distribution were the same as Canada’s. c. Correct. Data from the early 2000s indicate that if the birthweight distribution in the United States had been the same as that is Sweden, the U.S. rate would have been 4.1 per 1000 live births instead of 6.2, a 34 percent drop. Similar research from an earlier time period projects that the U.S. rate would have been 5.4 instead of 6.9 if its birthweight distribution were the same as Canada’s. d. Incorrect. Data from the early 2000s indicate that if the birthweight distribution in the United States had been the same as that is Sweden, the U.S. rate would have been 4.1 per 1000 live births instead of 6.2, a 34 percent drop. Similar research from an earlier time period projects that the U.S. rate would have been 5.4 instead of 6.9 if its birthweight distribution were the same as Canada’s. e. Incorrect. Data from the early 2000s indicate that if the birthweight distribution in the United States had been the same as that is Sweden, the U.S. rate would have been 4.1 per 1000 live births instead of 6.2, a 34 percent drop. Similar research from an earlier time period projects that the U.S. rate would have been 5.4 instead of 6.9 if its birthweight distribution were the same as Canada’s.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-4a - Health Outcomes DATE CREATED: 2/9/2022 12:35 AM DATE MODIFIED: 2/9/2022 12:39 AM 12. The U.S. perinatal mortality rate (late fetal deaths plus deaths in the neonatal period) was 5.9 in 2018, lower than those found in: a. France, Switzerland, and the United Kingdom. b. Japan. c. Canada. d. Germany.

ANSWER: a

FEEDBACK:

a. Correct. The perinatal mortality rate, which includes neonatal mortality and late fetal deaths, is higher in France, Switzerland, and the UK than it is in the United States. In 2012, it was 5.9 in the U.S. and 10.6, 6.6, and 6.2 in the other three, respectively. b. Incorrect. The perinatal mortality rate, which includes neonatal mortality and late fetal deaths, is higher in France, Switzerland, and the UK than it is in the United States. In 2012, it was 5.9 in the U.S. and 10.6, 6.6, and 6.2 in the other three, respectively. c. Incorrect. The perinatal mortality rate, which includes neonatal mortality and late fetal deaths, is higher in France, Switzerland, and the UK than it is in the United States. In 2012, it was 5.9 in the U.S. and 10.6, 6.6, and 6.2 in the other three, respectively. d. Incorrect. The perinatal mortality rate, which includes neonatal mortality and late fetal deaths, is higher in France, Switzerland, and the UK than it is in the United States. In 2012, it was 5.9 in the U.S. and 10.6, 6.6, and 6.2 in the other three, respectively.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-4a - Health Outcomes DATE CREATED: 2/9/2022 12:39 AM DATE MODIFIED: 2/9/2022 12:44 AM 13. The nature of health care delivery will be different in the future due to: a. a rising percentage of elderly in the total population. b. longer inpatient hospital stays due to a decrease in acute illnesses among the elderly population. c. longer lives due to a lower incidence of chronic illness. d. an expected increase in the fertility rate. e. cheaper alternatives to treatments in oncology.

ANSWER: a FEEDBACK: a. Correct. An increasing percentage of the population reaching age 65 (caused largely by a decrease in the fertility rate) can expect more chronic illnesses, more expensive treatment alternatives for treatment of those illnesses, and more pressure to reduce the length of inpatient hospital stays. b. Incorrect. An increasing percentage of the population reaching age 65 (caused largely by a decrease in the fertility rate) can expect more chronic illnesses, more expensive treatment alternatives for treatment of those illnesses, and more pressure to reduce the length of inpatient hospital stays. c. Incorrect. An increasing percentage of the population reaching age 65 (caused largely by a decrease in the fertility rate) can expect more chronic illnesses, more expensive treatment alternatives for treatment of those illnesses, and more pressure to reduce the length of inpatient hospital stays. d. Incorrect. An increasing percentage of the population reaching age 65 (caused largely by a decrease in the fertility rate) can expect more chronic illnesses, more expensive treatment alternatives for treatment of those illnesses, and more pressure to reduce the length of inpatient hospital stays. e. Incorrect. An increasing percentage of the population reaching age 65 (caused largely by a decrease in the fertility rate) can expect more chronic illnesses, more expensive treatment alternatives for treatment of those illnesses, and more pressure to reduce the length of inpatient hospital stays.

POINTS: QUESTION TYPE:

1 Multiple Choice

HAS VARIABLES: False LEARNING OBJECTIVES: 7-4a - Health Outcomes DATE CREATED: 2/9/2022 12:44 AM DATE MODIFIED: 2/9/2022 12:49 AM 14. All of the following statements are true regarding infant mortality in the United States, EXCEPT? a. Prenatal care programs in low-income neighborhoods b. Reduced drug use among expectant mothers c. Emphasis on improving infant health during the post-neonatal period d. Delaying childbearing beyond the teen years e. Reducing the rate of still births ANSWER: e FEEDBACK: a. Incorrect. Administratively, still births are included in mortality statistics as late fetal deaths and are included in the perinatal mortality rate not the infant mortality rate. b. Incorrect. Administratively, still births are included in mortality statistics as late fetal deaths and are included in the perinatal mortality rate not the infant mortality rate. c. Incorrect. Administratively, still births are included in mortality statistics as late fetal deaths and are included in the perinatal mortality rate not the infant mortality rate. d. Incorrect. Administratively, still births are included in mortality statistics as late fetal deaths and are included in the perinatal mortality rate not the infant mortality rate. e. Correct. Administratively, still births are included in mortality statistics as late fetal deaths and are included in the perinatal mortality rate not the infant mortality rate.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 6-4a - Health Outcomes DATE CREATED: 2/9/2022 12:49 AM DATE MODIFIED: 2/9/2022 12:52 AM 15. What is responsible for over one-half of the gap in life expectancy between the U.S. and Canada? a. Obesity b. Smoking c. Drug abuse d. Alcohol consumption e. Poor diet ANSWER: a FEEDBACK: a. Correct. O’Neill and O’Neill (2007) estimate that over one-half of the gap in male life expectancy (between the United States and Canada) and two-thirds of the gap in female life expectancy is due to differences in the rate of obesity. b. Incorrect. O’Neill and O’Neill (2007) estimate that over one-half of the gap in male life expectancy (between the United States and Canada) and two-thirds of the gap in female life expectancy is due to differences in the rate of obesity. c. Incorrect. O’Neill and O’Neill (2007) estimate that over one-half of the gap in male life expectancy (between the United States and Canada) and two-thirds of the gap in female life expectancy is due to differences in the rate of obesity.

d. Incorrect. O’Neill and O’Neill (2007) estimate that over one-half of the gap in male life expectancy (between the United States and Canada) and two-thirds of the gap in female life expectancy is due to differences in the rate of obesity. e. Incorrect. O’Neill and O’Neill (2007) estimate that over one-half of the gap in male life expectancy (between the United States and Canada) and two-thirds of the gap in female life expectancy is due to differences in the rate of obesity.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-4b - Other Risk Factors DATE CREATED: 2/9/2022 12:52 AM DATE MODIFIED: 2/9/2022 12:56 AM 16. All of the statements below are true according to the Organization for Economic Cooperation and Development, EXCEPT? a. The average smoker in the United States has a life expectancy that is almost 10 years shorter than the average non-smoker’s. b. Alcohol- and smoking-related illnesses are associated with over 500,000 deaths annually. c. Smoking prevalence among 18- to 24-year-olds is rising. d. There is very little difference in the prevalence of smoking between males and females worldwide. e. Almost 15 percent of all Medicaid spending is attributable to tobacco use of one kind or another.

ANSWER: d FEEDBACK: a. Incorrect. On average, more males smoke than females. The gap is as high as 25 percentage points in Japan. In fact, one of the reasons that women live longer than men in most societies is they do not smoke with the same regularity as men. b. Incorrect. On average, more males smoke than females. The gap is as high as 25 percentage points in Japan. In fact, one of the reasons that women live longer than men in most societies is they do not smoke with the same regularity as men. c. Incorrect. On average, more males smoke than females. The gap is as high as 25 percentage points in Japan. In fact, one of the reasons that women live longer than men in most societies is they do not smoke with the same regularity as men. d. Correct. On average, more males smoke than females. The gap is as high as 25 percentage points in Japan. In fact, one of the reasons that women live longer than men in most societies is they do not smoke with the same regularity as men. e. Incorrect. On average, more males smoke than females. The gap is as high as 25 percentage points in Japan. In fact, one of the reasons that women live longer than men in most societies is they do not smoke with the same regularity as men.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-4b - Other Risk Factors DATE CREATED: 2/9/2022 12:56 AM DATE MODIFIED: 2/9/2022 12:59 AM 17. Addictive substances such as tobacco have long-run demand that is more than short-run demand. In other words, the consumption of addictive substances price sensitive and raising prices reduce consumption

over time. a. price elastic; is; will b. price elastic; is not; will not c. price inelastic; is; will d. price inelastic; is not; will not ANSWER: d FEEDBACK: a. Incorrect. In the long run, consumption becomes habitual when addictive substances are involved. It is relatively easy to discourage the future use of illegal substances among non-users and the continued use among new users because their demand is relatively elastic. As time passes, use becomes habitual, even addictive, and discouraging use becomes increasingly more challenging. Demand becomes inelastic. Higher prices accomplish little to discourage use among long-term users. b. Incorrect. In the long run, consumption becomes habitual when addictive substances are involved. It is relatively easy to discourage the future use of illegal substances among non-users and the continued use among new users because their demand is relatively elastic. As time passes, use becomes habitual, even addictive, and discouraging use becomes increasingly more challenging. Demand becomes inelastic. Higher prices accomplish little to discourage use among long-term users. c. Incorrect. In the long run, consumption becomes habitual when addictive substances are involved. It is relatively easy to discourage the future use of illegal substances among non-users and the continued use among new users because their demand is relatively elastic. As time passes, use becomes habitual, even addictive, and discouraging use becomes increasingly more challenging. Demand becomes inelastic. Higher prices accomplish little to discourage use among long-term users. d. Correct. In the long run, consumption becomes habitual when addictive substances are involved. It is relatively easy to discourage the future use of illegal substances among non-users and the continued use among new users because their demand is relatively elastic. As time passes, use becomes habitual, even addictive, and discouraging use becomes increasingly more challenging. Demand becomes inelastic. Higher prices accomplish little to discourage use among long-term users.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-4b - Other Risk Factors DATE CREATED: 2/9/2022 12:59 AM DATE MODIFIED: 2/9/2022 1:02 AM 18. An increase in the excise tax on alcohol of $1 per liter: a. will have no effect on alcohol consumption. b. will generate minimal tax revenues for the federal government. c. will save lives when coupled with a uniform drinking age. d. will generate substantial revenues if demand is elastic. e. will raise the price of alcohol by exactly $1 per liter.

ANSWER: c FEEDBACK: a. Incorrect. In the long run, even addictive behavior is price sensitive. Thus, an excise tax will raise the price of alcohol and reduce consumption. Because the demand among the younger population, in particular under-age drinkers, is more elastic than overall demand, their response will be greater and we would

experience less driving under the influence of alcohol, which would potentially save lives. b. Incorrect. In the long run, even addictive behavior is price sensitive. Thus, an excise tax will raise the price of alcohol and reduce consumption. Because the demand among the younger population, in particular under-age drinkers, is more elastic than overall demand, their response will be greater and we would experience less driving under the influence of alcohol, which would potentially save lives. c. Correct. In the long run, even addictive behavior is price sensitive. Thus, an excise tax will raise the price of alcohol and reduce consumption. Because the demand among the younger population, in particular under-age drinkers, is more elastic than overall demand, their response will be greater and we would experience less driving under the influence of alcohol, which would potentially save lives. d. Incorrect. In the long run, even addictive behavior is price sensitive. Thus, an excise tax will raise the price of alcohol and reduce consumption. Because the demand among the younger population, in particular under-age drinkers, is more elastic than overall demand, their response will be greater and we would experience less driving under the influence of alcohol, which would potentially save lives. e. Incorrect. In the long run, even addictive behavior is price sensitive. Thus, an excise tax will raise the price of alcohol and reduce consumption. Because the demand among the younger population, in particular under-age drinkers, is more elastic than overall demand, their response will be greater and we would experience less driving under the influence of alcohol, which would potentially save lives.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-4b - Other Risk Factors DATE CREATED: 2/9/2022 1:02 AM DATE MODIFIED: 2/9/2022 1:05 AM 19. The economic argument for legalizing drugs: a. is morally bankrupt. b. is based on the assumption that for most non-users, the demand is relatively price elastic. c. shows that economists are all libertarians at heart. d. takes into consideration all the externalities associated with drug use. e. is really politically motivated.

ANSWER: b FEEDBACK: a. Incorrect. The important insight is that habitual users have demand that is relatively price inelastic. They purchase even when the cost of consumption increases substantially. For the millions who do not use drugs, demand is quite elastic and the relaxation of legal prohibitions (lower cost of consumption) has the potential to increase use substantially. b. Correct. The important insight is that habitual users have demand that is relatively price inelastic. They purchase even when the cost of consumption increases substantially. For the millions who do not use drugs, demand is quite elastic and the relaxation of legal prohibitions (lower cost of consumption) has the potential to increase use substantially. c. Incorrect. The important insight is that habitual users have demand that is relatively price inelastic. They purchase even when the cost of consumption increases substantially. For the millions who do not use drugs, demand is quite

elastic and the relaxation of legal prohibitions (lower cost of consumption) has the potential to increase use substantially. d. Incorrect. The important insight is that habitual users have demand that is relatively price inelastic. They purchase even when the cost of consumption increases substantially. For the millions who do not use drugs, demand is quite elastic and the relaxation of legal prohibitions (lower cost of consumption) has the potential to increase use substantially. e. Incorrect. The important insight is that habitual users have demand that is relatively price inelastic. They purchase even when the cost of consumption increases substantially. For the millions who do not use drugs, demand is quite elastic and the relaxation of legal prohibitions (lower cost of consumption) has the potential to increase use substantially.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-4b - Other Risk Factors DATE CREATED: 2/9/2022 1:06 AM DATE MODIFIED: 2/9/2022 1:08 AM 20. A percentage of the French population is obese; they consume fat than Americans do. a. large; less b. small; less c. large; more d. small; more ANSWER: b FEEDBACK: a. Incorrect. More than 15 percent of the French are obese as compared to over 30 percent of Americans. At the same time, French diets have a lower fat content. b. Correct. More than 15 percent of the French are obese as compared to over 30 percent of Americans. At the same time, French diets have a lower fat content. c. Incorrect. More than 15 percent of the French are obese as compared to over 30 percent of Americans. At the same time, French diets have a lower fat content. d. Incorrect. More than 15 percent of the French are obese as compared to over 30 percent of Americans. At the same time, French diets have a lower fat content.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-4b - Other Risk Factors DATE CREATED: 2/9/2022 1:09 AM DATE MODIFIED: 2/15/2022 7:25 AM 21. Research associates obesity with a higher risk of all the following conditions except: a. cardiovascular disease. b. cancer. c. stroke. d. depression. e. type 1 diabetes.

ANSWER: FEEDBACK:

e a. Incorrect. Type 1 diabetes occurs when your immune system, the body's system for fighting infection, attacks and destroys the insulin-producing beta cells of the pancreas. Scientists think that genetic and environmental factors, such as viruses, might trigger the disease or cause type 1 diabetes. b. Incorrect. Type 1 diabetes occurs when your immune system, the body's system for fighting infection, attacks and destroys the insulin-producing beta cells of the pancreas. Scientists think that genetic and environmental factors, such as viruses, might trigger the disease or cause type 1 diabetes. c. Incorrect. Type 1 diabetes occurs when your immune system, the body's system for fighting infection, attacks and destroys the insulin-producing beta cells of the pancreas. Scientists think that genetic and environmental factors, such as viruses, might trigger the disease or cause type 1 diabetes. d. Incorrect. Type 1 diabetes occurs when your immune system, the body's system for fighting infection, attacks and destroys the insulin-producing beta cells of the pancreas. Scientists think that genetic and environmental factors, such as viruses, might trigger the disease or cause type 1 diabetes. e. Correct. Type 1 diabetes occurs when your immune system, the body's system for fighting infection, attacks and destroys the insulin-producing beta cells of the pancreas. Scientists think that genetic and environmental factors, such as viruses, might trigger the disease or cause type 1 diabetes.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 7-4b - Other Risk Factors DATE CREATED: 2/9/2022 1:24 AM DATE MODIFIED: 2/9/2022 1:27 AM

Chapter 08: The Market for Health Insurance 1. All of the following are true for indemnity insurance except that: a. it provides reimbursement for financial losses, including fire and life. b. it serves as the basis for all health insurance coverage in most developed countries, including the United States. c. it is often experience-rated, with premiums based on expected losses. d. it frequently includes coverage for losses due to casualty and theft. e. premiums are based on separate risk pools often organized by employers.

ANSWER: b FEEDBACK: a. Incorrect. The indemnity insurance approach is based on the premise that riskaverse individuals are willing to pay a premium equal to the expected loss if the insured event actually occurs. The best example of this approach is the fixedterm life insurance policy. Only one-half of all individuals covered by insurance in the United States receive insurance through employer-sponsored plans using the indemnity approach. The rest are covered under the social insurance approach. Most developed countries around the world have adopted the social insurance approach. b. Correct. The indemnity insurance approach is based on the premise that riskaverse individuals are willing to pay a premium equal to the expected loss if the insured event actually occurs. The best example of this approach is the fixedterm life insurance policy. Only one-half of all individuals covered by insurance in the United States receive insurance through employer-sponsored plans using the indemnity approach. The rest are covered under the social insurance approach. Most developed countries around the world have adopted the social insurance approach. c. Incorrect. The indemnity insurance approach is based on the premise that riskaverse individuals are willing to pay a premium equal to the expected loss if the insured event actually occurs. The best example of this approach is the fixedterm life insurance policy. Only one-half of all individuals covered by insurance in the United States receive insurance through employer-sponsored plans using the indemnity approach. The rest are covered under the social insurance approach. Most developed countries around the world have adopted the social insurance approach. d. Incorrect. The indemnity insurance approach is based on the premise that riskaverse individuals are willing to pay a premium equal to the expected loss if the insured event actually occurs. The best example of this approach is the fixedterm life insurance policy. Only one-half of all individuals covered by insurance in the United States receive insurance through employer-sponsored plans using the indemnity approach. The rest are covered under the social insurance approach. Most developed countries around the world have adopted the social insurance approach. e. Incorrect. The indemnity insurance approach is based on the premise that riskaverse individuals are willing to pay a premium equal to the expected loss if the insured event actually occurs. The best example of this approach is the fixedterm life insurance policy. Only one-half of all individuals covered by insurance in the United States receive insurance through employer-sponsored plans using the indemnity approach. The rest are covered under the social insurance approach. Most developed countries around the world have adopted the social insurance approach.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-1a - Approaches to Insurance DATE CREATED: 2/9/2022 4:40 AM

DATE MODIFIED:

2/9/2022 4:45 AM

2. All of the following statements are true regarding social insurance, except: a. It serves the basis for most redistribution programs. b. It is usually experience-rated, with premiums based on ability to pay. c. It is the basis for providing medical care to the poor, elderly, and other vulnerable population groups in the United States. d. It requires mandatory participation to be effective. e. It is usually supported by taxes, usually income tax or payroll tax.

ANSWER: b FEEDBACK: a. Incorrect. The social insurance approach serves as the basis for all social assistance programs in most countries. It bypasses the underwriting process entirely and does not charge experience-rated premiums. Taxpayers provide the money to pay for benefits, typically through an income tax or payroll tax. b. Correct. The social insurance approach serves as the basis for all social assistance programs in most countries. It bypasses the underwriting process entirely and does not charge experience-rated premiums. Taxpayers provide the money to pay for benefits, typically through an income tax or payroll tax. c. Incorrect. The social insurance approach serves as the basis for all social assistance programs in most countries. It bypasses the underwriting process entirely and does not charge experience-rated premiums. Taxpayers provide the money to pay for benefits, typically through an income tax or payroll tax. d. Incorrect. The social insurance approach serves as the basis for all social assistance programs in most countries. It bypasses the underwriting process entirely and does not charge experience-rated premiums. Taxpayers provide the money to pay for benefits, typically through an income tax or payroll tax. e. Incorrect. The social insurance approach serves as the basis for all social assistance programs in most countries. It bypasses the underwriting process entirely and does not charge experience-rated premiums. Taxpayers provide the money to pay for benefits, typically through an income tax or payroll tax.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-1a - Approaches to Insurance DATE CREATED: 2/9/2022 4:46 AM DATE MODIFIED: 2/9/2022 4:50 AM 3. Premiums based on experience ratings: a. are uniform across age groups. b. are based on the loss experience of the insured group. 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.

ANSWER: b FEEDBACK: a. Incorrect. Experience-rated premiums are a feature of indemnity insurance.

Using the concept of pooled risk, individuals are charged a premium equal to the average expected loss of the entire risk pool. b. Correct. Experience-rated premiums are a feature of indemnity insurance.

Using the concept of pooled risk, individuals are charged a premium equal to the average expected loss of the entire risk pool.

c. Incorrect. Experience-rated premiums are a feature of indemnity insurance.

Using the concept of pooled risk, individuals are charged a premium equal to the average expected loss of the entire risk pool. d. Incorrect. Experience-rated premiums are a feature of indemnity insurance.

Using the concept of pooled risk, individuals are charged a premium equal to the average expected loss of the entire risk pool. e. Incorrect. Experience-rated premiums are a feature of indemnity insurance.

Using the concept of pooled risk, individuals are charged a premium equal to the average expected loss of the entire risk pool.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-1a - Approaches to Insurance DATE CREATED: 2/9/2022 4:50 AM DATE MODIFIED: 2/9/2022 4:54 AM 4. In 5-10 sentences, explain the differences between indemnity insurance and social insurance.

ANSWER: In the debate over health care financing, indemnity and social insurance policies present very different approaches. Indemnity insurance provides reimbursement for medical care expenses or direct payments to those prevented from working due to an accident or injury.

As underwriters estimate expected medical care spending, individuals perceived as having similar risk are grouped together and pay the same respective premiums in return for their insurance coverage. Conversely, social insurance ignores expected spending and takes a different approach in calculating premiums. Instead of high-risk individuals paying more for health care insurance, higher-income individuals are made to contribute higher premiums. As with other social assistance programs, subsidies are often provided to ensure that low-income individuals receive adequate insurance coverage.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 8-1a - Approaches to Insurance DATE CREATED: 2/9/2022 4:55 AM DATE MODIFIED: 2/9/2022 4:56 AM 5. In 5-10 sentences, compare the experience and community-rated approaches to calculating health insurance premiums.

ANSWER: The experience-rated approach to calculate health insurance premiums is based on past spending of a specific group. The community-rated approach is based on the experience of the entire population, where all individuals, regardless of age, gender, risk, or past health spending, pay the same premiums. Many critics argue that the community-rated approach is more equitable, as it makes coverage more accessible to all individuals. In the United States, a combination of the two approaches is used. Among those covered by private insurance prior to the ACA, individuals were grouped into risk pools according to their expected medical care spending. However, within the group, all individuals pay the same premiums. Therefore, the experience-rated approach is used across groups, and the community-rated approach is used within groups.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic

LEARNING OBJECTIVES: 8-1a - Approaches to Insurance DATE CREATED: 2/9/2022 4:57 AM DATE MODIFIED: 2/9/2022 5:01 AM 6. People buy insurance: a. because they are risk-averse. b. to defer consumption. c. because of externalities. d. to maximize their welfare. e. to insure against poor health.

ANSWER: a FEEDBACK: a. Correct. Individuals buy insurance to pool risk. It is the uncertainty of financial loss and the spending associated with that loss that creates a demand for insurance. The more an individual prefers to avoid losses, the more risk-averse they are, and the more they will pay to avoid the loss associated with the insured event. b. Incorrect. Individuals buy insurance to pool risk. It is the uncertainty of financial loss and the spending associated with that loss that creates a demand for insurance. The more an individual prefers to avoid losses, the more risk-averse they are, and the more they will pay to avoid the loss associated with the insured event. c. Incorrect. Individuals buy insurance to pool risk. It is the uncertainty of financial loss and the spending associated with that loss that creates a demand for insurance. The more an individual prefers to avoid losses, the more risk-averse they are, and the more they will pay to avoid the loss associated with the insured event. d. Incorrect. Individuals buy insurance to pool risk. It is the uncertainty of financial loss and the spending associated with that loss that creates a demand for insurance. The more an individual prefers to avoid losses, the more risk-averse they are, and the more they will pay to avoid the loss associated with the insured event. e. Incorrect. Individuals buy insurance to pool risk. It is the uncertainty of financial loss and the spending associated with that loss that creates a demand for insurance. The more an individual prefers to avoid losses, the more risk-averse they are, and the more they will pay to avoid the loss associated with the insured event.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-1b - The Theory of Risk and Insurance DATE CREATED: 2/9/2022 5:02 AM DATE MODIFIED: 2/9/2022 5:05 AM 7. The goal of health insurance is to: a. redistribute income from the sick to the healthy. b. spread risk over a large group of people. c. equally distribute the probability of loss over a large number of people. d. collect sufficient premiums to cover all possible losses. e. equalize the availability of medical care across population groups.

ANSWER: d

FEEDBACK:

a. Incorrect. Insurance is designed to spread the financial consequences of lowprobability, high-cost events across similar individuals in an insurance pool. b. Incorrect. Insurance is designed to spread the financial consequences of lowprobability, high-cost events across similar individuals in an insurance pool. c. Incorrect. Insurance is designed to spread the financial consequences of lowprobability, high-cost events across similar individuals in an insurance pool. d. Correct. Insurance is designed to spread the financial consequences of lowprobability, high-cost events across similar individuals in an insurance pool. e. Incorrect. Insurance is designed to spread the financial consequences of lowprobability, high-cost events across similar individuals in an insurance pool.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-1b - The Theory of Risk and Insurance DATE CREATED: 2/9/2022 5:06 AM DATE MODIFIED: 2/9/2022 5:09 AM 8. Early in U.S. history, health insurance was provided to cover: a. income loss due to disability or disease. b. hospital expenses. c. routine physicians’ services. d. the catastrophic cost of medical care, including hospitalization and physicians’ services. e. medical costs due to specific diseases such as tuberculosis and alcoholism.

ANSWER: a FEEDBACK: a. Correct. The first insurance policies covered loss of income due to accident or disability. Medical care services were limited and thus did not amount to a great deal of expense. The major expense of any prolonged illness was lost income due to absence from work. Health service coverage became available on a regular basis after 1850. b. Incorrect. The first insurance policies covered loss of income due to accident or disability. Medical care services were limited and thus did not amount to a great deal of expense. The major expense of any prolonged illness was lost income due to absence from work. Health service coverage became available on a regular basis after 1850. c. Incorrect. The first insurance policies covered loss of income due to accident or disability. Medical care services were limited and thus did not amount to a great deal of expense. The major expense of any prolonged illness was lost income due to absence from work. Health service coverage became available on a regular basis after 1850. d. Incorrect. The first insurance policies covered loss of income due to accident or disability. Medical care services were limited and thus did not amount to a great deal of expense. The major expense of any prolonged illness was lost income due to absence from work. Health service coverage became available on a regular basis after 1850. e. Incorrect. The first insurance policies covered loss of income due to accident or disability. Medical care services were limited and thus did not amount to a great deal of expense. The major expense of any prolonged illness was lost income due to absence from work. Health service coverage became available on a regular basis after 1850.

POINTS: QUESTION TYPE: HAS VARIABLES:

1 Multiple Choice False

LEARNING OBJECTIVES: 8-2 - The Emergence of Employer-Sponsored Insurance DATE CREATED: 2/9/2022 5:09 AM DATE MODIFIED: 2/9/2022 5:13 AM 9. A prepaid hospital plan created by Baylor Hospital for a group of Dallas public school teachers in 1929 is considered by many to be the forerunner of: a. managed care. b. Blue Cross. c. Blue Shield. d. the health maintenance organization. e. major medical insurance.

ANSWER: b FEEDBACK: a. Incorrect. In 1929, Baylor University Hospital entered into an agreement with the Dallas Independent School District, offering a prepaid plan covering hospital benefits to public school teachers. The coverage included 21 days of hospital care and all related services for a fixed monthly premium. Many consider this agreement to be the forerunner to Blue Cross plans. b. Correct. In 1929, Baylor University Hospital entered into an agreement with the Dallas Independent School District, offering a prepaid plan covering hospital benefits to public school teachers. The coverage included 21 days of hospital care and all related services for a fixed monthly premium. Many consider this agreement to be the forerunner to Blue Cross plans. c. Incorrect. In 1929, Baylor University Hospital entered into an agreement with the Dallas Independent School District, offering a prepaid plan covering hospital benefits to public school teachers. The coverage included 21 days of hospital care and all related services for a fixed monthly premium. Many consider this agreement to be the forerunner to Blue Cross plans. d. Incorrect. In 1929, Baylor University Hospital entered into an agreement with the Dallas Independent School District, offering a prepaid plan covering hospital benefits to public school teachers. The coverage included 21 days of hospital care and all related services for a fixed monthly premium. Many consider this agreement to be the forerunner to Blue Cross plans. e. Incorrect. In 1929, Baylor University Hospital entered into an agreement with the Dallas Independent School District, offering a prepaid plan covering hospital benefits to public school teachers. The coverage included 21 days of hospital care and all related services for a fixed monthly premium. Many consider this agreement to be the forerunner to Blue Cross plans.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-2 - The Emergence of Employer-Sponsored Insurance DATE CREATED: 2/9/2022 5:13 AM DATE MODIFIED: 2/9/2022 5:19 AM 10. Amendments in the mid-1960s to the Social Security Act created: a. managed care. b. Medicare and Medicaid. c. major medical insurance. d. Blue Cross and Blue Shield. e. tax exemptions for health insurance as an employee benefit.

ANSWER: b

FEEDBACK:

a. Incorrect. After repeated failures to develop and pass a nationwide universal insurance plan, Congress passed legislation creating Medicare and Medicaid in 1965. The act received widespread bi-partisan support. The Democrats wanted mandatory participation in a universal coverage paid by taxpayers. The Republicans wanted a voluntary program providing universal access that would be financed by premiums. Providers wanted a safety net to pay for the services of those who could not afford coverage. The compromise created legislation meeting all three stipulations. b. Correct. After repeated failures to develop and pass a nationwide universal insurance plan, Congress passed legislation creating Medicare and Medicaid in 1965. The act received widespread bi-partisan support. The Democrats wanted mandatory participation in a universal coverage paid by taxpayers. The Republicans wanted a voluntary program providing universal access that would be financed by premiums. Providers wanted a safety net to pay for the services of those who could not afford coverage. The compromise created legislation meeting all three stipulations. c. Incorrect. After repeated failures to develop and pass a nationwide universal insurance plan, Congress passed legislation creating Medicare and Medicaid in 1965. The act received widespread bi-partisan support. The Democrats wanted mandatory participation in a universal coverage paid by taxpayers. The Republicans wanted a voluntary program providing universal access that would be financed by premiums. Providers wanted a safety net to pay for the services of those who could not afford coverage. The compromise created legislation meeting all three stipulations. d. Incorrect. After repeated failures to develop and pass a nationwide universal insurance plan, Congress passed legislation creating Medicare and Medicaid in 1965. The act received widespread bi-partisan support. The Democrats wanted mandatory participation in a universal coverage paid by taxpayers. The Republicans wanted a voluntary program providing universal access that would be financed by premiums. Providers wanted a safety net to pay for the services of those who could not afford coverage. The compromise created legislation meeting all three stipulations. e. Incorrect. After repeated failures to develop and pass a nationwide universal insurance plan, Congress passed legislation creating Medicare and Medicaid in 1965. The act received widespread bi-partisan support. The Democrats wanted mandatory participation in a universal coverage paid by taxpayers. The Republicans wanted a voluntary program providing universal access that would be financed by premiums. Providers wanted a safety net to pay for the services of those who could not afford coverage. The compromise created legislation meeting all three stipulations.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-2 - The Emergence of Employer-Sponsored Insurance DATE CREATED: 2/9/2022 5:21 AM DATE MODIFIED: 2/9/2022 5:24 AM 11. A major factor contributing to the growth in employee-based health insurance in the United States has been: a. greater-than-average economic growth leading to increased demand for labor. b. the tax-free treatment of health insurance as an employee benefit. c. the legislation requiring all firms to provide health insurance to all full-time workers. d. the long-standing tradition in the United States of providing a generous package of benefits to all workers.

ANSWER: b FEEDBACK: a. Incorrect. A 1954 Supreme Court ruling provided constitutional standing for

employer-sponsored health insurance premiums as a tax-free employee benefit. This tax exemption is a significant element of employer-sponsored insurance and is responsible for its expansion. The subsidy is worth over $300 billion annually, approximately $2,000 per covered individual. b. Correct. A 1954 Supreme Court ruling provided constitutional standing for employer-sponsored health insurance premiums as a tax-free employee benefit. This tax exemption is a significant element of employer-sponsored insurance and is responsible for its expansion. The subsidy is worth over $300 billion annually, approximately $2,000 per covered individual. c. Incorrect. A 1954 Supreme Court ruling provided constitutional standing for employer-sponsored health insurance premiums as a tax-free employee benefit. This tax exemption is a significant element of employer-sponsored insurance and is responsible for its expansion. The subsidy is worth over $300 billion annually, approximately $2,000 per covered individual. d. Incorrect. A 1954 Supreme Court ruling provided constitutional standing for employer-sponsored health insurance premiums as a tax-free employee benefit. This tax exemption is a significant element of employer-sponsored insurance and is responsible for its expansion. The subsidy is worth over $300 billion annually, approximately $2,000 per covered individual.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-2 - The Emergence of Employer-Sponsored Insurance DATE CREATED: 2/9/2022 5:25 AM DATE MODIFIED: 2/9/2022 5:34 AM 12. One result of asymmetric information in health insurance markets is: a. an optimal number of insurance policies sold. b. adverse selection. c. an externality associated with consumption. d. a low marginal benefit of additional information for the buyer of insurance. e. the principal–agent problem.

ANSWER: b FEEDBACK: a. Incorrect. Adverse selection is an information problem that arises when insurance providers do not have enough information about members of their risk pool to assess the average risk of its members. When insurers are considering new pools to cover, they typically cannot accurately predict the future composition of the pool and thus have no good way to assess the associated risk. b. Correct. Adverse selection is an information problem that arises when insurance providers do not have enough information about members of their risk pool to assess the average risk of its members. When insurers are considering new pools to cover, they typically cannot accurately predict the future composition of the pool and thus have no good way to assess the associated risk. c. Incorrect. Adverse selection is an information problem that arises when insurance providers do not have enough information about members of their risk pool to assess the average risk of its members. When insurers are considering new pools to cover, they typically cannot accurately predict the future composition of the pool and thus have no good way to assess the associated risk. d. Incorrect. Adverse selection is an information problem that arises when insurance providers do not have enough information about members of their

risk pool to assess the average risk of its members. When insurers are considering new pools to cover, they typically cannot accurately predict the future composition of the pool and thus have no good way to assess the associated risk. e. Incorrect. Adverse selection is an information problem that arises when insurance providers do not have enough information about members of their risk pool to assess the average risk of its members. When insurers are considering new pools to cover, they typically cannot accurately predict the future composition of the pool and thus have no good way to assess the associated risk.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-3a - The Consequences of Information Problems DATE CREATED: 2/9/2022 5:35 AM DATE MODIFIED: 2/9/2022 5:39 AM 13. Moral hazard and adverse selection are both examples of: a. the principal–agent problem. b. externalities in consumption. c. efficiency in markets. d. perfect information. e. asymmetric information.

ANSWER: e FEEDBACK: a. Incorrect. Moral hazard and adverse selection are both examples of an unequal distribution of information between the parties involved in a transaction. In both cases, the party with less information is at a disadvantage in determining the terms of the transaction. b. Incorrect. Moral hazard and adverse selection are both examples of an unequal distribution of information between the parties involved in a transaction. In both cases, the party with less information is at a disadvantage in determining the terms of the transaction. c. Incorrect. Moral hazard and adverse selection are both examples of an unequal distribution of information between the parties involved in a transaction. In both cases, the party with less information is at a disadvantage in determining the terms of the transaction. d. Incorrect. Moral hazard and adverse selection are both examples of an unequal distribution of information between the parties involved in a transaction. In both cases, the party with less information is at a disadvantage in determining the terms of the transaction. e. Correct. Moral hazard and adverse selection are both examples of an unequal distribution of information between the parties involved in a transaction. In both cases, the party with less information is at a disadvantage in determining the terms of the transaction.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-3a - The Consequences of Information Problems DATE CREATED: 2/9/2022 5:39 AM DATE MODIFIED: 2/9/2022 5:42 AM

14. Insurers try to minimize moral hazard by: a. only selling policies to individuals with high ethical standards. b. requiring advance payments of premiums. c. charging higher premiums to individuals than to groups. d. charging deductibles and coinsurance. e. refusing to sell insurance to individuals with chronic illnesses.

ANSWER: d FEEDBACK: a. Incorrect. Expanding cost-conscious decision making on the part of consumers decreases the effects of moral hazard. Through the charging of deductibles and coinsurance, consumers must pay more out of pocket and are forced into assuming more responsibility for their individual decisions concerning consumption of health care services. b. Incorrect. Expanding cost-conscious decision making on the part of consumers decreases the effects of moral hazard. Through the charging of deductibles and coinsurance, consumers must pay more out of pocket and are forced into assuming more responsibility for their individual decisions concerning consumption of health care services. c. Incorrect. Expanding cost-conscious decision making on the part of consumers decreases the effects of moral hazard. Through the charging of deductibles and coinsurance, consumers must pay more out of pocket and are forced into assuming more responsibility for their individual decisions concerning consumption of health care services. d. Correct. Expanding cost-conscious decision making on the part of consumers decreases the effects of moral hazard. Through the charging of deductibles and coinsurance, consumers must pay more out of pocket and are forced into assuming more responsibility for their individual decisions concerning consumption of health care services. e. Incorrect. Expanding cost-conscious decision making on the part of consumers decreases the effects of moral hazard. Through the charging of deductibles and coinsurance, consumers must pay more out of pocket and are forced into assuming more responsibility for their individual decisions concerning consumption of health care services.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-3a - The Consequences of Information Problems DATE CREATED: 2/9/2022 5:43 AM DATE MODIFIED: 2/9/2022 5:46 AM 15. All of the following are the results of moral hazard, except: a. Deductibles and coinsurance b. Increased medical care spending c. Increased likelihood of visiting a physician d. Higher health insurance premiums e. Rational ignorance ANSWER: e FEEDBACK: a. Incorrect. Moral hazard is the result of insurance coverage increasing the likelihood of making a medical claim and the amount spent on the medical event. Knowing moral hazard exists, insurance companies charge higher premiums and require deductibles and coinsurance. Rational ignorance is a phenomenon whereby individuals stop gathering information about a future decision (often a transaction of some sort) because the cost of gathering the

information exceeds the benefits of possessing the additional information.

b. Incorrect. Moral hazard is the result of insurance coverage increasing the likelihood of making a medical claim and the amount spent on the medical event. Knowing moral hazard exists, insurance companies charge higher premiums and require deductibles and coinsurance. Rational ignorance is a phenomenon whereby individuals stop gathering information about a future decision (often a transaction of some sort) because the cost of gathering the information exceeds the benefits of possessing the additional information. c. Incorrect. Moral hazard is the result of insurance coverage increasing the likelihood of making a medical claim and the amount spent on the medical event. Knowing moral hazard exists, insurance companies charge higher premiums and require deductibles and coinsurance. Rational ignorance is a phenomenon whereby individuals stop gathering information about a future decision (often a transaction of some sort) because the cost of gathering the information exceeds the benefits of possessing the additional information. d. Incorrect. Moral hazard is the result of insurance coverage increasing the likelihood of making a medical claim and the amount spent on the medical event. Knowing moral hazard exists, insurance companies charge higher premiums and require deductibles and coinsurance. Rational ignorance is a phenomenon whereby individuals stop gathering information about a future decision (often a transaction of some sort) because the cost of gathering the information exceeds the benefits of possessing the additional information. e. Correct. Moral hazard is the result of insurance coverage increasing the likelihood of making a medical claim and the amount spent on the medical event. Knowing moral hazard exists, insurance companies charge higher premiums and require deductibles and coinsurance. Rational ignorance is a phenomenon whereby individuals stop gathering information about a future decision (often a transaction of some sort) because the cost of gathering the information exceeds the benefits of possessing the additional information.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-3a - The Consequences of Information Problems DATE CREATED: 2/9/2022 5:46 AM DATE MODIFIED: 2/9/2022 5:50 AM 16. Which of the following results from patients having better information about their health status than insurers? a. The principle–agent problem b. Rational ignorance c. Externalities d. The substitution effect e. Adverse selection ANSWER: e FEEDBACK: a. Incorrect. Adverse selection in medical markets is the inability of insurers to predict accurately the average risk of their risk pools from year to year. When they do not know the number of high-risk patients, they may underestimate the average risk and the premiums they charge will be too low to guarantee the solvency of the pool. b. Incorrect. Adverse selection in medical markets is the inability of insurers to predict accurately the average risk of their risk pools from year to year. When they do not know the number of high-risk patients, they may underestimate the average risk and the premiums they charge will be too low to guarantee the solvency of the pool.

c. Incorrect. Adverse selection in medical markets is the inability of insurers to predict accurately the average risk of their risk pools from year to year. When they do not know the number of high-risk patients, they may underestimate the average risk and the premiums they charge will be too low to guarantee the solvency of the pool. d. Incorrect. Adverse selection in medical markets is the inability of insurers to predict accurately the average risk of their risk pools from year to year. When they do not know the number of high-risk patients, they may underestimate the average risk and the premiums they charge will be too low to guarantee the solvency of the pool. e. Correct. Adverse selection in medical markets is the inability of insurers to predict accurately the average risk of their risk pools from year to year. When they do not know the number of high-risk patients, they may underestimate the average risk and the premiums they charge will be too low to guarantee the solvency of the pool.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-3a - The Consequences of Information Problems DATE CREATED: 2/9/2022 5:51 AM DATE MODIFIED: 2/9/2022 5:54 AM 17. A person with AIDS has a guaranteed right to apply for health insurance and receive coverage at the same rate as a healthy person. What is the likely result for the insurance company? a. The principle–agent problem b. Rational ignorance c. Externalities d. Adverse selection e. The substitution effect ANSWER: d FEEDBACK: a. Incorrect. Adverse selection in medical markets is the inability of insurers to predict accurately the composition of their risk pools from year to year. When chronically ill patients receive guaranteed access, the average risk of a pool increases and premiums rise. As premiums are substantially higher than expected spending, some individuals may consider leaving the pool. b. Incorrect. Adverse selection in medical markets is the inability of insurers to predict accurately the composition of their risk pools from year to year. When chronically ill patients receive guaranteed access, the average risk of a pool increases and premiums rise. As premiums are substantially higher than expected spending, some individuals may consider leaving the pool. c. Incorrect. Adverse selection in medical markets is the inability of insurers to predict accurately the composition of their risk pools from year to year. When chronically ill patients receive guaranteed access, the average risk of a pool increases and premiums rise. As premiums are substantially higher than expected spending, some individuals may consider leaving the pool. d. Correct. Adverse selection in medical markets is the inability of insurers to predict accurately the composition of their risk pools from year to year. When chronically ill patients receive guaranteed access, the average risk of a pool increases and premiums rise. As premiums are substantially higher than expected spending, some individuals may consider leaving the pool. e. Incorrect. Adverse selection in medical markets is the inability of insurers to predict accurately the composition of their risk pools from year to year. When chronically ill patients receive guaranteed access, the average risk of a pool

increases and premiums rise. As premiums are substantially higher than expected spending, some individuals may consider leaving the pool.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-3a - The Consequences of Information Problems DATE CREATED: 2/9/2022 5:55 AM DATE MODIFIED: 2/9/2022 5:58 AM 18. Insurance works best in situations where: a. there is a high probability of a small loss. b. there is a low probability of a small loss. c. there is a high probability of a large loss. d. there is a low probability of a large loss. e. the level of probability and the size of the loss are irrelevant.

ANSWER: d FEEDBACK: a. Incorrect. Insurance is designed to spread financial consequences of lowprobability, high-cost events across similar individuals in an insurance pool.

The insurer must collect an amount equal to the expected spending on the covered events plus an amount that covers the overhead and administrative expenses of the operation plus any expected profit (together equal to approximately 15 percent of total premiums collected). b. Incorrect. Insurance is designed to spread financial consequences of lowprobability, high-cost events across similar individuals in an insurance pool.

The insurer must collect an amount equal to the expected spending on the covered events plus an amount that covers the overhead and administrative expenses of the operation plus any expected profit (together equal to approximately 15 percent of total premiums collected). c. Incorrect. Insurance is designed to spread financial consequences of lowprobability, high-cost events across similar individuals in an insurance pool.

The insurer must collect an amount equal to the expected spending on the covered events plus an amount that covers the overhead and administrative expenses of the operation plus any expected profit (together equal to approximately 15 percent of total premiums collected). d. Correct. Insurance is designed to spread financial consequences of lowprobability, high-cost events across similar individuals in an insurance pool.

The insurer must collect an amount equal to the expected spending on the covered events plus an amount that covers the overhead and administrative expenses of the operation plus any expected profit (together equal to approximately 15 percent of total premiums collected). e. Incorrect. Insurance is designed to spread financial consequences of lowprobability, high-cost events across similar individuals in an insurance pool.

The insurer must collect an amount equal to the expected spending on the covered events plus an amount that covers the overhead and administrative expenses of the operation plus any expected profit (together equal to approximately 15 percent of total premiums collected).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-3a - The Consequences of Information Problems DATE CREATED: 2/9/2022 5:59 AM DATE MODIFIED: 2/9/2022 6:02 AM

19. Suppose a group of 100 people seeks out an insurance company to underwrite health insurance for its members. The expected medical spending for the group is $150,000. What will the average premium be if the health insurance company estimates the premium adding net loading costs of 15 percent? a. $1,200 b. $1,500 c. $1,725 d. $1,765 e. $2,250 ANSWER: d FEEDBACK: a. Incorrect. The premium calculation is [(150,000/100)/(1 – 0.15)]. b. Incorrect. The premium calculation is [(150,000/100)/(1 – 0.15)]. c. Incorrect. The premium calculation is [(150,000/100)/(1 – 0.15)]. d. Correct. The premium calculation is [(150,000/100)/(1 – 0.15)]. e. Incorrect. The premium calculation is [(150,000/100)/(1 – 0.15)].

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-3a - The Consequences of Information Problems DATE CREATED: 2/9/2022 6:02 AM DATE MODIFIED: 2/9/2022 6:05 AM 20. Suppose a group of 100 people seeks out an insurance company to underwrite health insurance for its members. The expected medical spending for the group is $150,000. If an additional 10 people who have expected medical spending of $5,000 per person on average join the group, the new premium will be approximately: a. $1,818. b. $2,090. c. $2,139. d. $2,300. e. $5,822.

ANSWER: c FEEDBACK: a. Incorrect. The premium calculation is [(150,000 + 50,000)/110/(1 – 0.15)]. b. Incorrect. The premium calculation is [(150,000 + 50,000)/110/(1 – 0.15)]. c. Correct. The premium calculation is [(150,000 + 50,000)/110/(1 – 0.15)]. d. Incorrect. The premium calculation is [(150,000 + 50,000)/110/(1 – 0.15)]. e. Incorrect. The premium calculation is [(150,000 + 50,000)/110/(1 – 0.15)].

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-3a - The Consequences of Information Problems DATE CREATED: 2/9/2022 6:05 AM DATE MODIFIED: 2/9/2022 6:08 AM 21. Describe the main consumer information problems in the health care market.

ANSWER: It is difficult for consumers to gather and comprehend the necessary information to make rational and informed decisions concerning health care services. Much of the important

information is complicated and technical, and physicians undergo extensive training to learn how to interpret it. Moreover, information on health care services is not readily available, and consumers tend to rely more on word of mouth from other consumers as well as on health care websites. However, the majority simply defer to their physician to make all the necessary decisions. There is also a lack of price transparency in the health care market, and consumers are unable to make cost-conscious decisions when choosing between services and providers.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 8-3a - The Consequences of Information Problems DATE CREATED: 2/9/2022 6:09 AM DATE MODIFIED: 2/9/2022 6:10 AM 22. In 4-8 sentences, explain the problem of moral hazard in the health care market.

ANSWER: Moral hazard exists whenever there is the opportunity to gain from acting differently from the details set down in a contract. As it is possible for individuals to hide private actions or risk-taking behavior, there are often informational asymmetries between the signing parties of health insurance contracts. By withholding these details, individuals are engaging in economic opportunism and will receive coverage at a reduced price. Moreover, once individuals are fully insured, there is both an increased likelihood that they will purchase more health services and spend more in the event of an illness or injury.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 8-3a - The Consequences of Information Problems DATE CREATED: 2/9/2022 6:10 AM DATE MODIFIED: 2/9/2022 6:11 AM 23. Analysts cite figures on the number of uninsured in the United States as low as 10 million and as high as 60 million.

Which of the following is a true statement? a. The uninsured are all free riders. b. Most of the uninsured have health problems and are not able to get private health insurance. c. Most of the uninsured have some labor-force connection—either they are working or are a dependent of someone who is working. d. The lack of health insurance means that the individual has virtually no access to medical care. e. Once you lose your health insurance, it is extremely difficult to get reinsured.

ANSWER: c FEEDBACK: a. Incorrect. Almost 75 percent of the uninsured in 2015 lived in households that had family incomes over $25,000, and two-thirds of those lived in households earning over $50,000. In reality, most uninsured may be classified as working poor. b. Incorrect. Almost 75 percent of the uninsured in 2015 lived in households that had family incomes over $25,000, and two-thirds of those lived in households earning over $50,000. In reality, most uninsured may be classified as working poor. c. Correct. Almost 75 percent of the uninsured in 2015 lived in households that had family incomes over $25,000, and two-thirds of those lived in households

earning over $50,000. In reality, most uninsured may be classified as working poor. d. Incorrect. Almost 75 percent of the uninsured in 2015 lived in households that had family incomes over $25,000, and two-thirds of those lived in households earning over $50,000. In reality, most uninsured may be classified as working poor. e. Incorrect. Almost 75 percent of the uninsured in 2015 lived in households that had family incomes over $25,000, and two-thirds of those lived in households earning over $50,000. In reality, most uninsured may be classified as working poor.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-4b - Counting the Uninsured DATE CREATED: 2/9/2022 6:12 AM DATE MODIFIED: 2/9/2022 6:15 AM 24. Which age category has the highest incidence of those without health insurance? a. Under 19 years of age b. 19–34 years of age c. 35–44 years of age d. 45–64 years of age e. Over 65 years of age ANSWER: d FEEDBACK: a. Incorrect. The largest category of uninsured are between the ages of 45 and 64 and account for 28 percent of the total uninsured. 35- to 44-year-olds make up only 22 percent of the total uninsured. b. Incorrect. The largest category of uninsured are between the ages of 45 and 64 and account for 28 percent of the total uninsured. 35- to 44-year-olds make up only 22 percent of the total uninsured. c. Incorrect. The largest category of uninsured are between the ages of 45 and 64 and account for 28 percent of the total uninsured. 35- to 44-year-olds make up only 22 percent of the total uninsured. d. Correct. The largest category of uninsured are between the ages of 45 and 64 and account for 28 percent of the total uninsured. 35- to 44-year-olds make up only 22 percent of the total uninsured. e. Incorrect. The largest category of uninsured are between the ages of 45 and 64 and account for 28 percent of the total uninsured. 35- to 44-year-olds make up only 22 percent of the total uninsured.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-4b - Counting the Uninsured DATE CREATED: 2/9/2022 6:19 AM DATE MODIFIED: 2/9/2022 6:22 AM 25. In 4-8 sentences, describe some of the small group factors that contribute to the number of uninsured individuals.

ANSWER: Many uninsured individuals work for small firms that cannot afford to provide their employees with health benefits. Insurance companies tend to charge them higher general and administration rates, as well as selling expenses and commission costs. Because of

their small size, they are perceived as having a greater risk without the ability to spread the risk out over a larger group. As a result, premiums are often unaffordable for small firms, and the same size restriction prevents them from pursuing a self-insurance scheme. Finally, small firms tend to pay their employees lower wages, which further reduces the likelihood of their purchasing an insurance package.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 8-4b - Counting the Uninsured DATE CREATED: 2/9/2022 6:22 AM DATE MODIFIED: 2/9/2022 6:23 AM 26. Many individuals without health insurance receive “free” care. Which providers supply most of the health services they receive? a. Public hospitals and clinics b. Private, not-for-profit hospitals c. Private, for-profit hospitals d. Multi-specialty physicians’ practices e. Solo practitioners and their associates ANSWER: a FEEDBACK: a. Correct. Fewer than 10 percent of the nation’s large public hospitals provide more than one-half of all free care for the uninsured and indigent. Municipal budgets finance most of this free care, with the remainder covered by Medicare and Medicaid subsidies. b. Incorrect. Fewer than 10 percent of the nation’s large public hospitals provide more than one-half of all free care for the uninsured and indigent. Municipal budgets finance most of this free care, with the remainder covered by Medicare and Medicaid subsidies. c. Incorrect. Fewer than 10 percent of the nation’s large public hospitals provide more than one-half of all free care for the uninsured and indigent. Municipal budgets finance most of this free care, with the remainder covered by Medicare and Medicaid subsidies. d. Incorrect. Fewer than 10 percent of the nation’s large public hospitals provide more than one-half of all free care for the uninsured and indigent. Municipal budgets finance most of this free care, with the remainder covered by Medicare and Medicaid subsidies. e. Incorrect. Fewer than 10 percent of the nation’s large public hospitals provide more than one-half of all free care for the uninsured and indigent. Municipal budgets finance most of this free care, with the remainder covered by Medicare and Medicaid subsidies.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 8-4c - The Safety Net for the Uninsured DATE CREATED: 2/9/2022 6:24 AM DATE MODIFIED: 2/9/2022 6:28 AM

Chapter 09: Managed Care 1. In 2003, Congress passed a bill that created a new type of managed care plan that for the first time combined health insurance plans with a consumer-based health savings account. What was the name given to this health plan? a. Health maintenance organization (HMO) b. Preferred Provider Organization (PPO) c. Consumer-directed health plans (CDHP) d. Point-of-service plans (POS) e. Cafeteria plan ANSWER: c FEEDBACK: a. Incorrect. A consumer-directed health plan (CDHP) combines a health savings account (HSA) with a high deductible insurance policy (HDHP). It was created by the Medicare Prescription Drug Improvement and Modernization Act of 2003. These plans were first made available in January 2005. A cafeteria plan is generally offered by an employer to its employees to cover a range of benefits, which may also include health plans. b. Incorrect. A consumer-directed health plan (CDHP) combines a health savings account with a high deductible insurance policy (HDHP). It was created by the Medicare Prescription Drug Improvement and Modernization Act of 2003.

These plans were first made available in January 2005. A cafeteria plan is generally offered by an employer to its employees to cover a range of benefits, which may also include health plans. c. Correct. A consumer-directed health plan (CDHP) combines a health savings account with a high deductible insurance policy (HDHP). It was created by the Medicare Prescription Drug Improvement and Modernization Act of 2003.

These plans were first made available in January 2005. A cafeteria plan is generally offered by an employer to its employees to cover a range of benefits, which may also include health plans. d. Incorrect. A consumer-directed health plan (CDHP) combines a health savings account with a high deductible insurance policy (HDHP). It was created by the Medicare Prescription Drug Improvement and Modernization Act of 2003.

These plans were first made available in January 2005. A cafeteria plan is generally offered by an employer to its employees to cover a range of benefits, which may also include health plans. e. Incorrect. A consumer-directed health plan (CDHP) combines a health savings account with a high deductible insurance policy (HDHP). It was created by the Medicare Prescription Drug Improvement and Modernization Act of 2003.

These plans were first made available in January 2005. A cafeteria plan is generally offered by an employer to its employees to cover a range of benefits, which may also include health plans.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 9-1 - The History of Managed Care DATE CREATED: 2/14/2022 3:52 AM DATE MODIFIED: 2/14/2022 4:19 AM 2. Kaiser-Permanente, the nation’s largest health maintenance organization, was founded: a. to provide cost-effective medical care to Kaiser employees. b. to provide access to medical care to Kaiser workers in remote locations where medical services were in short supply. c. to slow the rate of growth in medical spending for Kaiser employees. d. as a group-model health maintenance organization.

e. as a network-model health maintenance organization.

ANSWER: b FEEDBACK: a. Incorrect. Industrialist Henry J. Kaiser established one of the first managed care organizations to provide medical care to employees working in Kaiser steel mills and shipyards located in geographically isolated areas in northern California. The operation was opened to non-Kaiser employees in 1947. b. Correct. Industrialist Henry J. Kaiser established one of the first managed care organizations to provide medical care to employees working in Kaiser steel mills and shipyards located in geographically isolated areas in northern California. The operation was opened to non-Kaiser employees in 1947. c. Incorrect. Industrialist Henry J. Kaiser established one of the first managed care organizations to provide medical care to employees working in Kaiser steel mills and shipyards located in geographically isolated areas in northern California. The operation was opened to non-Kaiser employees in 1947. d. Incorrect. Industrialist Henry J. Kaiser established one of the first managed care organizations to provide medical care to employees working in Kaiser steel mills and shipyards located in geographically isolated areas in northern California. The operation was opened to non-Kaiser employees in 1947. e. Incorrect. Industrialist Henry J. Kaiser established one of the first managed care organizations to provide medical care to employees working in Kaiser steel mills and shipyards located in geographically isolated areas in northern California. The operation was opened to non-Kaiser employees in 1947.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 9-1 - The History of Managed Care DATE CREATED: 2/14/2022 4:09 AM DATE MODIFIED: 2/14/2022 4:14 AM 3. A health maintenance organization (HMO) where the physicians are salaried employees is called: a. a group-model health maintenance organization. b. a staff-model health maintenance organization. c. a network-model health maintenance organization. d. an independent practice association. e. a direct-contract health maintenance organization.

ANSWER: b FEEDBACK: a. Incorrect. In a staff-model health maintenance organization, access to clinical services is provided at facilities owned and operated by the managed care company. Clinical staff, including physicians, are usually employees of the organization. b. Correct. In a staff-model health maintenance organization, access to clinical services is provided at facilities owned and operated by the managed care company. Clinical staff, including physicians, are usually employees of the organization. c. Incorrect. In a staff-model health maintenance organization, access to clinical services is provided at facilities owned and operated by the managed care company. Clinical staff, including physicians, are usually employees of the organization. d. Incorrect. In a staff-model health maintenance organization, access to clinical services is provided at facilities owned and operated by the managed care company. Clinical staff, including physicians, are usually employees of the organization.

e. Incorrect. In a staff-model health maintenance organization, access to clinical services is provided at facilities owned and operated by the managed care company. Clinical staff, including physicians, are usually employees of the organization.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 9-2 - Types of Managed Care Organizations DATE CREATED: 2/14/2022 4:15 AM DATE MODIFIED: 2/28/2022 6:44 AM 4. A health maintenance organization (HMO) that contracts with individual physicians or group practices to provide care for a specified group of enrollees is called: a. a group-model health maintenance organization. b. a staff-model health maintenance organization. c. a network-model health maintenance organization. d. an independent practice association. e. a direct-contract health maintenance organization.

ANSWER: d FEEDBACK: a. Incorrect. Physicians practicing in an independent practice association (IPA) usually contract with several managed care plans to treat members of those plans while, at the same time, maintaining a practice where they see patients who are enrolled in other types of plans. b. Incorrect. Physicians practicing in an independent practice association (IPA) usually contract with several managed care plans to treat members of those plans while, at the same time, maintaining a practice where they see patients who are enrolled in other types of plans. c. Incorrect. Physicians practicing in an independent practice association (IPA) usually contract with several managed care plans to treat members of those plans while, at the same time, maintaining a practice where they see patients who are enrolled in other types of plans. d. Correct. Physicians practicing in an independent practice association (IPA) usually contract with several managed care plans to treat members of those plans while, at the same time, maintaining a practice where they see patients who are enrolled in other types of plans. e. Incorrect. Physicians practicing in an independent practice association (IPA) usually contract with several managed care plans to treat members of those plans while, at the same time, maintaining a practice where they see patients who are enrolled in other types of plans.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 9-2 - Types of Managed Care Organizations DATE CREATED: 2/14/2022 4:20 AM DATE MODIFIED: 2/28/2022 6:45 AM 5. By 2020, most large employers were offering a health savings account/ high-deductible health plan (HDHP) option, and over 30 percent of workers with employer-sponsored insurance had enrolled in one. Their popularity is largely due to two factors: coverage and cost. In your opinion, are consumer-directed health plans good or bad for the consumer?

ANSWER: It all depends on risk, both to one’s health and to their finances. High-deductible health plans can be good because they tend to have lower premiums than preferred provider

organizations, but their deductibles are higher. Also, they save employers by not requiring that they pay as much for health care. And when the employer chips in to an employee’s health savings account, it can be an added incentive. The traditional system, built on costplus reimbursement and first dollar coverage, is designed to encourage consumption and spending. The top-down approach to spending control is a formula for failure. Costconscious behavior as within a high-deductible health plan (HDHP) begins when consumers spend their own money.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 9-2 - Types of Managed Care Organizations DATE CREATED: 2/14/2022 4:24 AM DATE MODIFIED: 2/28/2022 6:46 AM 6. Long-term trends for private employer-sponsored insurance indicate that: a. the continued popularity of the preferred provider organization is reflected by the fact that it is still the fastest growing form of insurance. b. there is a resurgence in the popularity of traditional indemnity insurance coverage. c. the high-deductible health plan (HDHP) is now the most popular form of insurance for private sector employees covered by group plans. d. almost one-third of private sector employees covered by group plans are enrolled in some form of highdeductible health plan. e. enrollment in the staff-model health maintenance organization is becoming more popular.

ANSWER: d FEEDBACK: a. Incorrect. All forms of employer-sponsored group coverage are experiencing decreased popularity relative to the high-deductible health plan. With almost 30 percent of employees enrolled in high-deductible health plans, it is the second most popular form of insurance coverage for employees enrolled in group plans. b. Incorrect. All forms of employer-sponsored group coverage are experiencing decreased popularity relative to the high-deductible health plan. With almost 30 percent of employees enrolled in high-deductible health plans, it is the second most popular form of insurance coverage for employees enrolled in group plans. c. Incorrect. All forms of employer-sponsored group coverage are experiencing decreased popularity relative to the high-deductible health plan. With almost 30 percent of employees enrolled in high-deductible health plans, it is the second most popular form of insurance coverage for employees enrolled in group plans. d. Correct. All forms of employer-sponsored group coverage are experiencing decreased popularity relative to the high-deductible health plan. With almost 30 percent of employees enrolled in high-deductible health plans, it is the second most popular form of insurance coverage for employees enrolled in group plans. e. Incorrect. All forms of employer-sponsored group coverage are experiencing decreased popularity relative to the high-deductible health plan. With almost 30 percent of employees enrolled in high-deductible health plans, it is the second most popular form of insurance coverage for employees enrolled in group plans.

POINTS: QUESTION TYPE:

1 Multiple Choice

HAS VARIABLES: False LEARNING OBJECTIVES: 9-2 - Types of Managed Care Organizations DATE CREATED: 2/14/2022 4:25 AM DATE MODIFIED: 2/28/2022 6:48 AM 7. Managed care: a. provides retrospective payment determined by the number of services provided to a patient. b. recognizes and maintains separate responsibilities for the payer and the provider of medical services. c. provides a mechanism that shifts a portion of the financial risk onto patients and providers. d. focuses cost-containment strategies on the provider side of the market. e. is becoming less widespread in medical care delivery.

ANSWER: c FEEDBACK: a. Incorrect. Risk sharing is an important mechanism used in managed care to control spending. Managed care organizations are expanding the use of risksharing arrangements where patient and provider bear some of the consequences of excessive spending. Supply-side strategies include selective contracting, risk sharing, and utilization review. Demand-side strategies include deductibles and coinsurance to control moral hazard. b. Incorrect. Risk sharing is an important mechanism used in managed care to control spending. Managed care organizations are expanding the use of risksharing arrangements where patient and provider bear some of the consequences of excessive spending. Supply-side strategies include selective contracting, risk sharing, and utilization review. Demand-side strategies include deductibles and coinsurance to control moral hazard. c. Correct. Risk sharing is an important mechanism used in managed care to control spending. Managed care organizations are expanding the use of risksharing arrangements where patient and provider bear some of the consequences of excessive spending. Supply-side strategies include selective contracting, risk sharing, and utilization review. Demand-side strategies include deductibles and coinsurance to control moral hazard. d. Incorrect. Risk sharing is an important mechanism used in managed care to control spending. Managed care organizations are expanding the use of risksharing arrangements where patient and provider bear some of the consequences of excessive spending. Supply-side strategies include selective contracting, risk sharing, and utilization review. Demand-side strategies include deductibles and coinsurance to control moral hazard. e. Incorrect. Risk sharing is an important mechanism used in managed care to control spending. Managed care organizations are expanding the use of risksharing arrangements where patient and provider bear some of the consequences of excessive spending. Supply-side strategies include selective contracting, risk sharing, and utilization review. Demand-side strategies include deductibles and coinsurance to control moral hazard.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 9-4b - Risk-Sharing Arrangements DATE CREATED: 2/14/2022 4:31 AM DATE MODIFIED: 2/28/2022 6:49 AM 8. Capitated payments: a. create incentives to provide fewer services. b. pay for all medically necessary care.

c. are the maximum allowable fees in a fee-for-service system. d. shift financial risk onto patients. e. are charges that providers include in bills sent to insurance companies.

ANSWER: a FEEDBACK: a. Correct. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. Patients that use more services represent a net financial burden on the provider. The most valuable patient ends up being the one that the physician never sees. b. Incorrect. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. Patients that use more services represent a net financial burden on the provider. The most valuable patient ends up being the one that the physician never sees. c. Incorrect. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. Patients that use more services represent a net financial burden on the provider. The most valuable patient ends up being the one that the physician never sees. d. Incorrect. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. Patients that use more services represent a net financial burden on the provider. The most valuable patient ends up being the one that the physician never sees. e. Incorrect. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. Patients that use more services represent a net financial burden on the provider. The most valuable patient ends up being the one that the physician never sees.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 9-4b - Risk-Sharing Arrangements DATE CREATED: 2/14/2022 4:34 AM DATE MODIFIED: 2/28/2022 6:49 AM 9. Managed care plans often use what type of payment system to shift financial risk back onto providers? a. Capitation b. Practice guidelines c. Open panels d. Closed panels e. Formularies ANSWER: a FEEDBACK: a. Correct. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. By setting the amount the provider receives in advance and specifying the benefits covered, the risk of overspending on services falls on the provider. b. Incorrect. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. By setting the amount the provider receives in advance and specifying the benefits covered, the risk of overspending on

services falls on the provider.

c. Incorrect. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. By setting the amount the provider receives in advance and specifying the benefits covered, the risk of overspending on services falls on the provider. d. Incorrect. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. By setting the amount the provider receives in advance and specifying the benefits covered, the risk of overspending on services falls on the provider. e. Incorrect. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. By setting the amount the provider receives in advance and specifying the benefits covered, the risk of overspending on services falls on the provider.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 9-4b - Risk-Sharing Arrangements DATE CREATED: 2/14/2022 4:38 AM DATE MODIFIED: 2/28/2022 6:50 AM 10. The most important aspect of the change from fee-for-service to capitation is that: a. physicians get their money quicker. b. patients get faster service since physicians don’t have to worry about getting paid. c. physicians make less money. d. the most valuable patient is no longer the sickest, but the healthiest.

ANSWER: d FEEDBACK: a. Incorrect. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. Patients that use more services represent a net financial burden on the provider. The most valuable patient ends up being the one that the physician never sees. b. Incorrect. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. Patients that use more services represent a net financial burden on the provider. The most valuable patient ends up being the one that the physician never sees. c. Incorrect. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. Patients that use more services represent a net financial burden on the provider. The most valuable patient ends up being the one that the physician never sees. d. Correct. Capitation is a fixed fee paid to the provider in advance for all medically necessary medical services. The provider receives no additional payment beyond the preset fee. Patients that use more services represent a net financial burden on the provider. The most valuable patient ends up being the one that the physician never sees.

POINTS: QUESTION TYPE: HAS VARIABLES:

1 Multiple Choice False

LEARNING OBJECTIVES: 9-4b - Risk-Sharing Arrangements DATE CREATED: 2/14/2022 4:46 AM DATE MODIFIED: 2/28/2022 6:51 AM 11. Anyone who has used health insurance in the United States is confronted with a list of vocabulary terms, such as deductibles, copays, coinsurance, primary care, etc. In addition, managed care uses a combination of provider-side provisions to control moral hazard and the spending associated with it. These provider-side provisions include (1) selective contracting, (2) utilization review, and (3) risk-sharing. Define selective contracting and feel free to use personal experiences in your response.

ANSWER: Selective contracting is an arrangement where health plan administrators contract with a select group of providers who agree on a predetermined fee schedule and certain medical practice patterns in return for a guaranteed patient cohort. In practice, this can be an undue burden for consumers, requiring that consumers have to go through “gatekeepers”—or, in some cases, closed panels—before they can ever see a physician or if they have billing disputes.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 9-4a - Selective Contracting DATE CREATED: 2/14/2022 4:52 AM DATE MODIFIED: 2/28/2022 6:52 AM 12. Which type of managed care organization has the strictest cost control features? a. Group-model health maintenance organization b. independent practice association c. Point-of-service plan d. Closed-panel health maintenance organization e. Preferred provider organization ANSWER: d FEEDBACK: a. Incorrect. A closed panel indicates that the number of providers that accept the insurance plan as payment for services is limited to those on the list (panel).

Patient choice of provider is thus limited to a select group of providers. Going outside the panel can be much more costly for the patient. b. Incorrect. A closed panel indicates that the number of providers that accept the insurance plan as payment for services is limited to those on the list (panel).

Patient choice of provider is thus limited to a select group of providers. Going outside the panel can be much more costly for the patient. c. Incorrect. A closed panel indicates that the number of providers that accept the insurance plan as payment for services is limited to those on the list (panel).

Patient choice of provider is thus limited to a select group of providers. Going outside the panel can be much more costly for the patient. d. Correct. A closed panel indicates that the number of providers that accept the insurance plan as payment for services is limited to those on the list (panel).

Patient choice of provider is thus limited to a select group of providers. Going outside the panel can be much more costly for the patient. e. Incorrect. A closed panel indicates that the number of providers that accept the insurance plan as payment for services is limited to those on the list (panel).

Patient choice of provider is thus limited to a select group of providers. Going outside the panel can be much more costly for the patient.

POINTS:

1

QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 9-4a - Selective Contracting DATE CREATED: 2/14/2022 4:53 AM DATE MODIFIED: 2/28/2022 6:52 AM 13. What is the motivation behind the cost-control features of managed care? a. To ensure access to specialty care through general practitioner gatekeepers b. To influence the way physicians practice medicine by changing the financial incentive structure of medical care delivery c. To shift the financial risk onto patients d. To eliminate all the guesswork from diagnoses by establishing practice guidelines e. To create competition by providing patients with a wide range of providers ANSWER: b FEEDBACK: a. Incorrect. The objective of managed care is to provide a low-cost alternative to the traditional delivery mechanism dominated by fee-for-service medicine. A number of provisions are used to control spending: selective contracting, risk sharing, and utilization review—all attempts to provide incentives to both patient and provider to incorporate more cost-conscious behavior into their decisions. b. Correct. The objective of managed care is to provide a low-cost alternative to the traditional delivery mechanism dominated by fee-for-service medicine. A number of provisions are used to control spending: selective contracting, risk sharing, and utilization review—all attempts to provide incentives to both patient and provider to incorporate more cost-conscious behavior into their decisions. c. Incorrect. The objective of managed care is to provide a low-cost alternative to the traditional delivery mechanism dominated by fee-for-service medicine. A number of provisions are used to control spending: selective contracting, risk sharing, and utilization review—all attempts to provide incentives to both patient and provider to incorporate more cost-conscious behavior into their decisions. d. Incorrect. The objective of managed care is to provide a low-cost alternative to the traditional delivery mechanism dominated by fee-for-service medicine. A number of provisions are used to control spending: selective contracting, risk sharing, and utilization review—all attempts to provide incentives to both patient and provider to incorporate more cost-conscious behavior into their decisions. e. Incorrect. The objective of managed care is to provide a low-cost alternative to the traditional delivery mechanism dominated by fee-for-service medicine. A number of provisions are used to control spending: selective contracting, risk sharing, and utilization review—all attempts to provide incentives to both patient and provider to incorporate more cost-conscious behavior into their decisions.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 9-4 - Theory of Managed Care Savings DATE CREATED: 2/14/2022 4:55 AM DATE MODIFIED: 2/28/2022 6:53 AM 14. In the chapter on managed care, the author cites the results of several studies that attempt to show the potential savings

of managed care over traditional health care. Explain the studies by Miller and Luft (1994, 1997) and why their results were significant.

ANSWER: Miller and Luft (1994, 1997) compared health maintenance organizations and fee-forservice costs by examining literature that is more recent, while still somewhat outdated.

Their findings suggest that health maintenance organizations provide care comparable to traditional fee-for-service care at savings of 10–15 percent. The results of this study were more compelling than others because it showed that savings were due to shorter hospital stays, fewer tests, and the use of less costly medical procedures.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 9-4 - Theory of Managed Care Savings DATE CREATED: 2/14/2022 4:58 AM DATE MODIFIED: 2/28/2022 6:54 AM 15. To control moral hazard on the providers’ side of the market and the increased spending that accompanies it, managed care organizations enter into contracts with providers that include all of the following except: a. case management. b. capitation. c. risk sharing. d. utilization review. e. the ability to deny coverage to high-cost users.

ANSWER: e FEEDBACK: a. Incorrect. Under the new insurance regulations established by the Affordable Care Act, no one can be denied coverage because of preexisting health conditions. Thus, outright denial of coverage is not an option as a cost-control measure. Supply-side provisions include selective contracting, risk-sharing contracts, and utilization reviews. b. Incorrect. Under the new insurance regulations established by the Affordable Care Act, no one can be denied coverage because of preexisting health conditions. Thus, outright denial of coverage is not an option as a cost-control measure. Supply-side provisions include selective contracting, risk-sharing contracts, and utilization reviews. c. Incorrect. Under the new insurance regulations established by the Affordable Care Act, no one can be denied coverage because of preexisting health conditions. Thus, outright denial of coverage is not an option as a cost-control measure. Supply-side provisions include selective contracting, risk-sharing contracts, and utilization reviews. d. Incorrect. Under the new insurance regulations established by the Affordable Care Act, no one can be denied coverage because of preexisting health conditions. Thus, outright denial of coverage is not an option as a cost-control measure. Supply-side provisions include selective contracting, risk-sharing contracts, and utilization reviews. e. Correct. Under the new insurance regulations established by the Affordable Care Act, no one can be denied coverage because of preexisting health conditions. Thus, outright denial of coverage is not an option as a cost-control measure. Supply-side provisions include selective contracting, risk-sharing contracts, and utilization reviews.

POINTS: QUESTION TYPE: HAS VARIABLES:

1 Multiple Choice False

LEARNING OBJECTIVES: 9-4 - Theory of Managed Care Savings DATE CREATED: 2/14/2022 4:59 AM DATE MODIFIED: 2/28/2022 6:55 AM 16. In your view, what is the biggest disincentive for managed care plans? Please be sure to cite at least one study to substantiate your findings.

ANSWER: In Robinson’s (2000) review of 24 studies, he found lower levels of utilization for managed care plans, fewer hospitalizations, shorter hospital stays, and lower levels of discretionary services. Another important difference was the relative emphasis on preventive care as evidenced by more diagnostic screening and testing among managed care plans. Even though managed care has not decreased the overall effectiveness of care, certain vulnerable subpopulations—including older patients, sicker patients, and patients with low incomes—may have less favorable outcomes under managed care (Ware et al., 1996). Overall, the strongest disincentive for providing quality care is the result of the sickest and costliest patients.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 9-4 - Theory of Managed Care Savings DATE CREATED: 2/14/2022 5:01 AM DATE MODIFIED: 2/28/2022 6:55 AM 17. One of the major advantages of the health savings account is that: a. it eliminates concern over high and rising premiums. b. it provides individuals with more control over their own health care spending. c. there is virtually no limit to how much money you can save each year. d. there are few limitations on what the money can be used to purchase. e. it provides peace of mind so patients can be indifferent to the prices they pay.

ANSWER: b FEEDBACK: a. Incorrect. Proponents of the health savings account approach argue that individuals do not practice economizing behavior when insurance pays the bill.

Spending for low-cost, routine services comes directly from the health savings account, so individuals are more cost-conscious because they are spending their own money. b. Correct. Proponents of the health savings account approach argue that individuals do not practice economizing behavior when insurance pays the bill.

Spending for low-cost, routine services comes directly from the health savings account, so individuals are more cost-conscious because they are spending their own money. c. Incorrect. Proponents of the health savings account approach argue that individuals do not practice economizing behavior when insurance pays the bill.

Spending for low-cost, routine services comes directly from the health savings account, so individuals are more cost-conscious because they are spending their own money. d. Incorrect. Proponents of the health savings account approach argue that individuals do not practice economizing behavior when insurance pays the bill.

Spending for low-cost, routine services comes directly from the health savings account, so individuals are more cost-conscious because they are spending their own money. e. Incorrect. Proponents of the health savings account approach argue that

individuals do not practice economizing behavior when insurance pays the bill.

Spending for low-cost, routine services comes directly from the health savings account, so individuals are more cost-conscious because they are spending their own money.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 9-7 - Consumer-Directed Health Plans DATE CREATED: 2/14/2022 5:03 AM DATE MODIFIED: 2/28/2022 6:56 AM 18. The health savings account (HSA): a. is often used in conjunction with a high-deductible health plan (HDHP). b. is also called a health reimbursement arrangement (HRA). c. can be used to cover non-medical spending without penalty. d. is funded with after-tax dollars. e. allows its owner to ignore high medical care prices.

ANSWER: a FEEDBACK: a. Correct. Passage of the Medicare Modernization Act in 2005 paved the way for the high-deductible health plan with a health savings account option by changing the tax treatment of deposits into the health savings account. Prior to passage of the act, investments in the health savings account were made with after-tax income. The new law allowed deposits to be tax exempt as long as the proceeds of the accounts were used for qualified medical care services. b. Incorrect. Passage of the Medicare Modernization Act in 2005 paved the way for the high-deductible health plan with a health savings account option by changing the tax treatment of deposits into the health savings account. Prior to passage of the act, investments in the health savings account were made with after-tax income. The new law allowed deposits to be tax exempt as long as the proceeds of the accounts were used for qualified medical care services. c. Incorrect. Passage of the Medicare Modernization Act in 2005 paved the way for the high-deductible health plan with a health savings account option by changing the tax treatment of deposits into the health savings account. Prior to passage of the act, investments in the health savings account were made with after-tax income. The new law allowed deposits to be tax exempt as long as the proceeds of the accounts were used for qualified medical care services. d. Incorrect. Passage of the Medicare Modernization Act in 2005 paved the way for the high-deductible health plan with a health savings account option by changing the tax treatment of deposits into the health savings account. Prior to passage of the act, investments in the health savings account were made with after-tax income. The new law allowed deposits to be tax exempt as long as the proceeds of the accounts were used for qualified medical care services. e. Incorrect. Passage of the Medicare Modernization Act in 2005 paved the way for the high-deductible health plan with a health savings account option by changing the tax treatment of deposits into the health savings account. Prior to passage of the act, investments in the health savings account were made with after-tax income. The new law allowed deposits to be tax exempt as long as the proceeds of the accounts were used for qualified medical care.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 9-7 - Consumer-Directed Health Plans

DATE CREATED: DATE MODIFIED:

2/14/2022 5:05 AM 2/28/2022 6:57 AM

19. Can health savings accounts (HSAs) be used as retirement accounts?

ANSWER: Yes, as long as they are used for qualified medical expenses. Unlike flexible spending accounts, health savings accounts are not a “use it or lose it” account. Those dollars will live in your account until you die, including through retirement.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 9-7 - Consumer-Directed Health Plans DATE CREATED: 2/14/2022 5:28 AM DATE MODIFIED: 2/28/2022 6:58 AM 20. Most empirical studies show that the cost savings provided by managed care are accomplished by: a. better preventive care. b. reducing the rate of hospitalization. c. denying access to costly specialty care. d. switching to generic drugs.

ANSWER: b FEEDBACK: a. Incorrect. A number of empirical studies examine medical care utilization between traditional indemnity insurance and managed care plans. Enrollees in managed care plans had fewer hospital admissions that resulted in savings of 25–45 percent compared to traditional fee-for-service plans. b. Correct. A number of empirical studies examine medical care utilization between traditional indemnity insurance and managed care plans. Enrollees in managed care plans had fewer hospital admissions that resulted in savings of 25–45 percent compared to traditional fee-for-service plans. c. Incorrect. A number of empirical studies examine medical care utilization between traditional indemnity insurance and managed care plans. Enrollees in managed care plans had fewer hospital admissions that resulted in savings of 25–45 percent compared to traditional fee-for-service plans. d. Incorrect. A number of empirical studies examine medical care utilization between traditional indemnity insurance and managed care plans. Enrollees in managed care plans had fewer hospital admissions that resulted in savings of 25–45 percent compared to traditional fee-for-service plans.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 9-9 - Evidence of Managed Care Savings DATE CREATED: 2/14/2022 5:29 AM DATE MODIFIED: 2/28/2022 6:58 AM 21. Which of the following statements regarding the quality of managed care is accurate? a. Empirical studies show little evidence that managed care quality was lower than that found in fee-for-service plans. b. Empirical evidence suggests that managed care fails to reduce health care spending. c. Most of managed care’s savings do not affect hospitalization.

d. Managed care focuses on the ability to pay.

ANSWER: a FEEDBACK: a. Correct. Empirical studies suggest lower levels of service utilization for managed care plans but show little evidence that managed care quality was lower than that found in fee-for-service plans. b. Incorrect. Empirical studies suggest lower levels of service utilization for managed care plans but show little evidence that managed care quality was lower than that found in fee-for-service plans. c. Incorrect. Empirical studies suggest lower levels of service utilization for managed care plans but show little evidence that managed care quality was lower than that found in fee-for-service plans. d. Incorrect. Empirical studies suggest lower levels of service utilization for managed care plans but show little evidence that managed care quality was lower than that found in fee-for-service plans.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 9-10 - Evidence of Quality Differences between Managed Care and Fee-forService Care DATE CREATED: 2/14/2022 5:31 AM DATE MODIFIED: 2/28/2022 6:59 AM 22. How will managed care affect Medicare in the future?

ANSWER: To some extent, the future of managed care is dependent in many ways on the changes ushered in by the Affordable Care Act, and the way that Accountable Care Organizations are defined. The development of the Accountable Care Organizations concept is not new, but its resurgence is a response to changes in the Medicare payment design. In order to accomplish the program’s objectives, providers will try to become fully integrated delivery systems by consolidating primary, specialty, and hospital care in one delivery system.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 9-10 - Evidence of Quality Differences between Managed Care and Fee-forService Care DATE CREATED: 2/14/2022 5:34 AM DATE MODIFIED: 2/28/2022 7:00 AM

Chapter 10: The Physicians’ Services Market 1. A shortage of physicians is expected in the coming years to attend to the growing number of Americans who will likely need health insurance over the next decade as a result of which legislation? a. Medicare Prescription Drug Improvement and Modernization Act b. Health Insurance Portability and Accountability Act c. Balanced Budget Act d. Affordable Care Act e. Health Maintenance Organization Act ANSWER: d FEEDBACK: a. Incorrect. Policymakers expect medical infrastructure, including imaging facilities and hospital capacity, to keep pace with increased demand. However, as a result of the Affordable Care Act, physician workforce shortages continue to plague the system, particularly in primary care and general surgery. The shortages are already manifesting themselves in the form of increased waiting times for routine medical exams. Surveys estimate there will likely be an increase in the number of Americans with insurance by 30 million over the next decade. b. Incorrect. Policymakers expect medical infrastructure, including imaging facilities and hospital capacity, to keep pace with increased demand. However, as a result of the Affordable Care Act, physician workforce shortages continue to plague the system, particularly in primary care and general surgery. The shortages are already manifesting themselves in the form of increased waiting times for routine medical exams. Surveys estimate there will likely be an increase in the number of Americans with insurance by 30 million over the next decade. c. Incorrect. Policymakers expect medical infrastructure, including imaging facilities and hospital capacity, to keep pace with increased demand. However, as a result of the Affordable Care Act, physician workforce shortages continue to plague the system, particularly in primary care and general surgery. The shortages are already manifesting themselves in the form of increased waiting times for routine medical exams. Surveys estimate there will likely be an increase in the number of Americans with insurance by 30 million over the next decade. d. Correct. Policymakers expect medical infrastructure, including imaging facilities and hospital capacity, to keep pace with increased demand. However, as a result of the Affordable Care Act, physician workforce shortages continue to plague the system, particularly in primary care and general surgery. The shortages are already manifesting themselves in the form of increased waiting times for routine medical exams. Surveys estimate there will likely be an increase in the number of Americans with insurance by 30 million over the next decade. e. Incorrect. Policymakers expect medical infrastructure, including imaging facilities and hospital capacity, to keep pace with increased demand. However, as a result of the Affordable Care Act, physician workforce shortages continue to plague the system, particularly in primary care and general surgery. The shortages are already manifesting themselves in the form of increased waiting times for routine medical exams. Surveys estimate there will likely be an increase in the number of Americans with insurance by 30 million over the next decade.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-1 - The Future Physician Shortage DATE CREATED: 2/16/2022 3:52 AM

DATE MODIFIED:

2/16/2022 6:10 AM

2. Briefly explain the model of input pricing. Feel free to use formulas to help make your point.

ANSWER: Broadly speaking, the theory of input pricing is no different from the theory of pricing goods and services. We can calculate the value of an input in the production process by multiplying the marginal product of the input by the marginal revenue generated by the production and sale of an additional unit of the final product. This result serves as the underlying principle for deriving the demand curve for an input.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 10-2 - The Model of Input Pricing DATE CREATED: 2/16/2022 4:02 AM DATE MODIFIED: 2/28/2022 7:02 AM 3. Input demand is called derived demand because: a. demand for an input is derived from the demand for the product or service it produces. b. demand for an input is derived from its availability in the input market. c. demand for the output produced is also derived from consumer demand. d. input demand actually determines how much output is produced.

ANSWER: a FEEDBACK: a. Correct. Producers want inputs because of the incremental value they bring to the process. Thus, the demand for an input is derived from the incremental revenue the firm is able to realize by selling that input’s marginal product. If the demand for the final product increases, the firm will want to hire more inputs in order to satisfy the increased demand. b. Incorrect. Producers want inputs because of the incremental value they bring to the process. Thus, the demand for an input is derived from the incremental revenue the firm is able to realize by selling that input’s marginal product. If the demand for the final product increases, the firm will want to hire more inputs in order to satisfy the increased demand. c. Incorrect. Producers want inputs because of the incremental value they bring to the process. Thus, the demand for an input is derived from the incremental revenue the firm is able to realize by selling that input’s marginal product. If the demand for the final product increases, the firm will want to hire more inputs in order to satisfy the increased demand. d. Incorrect. Producers want inputs because of the incremental value they bring to the process. Thus, the demand for an input is derived from the incremental revenue the firm is able to realize by selling that input’s marginal product. If the demand for the final product increases, the firm will want to hire more inputs in order to satisfy the increased demand.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-3 - Demand for Inputs DATE CREATED: 2/16/2022 4:05 AM DATE MODIFIED: 2/16/2022 6:12 AM 4. What is the most significant cost of attending medical school?

a. Tuition and fees b. Books and incidentals c. The income foregone d. Room and board ANSWER: c FEEDBACK:

a. Incorrect. Even with the median educational debt of medical students approaching $200,000, the most significant cost of attending medical school is the income the medical students could have earned if they entered the labor force after earning a college degree. A minimum of seven years of foregone income (four years of medical school and a minimum of three years in a residency program) would easily add up to over $425,000. b. Incorrect. Even with the median educational debt of medical students approaching $200,000, the most significant cost of attending medical school is the income the medical students could have earned if they entered the labor force after earning a college degree. A minimum of seven years of foregone income (four years of medical school and a minimum of three years in a residency program) would easily add up to over $425,000. c. Correct. Even with the median educational debt of medical students approaching $200,000, the most significant cost of attending medical school is the income the medical students could have earned if they entered the labor force after earning a college degree. A minimum of seven years of foregone income (four years of medical school and a minimum of three years in a residency program) would easily add up to over $425,000. d. Incorrect. Even with the median educational debt of medical students approaching $200,000, the most significant cost of attending medical school is the income the medical students could have earned if they entered the labor force after earning a college degree. A minimum of seven years of foregone income (four years of medical school and a minimum of three years in a residency program) would easily add up to over $425,000.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-4 - Human Capital Investment DATE CREATED: 2/16/2022 4:10 AM DATE MODIFIED: 2/16/2022 6:13 AM 5. Which of the following would increase the supply of physicians? a. Increasing the cost of attending medical school b. Providing more scholarships and grants to cover medical school tuition c. Increasing the medical school entrance requirements to include 15 hours of economics d. Making it easier for plaintiffs to prove medical malpractice claims e. Reducing the number of residency programs in some specialties in order to increase the number of family practice residencies ANSWER: b FEEDBACK: a. Incorrect. Supply will increase when the cost of production decreases. Anything that lowers the cost of training to be a physician will shift the supply curve to the right and increase the number of medical school graduates. Providing more scholarships and grants is the only option listed that reduces the cost of attending medical school. b. Correct. Supply will increase when the cost of production decreases. Anything that lowers the cost of training to be a physician will shift the supply curve to the right and increase the number of medical school graduates. Providing more

scholarships and grants is the only option listed that reduces the cost of attending medical school. c. Incorrect. Supply will increase when the cost of production decreases. Anything that lowers the cost of training to be a physician will shift the supply curve to the right and increase the number of medical school graduates. Providing more scholarships and grants is the only option listed that reduces the cost of attending medical school. d. Incorrect. Supply will increase when the cost of production decreases. Anything that lowers the cost of training to be a physician will shift the supply curve to the right and increase the number of medical school graduates. Providing more scholarships and grants is the only option listed that reduces the cost of attending medical school. e. Incorrect. Supply will increase when the cost of production decreases. Anything that lowers the cost of training to be a physician will shift the supply curve to the right and increase the number of medical school graduates. Providing more scholarships and grants is the only option listed that reduces the cost of attending medical school.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-4 - Human Capital Investment DATE CREATED: 2/16/2022 4:12 AM DATE MODIFIED: 2/16/2022 4:15 AM 6. The rate of return on an investment in medical education: a. is inversely related to the length of time spent in formal schooling. b. is inversely related to income. c. will increase with an increase in the availability of student loans. d. is much higher than the rate of return on an undergraduate business degree. e. is inversely related to the number of years in the profession.

ANSWER: a FEEDBACK: a. Correct. This may seem contradictory at first glance because the rate of return on a specialty education is higher than that of general practice physicians. If you stop looking at that point, you miss the bigger picture of diminishing returns. The added time spent in school will add to total foregone income. Four additional years pursuing a cardiology fellowship means giving up potential earnings of $800,000 to $1 million in internal medicine. College graduates in business and law realize higher rates of return on their shorter education. b. Incorrect. This may seem contradictory at first glance because the rate of return on a specialty education is higher than that of general practice physicians. If you stop looking at that point, you miss the bigger picture of diminishing returns. The added time spent in school will add to total foregone income. Four additional years pursuing a cardiology fellowship means giving up potential earnings of $800,000 to $1 million in internal medicine. College graduates in business and law realize higher rates of return on their shorter education. c. Incorrect. This may seem contradictory at first glance because the rate of return on a specialty education is higher than that of general practice physicians. If you stop looking at that point, you miss the bigger picture of diminishing returns. The added time spent in school will add to total foregone income. Four additional years pursuing a cardiology fellowship means giving up potential earnings of $800,000 to $1 million in internal medicine. College graduates in business and law realize higher rates of return on their shorter education. d. Incorrect. This may seem contradictory at first glance because the rate of return

on a specialty education is higher than that of general practice physicians. If you stop looking at that point, you miss the bigger picture of diminishing returns. The added time spent in school will add to total foregone income. Four additional years pursuing a cardiology fellowship means giving up potential earnings of $800,000 to $1 million in internal medicine. College graduates in business and law realize higher rates of return on their shorter education. e. Incorrect. This may seem contradictory at first glance because the rate of return on a specialty education is higher than that of general practice physicians. If you stop looking at that point, you miss the bigger picture of diminishing returns. The added time spent in school will add to total foregone income. Four additional years pursuing a cardiology fellowship means giving up potential earnings of $800,000 to $1 million in internal medicine. College graduates in business and law realize higher rates of return on their shorter education.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-4 - Human Capital Investment DATE CREATED: 2/16/2022 4:15 AM DATE MODIFIED: 2/16/2022 4:18 AM 7. Compare the rate of return for a medical education to that of other professionals. Is it higher or lower than the cost of attending other graduate degrees? Support your answer by citing at least one study.

ANSWER: Weeks and colleagues (1994) compared the rate of return on the investment made by the typical physician with those of college graduates entering business, law, and dentistry.

After adjusting for years of schooling and the average number of hours worked, they estimated the annual rate of return for an educational investment made by primary care physicians was 15.9 percent. Dentists and medical specialists fared substantially better, enjoying 20.7 and 20.9 percent returns, respectively. However, attorneys and those entering business fared much better, with 25.4 and 29.0 percent rates of return. Even though these are crude estimates for the respective rates of return, it is clear that despite their high incomes, individuals who choose medical careers receive lower economic returns on their educational investments than other professionals do.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 10-4 - Human Capital Investment DATE CREATED: 2/16/2022 4:19 AM DATE MODIFIED: 2/28/2022 7:04 AM 8. Which of the following statements about the distribution of physicians among specialties is true in the United States? a. The majority of physicians specialize in general/family practice. b. There are twice as many generalists as there are specialists. c. There are twice as many specialists as there are generalists. d. The specialty distribution in the United States is similar to that of the rest of the world.

ANSWER: c FEEDBACK: a. Incorrect. Since the early 1960s, the number of primary care physicians has fallen below 50 percent of active physicians. The percentage has gradually declined and as recently as 2015 was 37.2 percent. In many developed countries, primary care physicians make up over 50 percent of the total number of active physicians (OECD, 2020).

b. Incorrect. Since the early 1960s, the number of primary care physicians has fallen below 50 percent of active physicians. The percentage has gradually declined and as recently as 2015 was 37.2 percent. In many developed countries, primary care physicians make up over 50 percent of the total number of active physicians (OECD, 2020). c. Correct. Since the early 1960s, the number of primary care physicians has fallen below 50 percent of active physicians. The percentage has gradually declined and as recently as 2015 was 37.2 percent. In many developed countries, primary care physicians make up over 50 percent of the total number of active physicians (OECD, 2020). d. Incorrect. Since the early 1960s, the number of primary care physicians has fallen below 50 percent of active physicians. The percentage has gradually declined and as recently as 2015 was 37.2 percent. In many developed countries, primary care physicians make up over 50 percent of the total number of active physicians (OECD, 2020).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-5 - The Market for Physicians’ Services DATE CREATED: 2/16/2022 4:21 AM DATE MODIFIED: 2/16/2022 4:23 AM 9. Legislation considered by Congress to restrict legal immigration would: a. improve employment prospects for native-born Americans. b. allow more Americans trained abroad to compete for openings in United States’ residency programs. c. raise the costs of operating in many of the nation’s rural and inner-city hospitals. d. have little effect on medical markets, as so few physicians practicing medicine in the United States are foreigners. e. surprise many policymakers because Congress finds it difficult to agree on much of anything regarding immigration.

ANSWER: c FEEDBACK: a. Incorrect. Foreign medical graduates make up approximately one-fourth of the residents training in hospitals in the United States. Many of these eventually practice in the inner city and rural areas. Stricter immigration standards will make it difficult for these facilities to adequately staff their clinical practices.

Immigrants are not keeping Americans trained abroad from entering United States residency programs. The roadblock is due to the rigorous exam they must pass before receiving a residency. b. Incorrect. Foreign medical graduates make up approximately one-fourth of the residents training in hospitals in the United States. Many of these eventually practice in the inner city and rural areas. Stricter immigration standards will make it difficult for these facilities to adequately staff their clinical practices.

Immigrants are not keeping Americans trained abroad from entering residency programs in the United States. The roadblock is due to the rigorous exam they must pass before receiving a residency. c. Correct. Foreign medical graduates make up approximately one-fourth of the residents training in hospitals in the United States. Many of these eventually practice in the inner city and rural areas. Stricter immigration standards will make it difficult for these facilities to adequately staff their clinical practices.

Immigrants are not keeping Americans trained abroad from entering residency programs in the United States. The roadblock is due to the rigorous exam they must pass before receiving a residency. d. Incorrect. Foreign medical graduates make up approximately one-fourth of the

residents training in hospitals in the United States. Many of these eventually practice in the inner city and rural areas. Stricter immigration standards will make it difficult for these facilities to adequately staff their clinical practices.

Immigrants are not keeping Americans trained abroad from entering residency programs in the United States. The roadblock is due to the rigorous exam they must pass before receiving a residency. e. Incorrect. Foreign medical graduates make up approximately one-fourth of the residents training in hospitals in the United States. Many of these eventually practice in the inner city and rural areas. Stricter immigration standards will make it difficult for these facilities to adequately staff their clinical practices.

Immigrants are not keeping Americans trained abroad from entering residency programs in the United States. The roadblock is due to the rigorous exam they must pass before receiving a residency.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-5 - The Market for Physicians’ Services DATE CREATED: 2/16/2022 4:23 AM DATE MODIFIED: 2/16/2022 4:26 AM 10. Suppose the number of medical school graduates continues to increase over the next decade. Which of the following is true? a. Physicians’ salaries must fall. b. Physicians’ salaries must rise. c. Physicians’ salaries will fall only if the demand for medical services falls. d. Physicians’ salaries will fall if the demand for medical services rises more than the supply of physicians rises. e. Physicians’ salaries will rise if the demand for medical services rises more than the supply of physicians rises.

ANSWER: e FEEDBACK: a. Incorrect. Increasing the supply of physicians is a slow process, taking up to seven years to get fully trained practitioners on the market. In the meantime, demand increases as well. Relying on the simple model of supply and demand, if the demand curve increases (shifts to the right) more than the supply curve increases, the price of physicians’ services will rise. b. Incorrect. Increasing the supply of physicians is a slow process, taking up to seven years to get fully trained practitioners on the market. In the meantime, demand increases as well. Relying on the simple model of supply and demand, if the demand curve increases (shifts to the right) more than the supply curve increases, the price of physicians’ services will rise. c. Incorrect. Increasing the supply of physicians is a slow process, taking up to seven years to get fully trained practitioners on the market. In the meantime, demand increases as well. Relying on the simple model of supply and demand, if the demand curve increases (shifts to the right) more than the supply curve increases, the price of physicians’ services will rise. d. Incorrect. Increasing the supply of physicians is a slow process, taking up to seven years to get fully trained practitioners on the market. In the meantime, demand increases as well. Relying on the simple model of supply and demand, if the demand curve increases (shifts to the right) more than the supply curve increases, the price of physicians’ services will rise. e. Correct. Increasing the supply of physicians is a slow process, taking up to seven years to get fully trained practitioners on the market. In the meantime, demand increases as well. Relying on the simple model of supply and demand, if the demand curve increases (shifts to the right) more than the supply curve increases, the price of physicians’ services will rise.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-5 - The Market for Physicians’ Services DATE CREATED: 2/16/2022 4:27 AM DATE MODIFIED: 2/16/2022 4:29 AM 11. The following diagram depicts the market for physicians’ services that is originally in equilibrium at the point where demand and supply (D0 and S0) intersect. As physician supply increases from S0 to S1, an even larger concurrent shift in demand from D0 to D1:

a. will increase demand for physicians’ services, but not spending. b. will cause overall spending on physicians’ services to increase. c. will force physicians to limit the number of patients they see. d. will result in a decrease in the price of physicians’ services. e. will result in a new equilibrium at P2 and Q2.

ANSWER: a FEEDBACK: a. Incorrect. If D0 increases more than S0, the new equilibrium price and quantity will be higher at P1 and Q1. Spending equals price times quantity. In this case, P1Q1 > P0Q0. b. Correct. If D0 increases more than S0, the new equilibrium price and quantity will be higher at P1 and Q1. Spending equals price times quantity. In this case, P1Q1 > P0Q0. c. Incorrect. If D0 increases more than S0, the new equilibrium price and quantity will be higher at P1 and Q1. Spending equals price times quantity. In this case, P1Q1 > P0Q0. d. Incorrect. If D0 increases more than S0, the new equilibrium price and quantity will be higher at P1 and Q1. Spending equals price times quantity. In this case, P1Q1 > P0Q0. e. Incorrect. If D0 increases more than S0, the new equilibrium price and quantity will be higher at P1 and Q1. Spending equals price times quantity. In this case, P1Q1 > P0Q0.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-5 - The Market for Physicians’ Services

DATE CREATED: DATE MODIFIED:

2/16/2022 4:40 AM 2/25/2022 6:22 AM

12. Starting salaries for female obstetricians/gynecologists are higher than those of male obstetricians/gynecologists .

What is the best explanation for this? a. Female obstetricians/gynecologists have more human capital than male obstetricians/gynecologists . b. The demand for female obstetricians/gynecologists is greater than the demand for male obstetricians/gynecologists . c. The demand for female obstetricians/gynecologists is less than the demand for male obstetricians/gynecologists . d. There are more males in obstetrics/gynecology residency programs than females.

ANSWER: b FEEDBACK: a. Incorrect. Obstetrics and gynecology is a specialty where patients have a strong preference for same-sex providers. The reasons are obvious. Today, over 75 percent of obstetrics/gynecology residents are female, and almost 60 percent of those practicing are female. Patients are flocking to female only practices and have shown a willingness to wait longer for appointments. b. Correct. Obstetrics and gynecology is a specialty where patients have a strong preference for same-sex providers. The reasons are obvious. Today, over 75 percent of obstetrics/gynecology residents are female, and almost 60 percent of those practicing are female. Patients are flocking to female only practices and have shown a willingness to wait longer for appointments. c. Incorrect. Obstetrics and gynecology is a specialty where patients have a strong preference for same sex-providers. The reasons are obvious. Today, over 75 percent of obstetrics/gynecology residents are female, and almost 60 percent of those practicing are female. Patients are flocking to female only practices and have shown a willingness to wait longer for appointments. d. Incorrect. Obstetrics and gynecology is a specialty where patients have a strong preference for same sex-providers. The reasons are obvious. Today, over 75 percent of obstetrics/gynecology residents are female, and almost 60 percent of those practicing are female. Patients are flocking to female only practices and have shown a willingness to wait longer for appointments.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-7 - Geographic Distribution DATE CREATED: 2/16/2022 4:50 AM DATE MODIFIED: 2/16/2022 6:16 AM 13. According to surveys by the Merritt Hawkins White Paper Series, 2018, the average family practice physician earned approximately what amount in 2018? a. $145,000 b. $160,000 c. $192,000 d. $220,000 e. $247,000 ANSWER: a FEEDBACK: a. Incorrect. According to the Merritt Hawkins White Paper Series, 2018, the median compensation for family practice physicians was $247,000 in 2018.

b. Incorrect. According to the Merritt Hawkins White Paper Series, 2018, the

median compensation for family practice physicians was $247,000 in 2018.

c. Incorrect. According to the Merritt Hawkins White Paper Series, 2018, the

median compensation for family practice physicians was $247,000 in 2018. d. Incorrect. According to the Merritt Hawkins White Paper Series, 2018, the median compensation for family practice physicians was $247,000 in 2018. e. Correct. According to the Merritt Hawkins White Paper Series, 2018, the median compensation for family practice physicians was $247,000 in 2018.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-8 - Physicians’ Compensation DATE CREATED: 2/16/2022 4:54 AM DATE MODIFIED: 2/16/2022 5:30 AM 14. In the United States, the average salary for general practitioners is $243,654, which is much higher than most developed countries. Why do you think that is?

ANSWER: Some countries have socialized medicine rather than the capitalist system that we have in the United States. As a result, United States physician salaries are higher. However, the higher salaries in the United States are likely due to higher salaries in the overall economy and may not be overly high relative to those in the comparison countries. Physician salaries are higher in the United States because the opportunity cost of becoming a doctor (the foregone earnings during training) is higher.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 10-8 - Physicians’ Compensation DATE CREATED: 2/16/2022 4:56 AM DATE MODIFIED: 2/28/2022 7:06 AM 15. Surgical specialists earn more than general/family practice physicians do. Which of the following statements are true regarding this income differential? (Select all that apply) a. Surgeons earn more because their practice costs, including medical malpractice insurance, are higher. b. Surgeons earn more to compensate them for the extra years spent as residents. c. Physicians’ incomes are determined largely by supply and demand conditions with respect to each specialty. d. Surgeons will always earn more than general practitioners because they are smarter than general practitioners. e. Surgeons earn more than general practitioners because cutting into people is risky.

ANSWER: FEEDBACK:

a, b, c, e a. Correct. True of most prices in competitive markets, physicians’ incomes are largely determined by the market forces of supply and demand. Higher surgeon salaries represent compensating differentials for higher opportunity costs due to longer training periods, higher practice costs, and riskier procedures performed. There is no compelling evidence that specialists are smarter than general practice physicians. b. Correct. True of most prices in competitive markets, physicians’ incomes are largely determined by the market forces of supply and demand. Higher surgeon salaries represent compensating differentials for higher opportunity costs due to longer training periods, higher practice costs, and riskier procedures performed. There is no compelling evidence that specialists are smarter than general practice physicians. c. Correct. True of most prices in competitive markets, physicians’ incomes are

largely determined by the market forces of supply and demand. Higher surgeon salaries represent compensating differentials for higher opportunity costs due to longer training periods, higher practice costs, and riskier procedures performed. There is no compelling evidence that specialists are smarter than general practice physicians. d. Incorrect. True of most prices in competitive markets, physicians’ incomes are largely determined by the market forces of supply and demand. Higher surgeon salaries represent compensating differentials for higher opportunity costs due to longer training periods, higher practice costs, and riskier procedures performed. There is no compelling evidence that specialists are smarter than general practice physicians. e. Correct. True of most prices in competitive markets, physicians’ incomes are largely determined by the market forces of supply and demand. Higher surgeon salaries represent compensating differentials for higher opportunity costs due to longer training periods, higher practice costs, and riskier procedures performed. There is no compelling evidence that specialists are smarter than general practice physicians.

POINTS: 1 QUESTION TYPE: Multiple Response HAS VARIABLES: False LEARNING OBJECTIVES: 10-10 - Pricing Physicians’ Services DATE CREATED: 2/28/2022 7:07 AM DATE MODIFIED: 2/28/2022 7:12 AM 16. The observed variations in practice patterns in different regions of the country is the result of which of the following? (Select all that apply) a. There are many alternative treatment options available for most ailments. b. Practice variations are due to differences in demographics and disease incidence across regions. c. Patients often prefer a number of different options to treat the same illness, and physicians are willing to accommodate these differences. d. The observed variations are due to scientific uncertainty associated with diagnosis and treatment. e. Medical training varies across the country depending on where the physician was trained, and most physicians’ practices tend to be in the same regions.

ANSWER: FEEDBACK:

a, c, d, e a. Correct. The Dartmouth Atlas of Health Care documents regional variations in the incidence of surgeries and other procedures. These differences are substantial in some cases but do not seem to be due to differences in the demographic characteristics of the patient population or differences in disease incidence across regions. b. Incorrect. The Dartmouth Atlas of Health Care documents regional variations in the incidence of surgeries and other procedures. These differences are substantial in some cases but do not seem to be due to differences in the demographic characteristics of the patient population or differences in disease incidence across regions. c. Correct. The Dartmouth Atlas of Health Care documents regional variations in the incidence of surgeries and other procedures. These differences are substantial in some cases but do not seem to be due to differences in the demographic characteristics of the patient population or differences in disease incidence across regions. d. Correct. The Dartmouth Atlas of Health Care documents regional variations in the incidence of surgeries and other procedures. These differences are substantial in some cases but do not seem to be due to differences in the demographic characteristics of the patient population or differences in disease incidence across regions.

e. Correct. The Dartmouth Atlas of Health Care documents regional variations in the incidence of surgeries and other procedures. These differences are substantial in some cases but do not seem to be due to differences in the demographic characteristics of the patient population or differences in disease incidence across regions.

POINTS: 1 QUESTION TYPE: Multiple Response HAS VARIABLES: False LEARNING OBJECTIVES: 10-11 - Organizing Physicians’ Practices DATE CREATED: 2/28/2022 7:12 AM DATE MODIFIED: 2/28/2022 7:27 AM 17. What would be the effect of developing a fee schedule for physicians’ services under a resource-based relative value scale (RBRVS)?

ANSWER: In theory, it would lead to a perfectly competitive equilibrium. Hence, the resource-based relative value scale could provide a fair and equitable approach to compensating physicians for the services they provide. By removing the distortions in current fee structure, the resource-based relative value scale would provide a neutral incentive structure for physicians in making medical decisions.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 10-11 - Organizing Physicians’ Practices DATE CREATED: 2/16/2022 5:39 AM DATE MODIFIED: 2/28/2022 7:28 AM 18. Physicians who own their own diagnostic testing facilities tend to order more tests, charge higher fees for them, and have higher total bills to patients. This practice of self-referral is an example of: a. moral hazard. b. adverse selection. c. res ipsa loquitur. d. physician-induced demand. e. cognitive dissonance.

ANSWER: d FEEDBACK: a. Incorrect. Empirical evidence indicates that medical providers that own their imaging equipment recommend more scans for their patients, a form of physician-induced demand. While the demand shift is subtle, it results in significantly more scans and higher revenues compared to physicians who do not own their own imaging equipment. b. Incorrect. Empirical evidence indicates that medical providers that own their imaging equipment recommend more scans for their patients, a form of physician-induced demand. While the demand shift is subtle, it results in significantly more scans and higher revenues compared to physicians who do not own their own imaging equipment. c. Incorrect. Empirical evidence indicates that medical providers that own their imaging equipment recommend more scans for their patients, a form of physician- induced demand. While the demand shift is subtle, it results in significantly more scans and higher revenues compared to physicians who do not own their own imaging equipment.

d. Correct. Empirical evidence indicates that medical providers that own their imaging equipment recommend more scans for their patients, a form of physician-induced demand. While the demand shift is subtle, it results in significantly more scans and higher revenues compared to physicians who do not own their own imaging equipment. e. Incorrect. Empirical evidence indicates that medical providers that own their imaging equipment recommend more scans for their patients, a form of physician-induced demand. While the demand shift is subtle, it results in significantly more scans and higher revenues compared to physicians who do not own their own imaging equipment.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-14 - The Physician as Imperfect Agent DATE CREATED: 2/16/2022 5:40 AM DATE MODIFIED: 2/16/2022 5:43 AM 19. Do doctors respond to financial incentives? What are some of the pros and cons of establishing an incentive system?

Cite studies if necessary.

ANSWER: When financial incentives exert pressures, no matter how subtle, clinical decisions may be influenced (Hillman, 1990). When physicians are paid in a fee-for-service manner, many increase the dollar volume of services by changing the way they bill and by providing more services (Holahan, Dor, and Zuckerman, 1990; Lee, Grumbach, and Jameson, 1990; Wedig, Mitchell, and Cromwell, 1989). But controlling physician fees does not lower expenditures on physicians’ services. Fee schedules lead to changed patterns of medical care delivery, including an increased number of follow-up visits (Hughes, 1991; Lomas et al., 1989).

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 10-14 - The Physician as Imperfect Agent DATE CREATED: 2/16/2022 5:45 AM DATE MODIFIED: 2/28/2022 7:29 AM 20. Suppose the market for nursing services in a local community is so dominated by a single community hospital that, for all practical purposes, it is considered a monopsony. Using the diagram below, answer the question.

What is the equilibrium wage and level of employment under monopsony? a. W1 and E1 b. W2 and E0 c. W0 and E0 d. W0 and E1 e. W0 and E2 ANSWER: c FEEDBACK: a. Incorrect. The monopsonist will pay a wage (W0) that is below the competitive market equilibrium wage (W1) and employ fewer workers (E0) than the competitive market (E1). At W0, there will be fewer workers seeking employment (E0) than the market demands (E2). This shortage could be solved by paying higher wages, but the monopsonist would not be maximizing profit at a wage higher than W0. b. Incorrect. The monopsonist will pay a wage (W0) that is below the competitive market equilibrium wage (W1) and employ fewer workers (E0) than the competitive market (E1). At W0, there will be fewer workers seeking employment (E0) than the market demands (E2). This shortage could be solved by paying higher wages, but the monopsonist would not be maximizing profit at a wage higher than W0. c. Correct. The monopsonist will pay a wage (W0) that is below the competitive market equilibrium wage (W1) and employ fewer workers (E0) than the competitive market (E1). At W0, there will be fewer workers seeking employment (E0) than the market demands (E2). This shortage could be solved by paying higher wages, but the monopsonist would not be maximizing profit at a wage higher than W0. d. Incorrect. The monopsonist will pay a wage (W0) that is below the competitive market equilibrium wage (W1) and employ fewer workers (E0) than the competitive market (E1). At W0, there will be fewer workers seeking employment (E0) than the market demands (E2). This shortage could be solved by paying higher wages, but the monopsonist would not be maximizing profit at a wage higher than W0. e. Incorrect. The monopsonist will pay a wage (W0) that is below the competitive market equilibrium wage (W1) and employ fewer workers (E0) than the competitive market (E1). At W0, there will be fewer workers seeking employment (E0) than the market demands (E2). This shortage could be solved by paying higher wages, but the monopsonist would not be maximizing profit at a wage higher than W0.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-17 - The Market for Nursing Services DATE CREATED: 2/16/2022 5:52 AM DATE MODIFIED: 2/25/2022 6:23 AM 21. Suppose the market for nursing services in a local community is so dominated by a single community hospital that, for all practical purposes, it is considered a monopsony. Using the diagram below, answer the question.

If the market were perfectly competitive instead of dominated by a monopsonist, what would the equilibrium wage and level of employment be? a. W1 and E1 b. W2 and E0 c. W0 and E0 d. W0 and E1 e. W0 and E2 ANSWER: FEEDBACK:

a a. Correct. The competitive market will be in equilibrium where supply (S) and demand (D = MRP) intersect with an equilibrium wage of W1 and market clearing employment level of E1. Remember, in an input market, demand is determined by the value of the input in the production process, its marginal revenue product (MRP). b. Incorrect. The competitive market will be in equilibrium where supply (S) and demand (D = MRP) intersect with an equilibrium wage of W1 and market clearing employment level of E1. Remember, in an input market, demand is determined by the value of the input in the production process, its marginal revenue product (MRP). c. Incorrect. The competitive market will be in equilibrium where supply (S) and demand (D = MRP) intersect with an equilibrium wage of W1 and market clearing employment level of E1. Remember, in an input market, demand is determined by Supply Marginal Expense D = Value in Production E = Number of Nurses Employed Wages W0 W2 W1 E0 E2 E1 E3 0 the value of the input in the production process, its marginal revenue product (MRP). d. Incorrect. The competitive market will be in equilibrium where supply (S) and demand (D = MRP) intersect with an equilibrium wage of W1 and market clearing employment level of E1. Remember, in an input market, demand is determined by the value of the input in the production process, its marginal revenue product (MRP). e. Incorrect. The competitive market will be in equilibrium where supply (S) and demand (D = MRP) intersect with an equilibrium wage of W1 and market clearing employment level of E1. Remember, in an input market, demand is determined by the value of the input in the production process, its marginal revenue product (MRP).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 10-17 - The Market for Nursing Services

DATE CREATED: DATE MODIFIED:

2/16/2022 6:02 AM 2/25/2022 6:23 AM

Chapter 11: The Hospital Services Market 1. This study was the catalyst for the early twentieth century reform of medical education in the United States. What was it? a. Coolidge Commission b. Hill–Burton Committee c. Mangrum Report d. Flexner Report e. Kaiser Foundation Study ANSWER: d FEEDBACK: a. Incorrect. The publication of the Flexner Report in 1910 served as the catalyst for general reform in medical education and medical care delivery in general.

Nowhere were the changes that followed more noticeable than in the hospital industry. Accreditation standards were instituted and quality levels improved dramatically. b. Incorrect. The publication of the Flexner Report in 1910 served as the catalyst for general reform in medical education and medical care delivery in general.

Nowhere were the changes that followed more noticeable than in the hospital industry. Accreditation standards were instituted and quality levels improved dramatically. c. Incorrect. The publication of the Flexner Report in 1910 served as the catalyst for general reform in medical education and medical care delivery in general.

Nowhere were the changes that followed more noticeable than in the hospital industry. Accreditation standards were instituted and quality levels improved dramatically. d. Correct. The publication of the Flexner Report in 1910 served as the catalyst for general reform in medical education and medical care delivery in general.

Nowhere were the changes that followed more noticeable than in the hospital industry. Accreditation standards were instituted and quality levels improved dramatically. e. Incorrect. The publication of the Flexner Report in 1910 served as the catalyst for general reform in medical education and medical care delivery in general.

Nowhere were the changes that followed more noticeable than in the hospital industry. Accreditation standards were instituted and quality levels improved dramatically.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-1 A - Brief History of American Hospitals DATE CREATED: 2/18/2022 12:24 AM DATE MODIFIED: 2/18/2022 12:27 AM 2. In the nineteenth century, hospitals had notorious reputations—questionable places to visit, risky places to stay. A number of advances changed all this and led to the transition to the modern hospital system. Which of the following changes had nothing to do with the transition? a. Development of the germ theory of disease b. Advances in medical technology c. Availability of health insurance to pay the bills d. Urbanization e. The increased incidence of chronic illness in an aging population ANSWER: e

FEEDBACK:

a. Incorrect. During this period, population aging had little to do with the transformation of the hospital system. The forces that led to the changes included a better understanding of disease, technology advances, the availability of insurance, and urbanization. b. Incorrect. During this period, population aging had little to do with the transformation of the hospital system. The forces that led to the changes included a better understanding of disease, technology advances, the availability of insurance, and urbanization. c. Incorrect. During this period, population aging had little to do with the transformation of the hospital system. The forces that led to the changes included a better understanding of disease, technology advances, the availability of insurance, and urbanization. d. Incorrect. During this period, population aging had little to do with the transformation of the hospital system. The forces that led to the changes included a better understanding of disease, technology advances, the availability of insurance, and urbanization. e. Correct. During this period, population aging had little to do with the transformation of the hospital system. The forces that led to the changes included a better understanding of disease, technology advances, the availability of insurance, and urbanization.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-1 A - Brief History of American Hospitals DATE CREATED: 2/18/2022 12:29 AM DATE MODIFIED: 2/18/2022 12:31 AM 3. Three important factors served to transform hospitals into the modern medical institutions they have become: the germ theory of disease, advances in medical technology, and increased urbanization. Describe increased urbanization and its importance in the centralization of medical facilities.

ANSWER: Migration to urban centers meant more one-person households and fewer extended-family living arrangements. People could no longer count on treatment at home. Home was an apartment building or boarding house and likely inappropriate for convalescence. Without family nearby, patients had no one to serve as caregiver, anyway. Doctors, clinics, and hospitals sprouted up when demand called for them.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 11-1 A - Brief History of American Hospitals DATE CREATED: 2/18/2022 12:32 AM DATE MODIFIED: 2/28/2022 7:35 AM 4. The dominant factor affecting medical care delivery and finance in the 1960s was: a. the Hill–Burton Act. b. prospective payment for hospitals. c. the creation of Medicare and Medicaid. d. the explosive growth of managed care. e. the passage of the Employee Retirement Income Security Act. ANSWER: c

FEEDBACK:

a. Incorrect. Medicare and Medicaid legislation passed in 1964 expanded the role of the federal government into a major payer for medical care services.

Providers had more financial security knowing that they would be paid for their services, and their earnings rose rapidly. Today, over one-half of physicians’ earnings is the result of government-provided insurance. b. Incorrect. Medicare and Medicaid legislation passed in 1964 expanded the role of the federal government into a major payer for medical care services.

Providers had more financial security knowing that they would be paid for their services, and their earnings rose rapidly. Today, over one-half of physicians’ earnings is the result of government-provided insurance. c. Correct. Medicare and Medicaid legislation passed in 1964 expanded the role of the federal government into a major payer for medical care services.

Providers had more financial security knowing that they would be paid for their services, and their earnings rose rapidly. Today, over one-half of physicians’ earnings is the result of government-provided insurance. d. Incorrect. Medicare and Medicaid legislation passed in 1964 expanded the role of the federal government into a major payer for medical care services.

Providers had more financial security knowing that they would be paid for their services, and their earnings rose rapidly. Today, over one-half of physicians’ earnings is the result of government-provided insurance. e. Incorrect. Medicare and Medicaid legislation passed in 1964 expanded the role of the federal government into a major payer for medical care services.

Providers had more financial security knowing that they would be paid for their services, and their earnings rose rapidly. Today, over one-half of physicians’ earnings is the result of government-provided insurance.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-1 A - Brief History of American Hospitals DATE CREATED: 2/18/2022 12:33 AM DATE MODIFIED: 2/18/2022 12:35 AM 5. The dominant factor affecting medical care delivery and finance in the 1980s was: a. the Hill–Burton Act. b. prospective payment for hospitals. c. creation of Medicare and Medicaid. d. the explosive growth of managed care. e. Employee Retirement Income Security Act. ANSWER: b FEEDBACK: a. Incorrect. Prospective payment for hospitals became the dominant feature of hospital finance in 1983 with the creation of the diagnosis-related group (DRG). b. Correct. Prospective payment for hospitals became the dominant feature of hospital finance in 1983 with the creation of the diagnosis-related group (DRG). c. Incorrect. Prospective payment for hospitals became the dominant feature of hospital finance in 1983 with the creation of the diagnosis-related group (DRG). d. Incorrect. Prospective payment for hospitals became the dominant feature of hospital finance in 1983 with the creation of the diagnosis-related group (DRG). e. Incorrect. Prospective payment for hospitals became the dominant feature of hospital finance in 1983 with the creation of the diagnosis-related group (DRG).

POINTS: QUESTION TYPE: HAS VARIABLES:

1 Multiple Choice False

LEARNING OBJECTIVES: 11-1 A - Brief History of American Hospitals DATE CREATED: 2/18/2022 12:36 AM DATE MODIFIED: 2/18/2022 12:38 AM 6. Which of the following statements is true concerning the trend in community hospital care between inpatient and outpatient services since the mid-1980s? a. Both inpatient and outpatient services have been declining. b. Outpatient services have been growing, while inpatient services have been declining. c. Outpatient services have been declining, while inpatient services have been growing. d. Both inpatient and outpatient services have been growing. e. There has been no noticeable trend in either inpatient or outpatient services.

ANSWER: b FEEDBACK: a. Incorrect. Just about every measure of hospital inpatient activity among community hospitals has been declining for the past several decades, except outpatient visits. The number of outpatient visits was 263 million in 1980 and has increased to 880 million in 2018. Over the same period, outpatient surgeries as a percentage of total surgeries have increased from 16 percent to 70 percent. b. Correct. Just about every measure of hospital inpatient activity among community hospitals has been declining for the past several decades, except outpatient visits. The number of outpatient visits was 263 million in 1980 and has increased to 880 million in 2018. Over the same period, outpatient surgeries as a percentage of total surgeries have increased from 16 percent to 70 percent. c. Incorrect. Just about every measure of hospital inpatient activity among community hospitals has been declining for the past several decades, except outpatient visits. The number of outpatient visits was 263 million in 1980 and has increased to 880 million in 2018. Over the same period, outpatient surgeries as a percentage of total surgeries have increased from 16 percent to 70 percent. d. Incorrect. Just about every measure of hospital inpatient activity among community hospitals has been declining for the past several decades, except outpatient visits. The number of outpatient visits was 263 million in 1980 and has increased to 880 million in 2018. Over the same period, outpatient surgeries as a percentage of total surgeries have increased from 16 percent to 70 percent. e. Incorrect. Just about every measure of hospital inpatient activity among community hospitals has been declining for the past several decades, except outpatient visits. The number of outpatient visits was 263 million in 1980 and has increased to 880 million in 2018. Over the same period, outpatient surgeries as a percentage of total surgeries have increased from 16 percent to 70 percent.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-2a - The U.S. Institutional Setting DATE CREATED: 2/18/2022 12:39 AM DATE MODIFIED: 2/18/2022 12:42 AM 7. The expanded use of prospective payment in hospitals has changed the nature of competition in that market. Which of the following statements is true? a. The switch to diagnosis-related group payments in the 1980s has actually had little effect on competition

because so much of hospital spending comes from the federal government. b. Because patients pay such a small percentage of hospital bills, prospective payment has had little effect on hospital operations. c. Savings from prospective payments are substantial and due primarily to fewer hospital admissions and shorter hospital stays. d. After an initial drop in operating margins shortly after the introduction of diagnosis-related groups (DRGs), Medicare margins have improved and most hospitals are generating 5–8 percent surpluses on all their Medicare business.

ANSWER: c FEEDBACK: a. Incorrect. The introduction of prospective payment in the 1980s reduced hospital spending by reducing the number of hospital admissions and the average length of hospital stays. Hospitals adjusted by expanding the use of technology that enabled them to switch a large portion of their services to outpatient care. Today, almost two-thirds of all surgeries are done on an outpatient basis, up from less than one-sixth in 1980. b. Incorrect. The introduction of prospective payment in the 1980s reduced hospital spending by reducing the number of hospital admissions and the average length of hospital stays. Hospitals adjusted by expanding the use of technology that enabled them to switch a large portion of their services to outpatient care. Today, almost two-thirds of all surgeries are done on an outpatient basis, up from less than one-sixth in 1980. c. Correct. The introduction of prospective payment in the 1980s reduced hospital spending by reducing the number of hospital admissions and the average length of hospital stays. Hospitals adjusted by expanding the use of technology that enabled them to switch a large portion of their services to outpatient care.

Today, almost two-thirds of all surgeries are done on an outpatient basis, up from less than one-sixth in 1980. d. Incorrect. The introduction of prospective payment in the 1980s reduced hospital spending by reducing the number of hospital admissions and the average length of hospital stays. Hospitals adjusted by expanding the use of technology that enabled them to switch a large portion of their services to outpatient care. Today, almost two-thirds of all surgeries are done on an outpatient basis, up from less than one-sixth in 1980.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-2a - The U.S. Institutional Setting DATE CREATED: 2/18/2022 12:43 AM DATE MODIFIED: 2/18/2022 12:44 AM 8. Which of the following statements is true about cost shifting in hospitals? a. The ability to cost shift depends on a hospital’s payer mix. b. The positive correlation coefficient between cost-to-payment ratios for various payers indicates that cost shifting is taking place. c. Regardless of payer mix, hospitals are taking full advantage of their bargaining power with payers who are able to cost shift. d. Classic Ramsey pricing can be interpreted in different ways, leading researchers into arguing that if it looks like cost shifting, it probably is cost shifting. e. Capacity-constrained medical providers are not able to cost shift.

ANSWER: a FEEDBACK: a. Correct. While empirical evidence measuring cost shifting is inconclusive, Wu (2010) tested two alternative explanations—the market power approach and

the strategic approach—and concluded that hospitals with a more favorable payer mix (a larger proportion of private payers) were able to shift more of the costs to private payers. On average, hospitals are able to shift a relatively small percentage of the public–payer shortfall (21 percent). b. Incorrect. While empirical evidence measuring cost shifting is inconclusive, Wu (2010) tested two alternative explanations—the market power approach and the strategic approach—and concluded that hospitals with a more favorable payer mix (a larger proportion of private payers) were able to shift more of the costs to private payers. On average, hospitals are able to shift a relatively small percentage of the public–payer shortfall (21 percent). c. Incorrect. While empirical evidence measuring cost shifting is inconclusive, Wu (2010) tested two alternative explanations—the market power approach and the strategic approach—and concluded that hospitals with a more favorable payer mix (a larger proportion of private payers) were able to shift more of the costs to private payers. On average, hospitals are able to shift a relatively small percentage of the public–payer shortfall (21 percent). d. Incorrect. While empirical evidence measuring cost shifting is inconclusive, Wu (2010) tested two alternative explanations—the market power approach and the strategic approach—and concluded that hospitals with a more favorable payer mix (a larger proportion of private payers) were able to shift more of the costs to private payers. On average, hospitals are able to shift a relatively small percentage of the public-payer shortfall (21 percent). e. Incorrect. While empirical evidence measuring cost shifting is inconclusive, Wu (2010) tested two alternative explanations—the market power approach and the strategic approach—and concluded that hospitals with a more favorable payer mix (a larger proportion of private payers) were able to shift more of the costs to private payers. On average, hospitals are able to shift a relatively small percentage of the public–payer shortfall (21 percent).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-3c - The Theory of Cost Shifting DATE CREATED: 2/18/2022 12:45 AM DATE MODIFIED: 2/18/2022 12:47 AM 9. In order to be a successful price discriminator, a provider must have a degree of market power (depicted by a downward-sloping demand curve) and meet what other condition(s)? a. Markets must be segmentable, identifying differences in ability to pay. b. Demand for services must be relatively price elastic. c. Customers cannot know that different prices are being charged. d. The provider must have excess capacity to accommodate the extra business. e. Profitable service expansion opportunities must be limited.

ANSWER: a FEEDBACK: a. Correct. In order to practice successful price discrimination, the provider must have a degree of market power, be able to identify which customers will pay the higher prices, and keep those who receive low prices from purchasing and reselling the product to high payers. Differences in willingness to pay are based on differences in the price elasticity of demand. Sellers can charge customers with more inelastic demand higher prices than those with demand that is more elastic. b. Incorrect. In order to practice successful price discrimination, the provider must have a degree of market power, be able to identify which customers will pay the higher prices, and keep those who receive low prices from purchasing and reselling the product to high payers. Differences in willingness to pay are based

on differences in the price elasticity of demand. Sellers can charge customers with more inelastic demand higher prices than those with demand that is more elastic. c. Incorrect. In order to practice successful price discrimination, the provider must have a degree of market power, be able to identify which customers will pay the higher prices, and keep those who receive low prices from purchasing and reselling the product to high payers. Differences in willingness to pay are based on differences in the price elasticity of demand. Sellers can charge customers with more inelastic demand higher prices than those with demand that is more elastic. d. Incorrect. In order to practice successful price discrimination, the provider must have a degree of market power, be able to identify which customers will pay the higher prices, and keep those who receive low prices from purchasing and reselling the product to high payers. Differences in willingness to pay are based on differences in the price elasticity of demand. Sellers can charge customers with more inelastic demand higher prices than those with demand that is more elastic. e. Incorrect. In order to practice successful price discrimination, the provider must have a degree of market power, be able to identify which customers will pay the higher prices, and keep those who receive low prices from purchasing and reselling the product to high payers. Differences in willingness to pay are based on differences in the price elasticity of demand. Sellers can charge customers with more inelastic demand higher prices than those with demand that is more elastic.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-3b - The Theory of Cost Shifting DATE CREATED: 2/18/2022 12:48 AM DATE MODIFIED: 2/18/2022 12:50 AM 10. The gap in the availability of health care services between urban and rural areas has increased substantially with the recent changes in health care delivery. Describe how this gap can be narrowed, citing studies if needed to emphasize your arguments.

ANSWER: The presence of a hospital in a community is the primary factor determining access to health care services. The empirical evidence seems to indicate that rural communities are underserved relative to their urban counterparts. A study by Henderson and Taylor (2003) estimated the minimum market size, or population threshold, needed to support any given number of hospitals. Their results suggest that the number of hospitals in a given geographic area depends on area demand patterns, usually measured by population size, population density, per capita income, etc. Their study finds that higher-ordered services will cluster in geographic areas that can support them, driving down the average cost of providing the service. As a result, the number of people required to support a hospital actually declines with the urbanization of a community due to these so-called agglomeration economies.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 11-4 - The Nature of Competition in the Hospital Sector DATE CREATED: 2/18/2022 12:51 AM DATE MODIFIED: 2/28/2022 7:36 AM

11. Will increased competition in the hospital sector improve economic welfare? The text gives two views on this issue.

Describe one of them.

ANSWER: One argument is that increased competition leads to a “medical arms race” and the provision of services of questionable medical necessity. Two factors play an important role in this race: First, patients pay only a small percentage of their hospital costs; second, the prices paid for services are highly regulated with over half of hospital services paid by Medicare and Medicaid. Because patient demand is price inelastic, hospitals do not practice price competition. Rather, they compete for patients by providing more services and higher-quality services than patients would demand under more normal conditions.

Excessive quality is inefficient and does not always improve economic welfare.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 11-4 - The Nature of Competition in the Hospital Sector DATE CREATED: 2/18/2022 12:54 AM DATE MODIFIED: 2/28/2022 7:37 AM 12. The amount that Medicare pays a hospital for treating a Medicare patient is determined: a. before the patient sees a physician. b. at the time of admission to the hospital. c. at the point when the diagnosis is made. d. after medical services are provided. e. after the hospital bill is reviewed by Medicare auditors.

ANSWER: c FEEDBACK: a. Incorrect. The Medicare diagnosis-related group (DRG) system of payment serves as a dramatic shift from retrospective fee-for-service payment (where payment is determined after services are rendered) to prospective payment (where payment is determined before services are provided). b. Incorrect. The Medicare diagnosis-related group (DRG) system of payment serves as a dramatic shift from retrospective fee-for-service payment (where payment is determined after services are rendered) to prospective payment (where payment is determined before services are provided). c. Correct. The Medicare diagnosis-related group (DRG) system of payment serves as a dramatic shift from retrospective fee-for-service payment (where payment is determined after services are rendered) to prospective payment (where payment is determined before services are provided). d. Incorrect. The Medicare diagnosis-related group (DRG) system of payment serves as a dramatic shift from retrospective fee-for-service payment (where payment is determined after services are rendered) to prospective payment (where payment is determined before services are provided). e. Incorrect. The Medicare DRG system of payment serves as a dramatic shift from retrospective fee-for-service payment (where payment is determined after services are rendered) to prospective payment (where payment is determined before services are provided).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-6 - Diagnosis-Related Groups DATE CREATED: 2/18/2022 12:57 AM DATE MODIFIED: 2/18/2022 12:59 AM

13. Changes caused by the shift from charge-based rates to negotiated rates has had which of the following results? a. A growing percentage of patients with insurance are paying billed rates. b. Most hospitals experience a gap between the amount they receive from their payers and the amount billed, with receipts as low as 20 percent of amount billed. c. Charging master rates serve as a powerful guide for optimal resource allocation in the industry. d. The change has increased the importance of Ramsey pricing principles in setting rates.

ANSWER: b FEEDBACK: a. Incorrect. Billed prices have little in common with actual prices paid for a hospital’s services. As a result, these charges cease to serve as market signals for resource allocation purposes. Instead of using Ramsey principles, charging the highest prices to the customers with the most inelastic demand, prices are based on relative bargaining power, and the buyer with the largest market share gets the lowest price. b. Correct. Billed prices have little in common with actual prices paid for a hospital’s services. As a result, these charges cease to serve as market signals for resource allocation purposes. Instead of using Ramsey principles, charging the highest prices to the customers with the most inelastic demand, prices are based on relative bargaining power, and the buyer with the largest market share gets the lowest price. c. Incorrect. Billed prices have little in common with actual prices paid for a hospital’s services. As a result, these charges cease to serve as market signals for resource allocation purposes. Instead of using Ramsey principles, charging the highest prices to the customers with the most inelastic demand, prices are based on relative bargaining power, and the buyer with the largest market share gets the lowest price. d. Incorrect. Billed prices have little in common with actual prices paid for a hospital’s services. As a result, these charges cease to serve as market signals for resource allocation purposes. Instead of using Ramsey principles, charging the highest prices to the customers with the most inelastic demand, prices are based on relative bargaining power, and the buyer with the largest market share gets the lowest price.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-7 - Pricing Hospital Services DATE CREATED: 2/18/2022 1:00 AM DATE MODIFIED: 2/18/2022 1:04 AM 14. What is the ambulatory payment classification (APC) enacted by Congress in 2000, and why does it discriminate against certain groups?

ANSWER: The ambulatory payment classification (APC) is a means of classifying outpatient services into 600 distinct groupings that represent clinically similar procedures. Thus, prices for outpatient services are determined by multiplying the relative weight of the ambulatory payment classification (determined by resource use) by a monetary conversion factor. As originally envisioned, the hospital pricing mechanism was an elaborate system designed to subsidize the cost of medical care provided to the indigent poor by charging privately insured patients more than the cost of their care. This cost shifting, as originally envisioned, is nothing short of a de facto tax on those with private insurance. As such, it discriminates against those who can afford the cost of private insurance.

POINTS: 1 QUESTION TYPE: Essay

HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 11-7 - Pricing Hospital Services DATE CREATED: 2/18/2022 1:04 AM DATE MODIFIED: 2/28/2022 7:40 AM 15. Compared to the not-for-profit organizational form, the for-profit environment a. lacks a profit motive. b. does not provide charity care. c. allows for the transfer of assets. d. provides patients with higher quality of care. e. gives shareholders higher returns on their investment ANSWER: c FEEDBACK: a. Incorrect. Because not-for-profit hospitals do not have shareholders in the usual sense of the term, equity capital does not come from the sale of stock.

Thus, dividends are not paid and law restricts the ability to transfer surplus funds. In the event of liquidation, partial or complete, no individual receives the proceeds. b. Incorrect. Because not-for-profit hospitals do not have shareholders in the usual sense of the term, equity capital does not come from the sale of stock.

Thus, dividends are not paid and law restricts the ability to transfer surplus funds. In the event of liquidation, partial or complete, no individual receives the proceeds. c. Correct. Because not-for-profit hospitals do not have shareholders in the usual sense of the term, equity capital does not come from the sale of stock. Thus, dividends are not paid and law restricts the ability to transfer surplus funds. In the event of liquidation, partial or complete, no individual receives the proceeds. d. Incorrect. Because not-for-profit hospitals do not have shareholders in the usual sense of the term, equity capital does not come from the sale of stock.

Thus, dividends are not paid and law restricts the ability to transfer surplus funds. In the event of liquidation, partial or complete, no individual receives the proceeds. e. Incorrect. Because not-for-profit hospitals do not have shareholders in the usual sense of the term, equity capital does not come from the sale of stock.

Thus, dividends are not paid and law restricts the ability to transfer surplus funds. In the event of liquidation, partial or complete, no individual receives the proceeds.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-9 - The Not-for-Profit Organizational Form DATE CREATED: 2/18/2022 1:06 AM DATE MODIFIED: 2/18/2022 1:09 AM 16. Using the physician-control model to explain hospital behavior leads to which of the following conclusions? a. Other medical inputs tend to be overused to maximize physicians’ productivity. b. The use of operating rooms will be maximized with little excess capacity. c. Physicians will strive to use the nursing staff efficiently. d. All investment decisions will be based on optimal resource use.

ANSWER: a

FEEDBACK:

a. Correct. Physician control leads to inefficient use of resources. When faced with zero price for other inputs, physicians demand overuse of the other inputs relative to their own. Thus, hospitals invest in additional hospital capacity in order to economize on physicians’ time. b. Incorrect. Physician control leads to inefficient use of resources. When faced with zero price for other inputs, physicians demand overuse of the other inputs relative to their own. Thus, hospitals invest in additional hospital capacity in order to economize on physicians’ time. c. Incorrect. Physician control leads to inefficient use of resources. When faced with zero price for other inputs, physicians demand overuse of the other inputs relative to their own. Thus, hospitals invest in additional hospital capacity in order to economize on physicians’ time. d. Incorrect. Physician control leads to inefficient use of resources. When faced with zero price for other inputs, physicians demand overuse of the other inputs relative to their own. Thus, hospitals invest in additional hospital capacity in order to economize on physicians’ time.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-11b - Physician-Control Models DATE CREATED: 2/18/2022 1:10 AM DATE MODIFIED: 2/18/2022 1:12 AM 17. How do you define technical efficiency within a hospital system?

ANSWER: One definition is maximizing output with a given level of resource use; another is producing a given level of output with a minimum of resources. Studies have shown that hospitals are surprisingly efficient in a technical sense and that there is little difference in the level of efficiency between for-profit and not-for-profit hospitals. Because most hospital prices are not competitively driven, they have little meaning in terms of optimal resource allocation decisions.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 11-12 - The Trend toward Multihospital Systems DATE CREATED: 2/18/2022 1:40 AM DATE MODIFIED: 2/28/2022 7:41 AM 18. The merger of two community hospitals located in the same geographic market is called: a. vertical integration. b. horizontal integration. c. a leveraged buyout. d. a conglomerate merger. e. a real shame, as one of the hospitals will likely close.

ANSWER: b FEEDBACK: a. Incorrect. Horizontal integration is the merger of two or more firms that produce the same good or service. b. Correct. Horizontal integration is the merger of two or more firms that produce the same good or service. c. Incorrect. Horizontal integration is the merger of two or more firms that produce

the same good or service.

d. Incorrect. Horizontal integration is the merger of two or more firms that produce the same good or service. e. Incorrect. Horizontal integration is the merger of two or more firms that produce the same good or service.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-13 - The Theory of Consolidation DATE CREATED: 2/18/2022 1:41 AM DATE MODIFIED: 2/18/2022 1:44 AM 19. Economies of scale exist when: a. long-run average costs decline as output increases. b. long-run average costs are constant. c. long-run average costs increase as output increases. d. short-run average costs decline. e. short-run average costs increase.

ANSWER: a FEEDBACK: a. Correct. Economies of scale refers to a situation in a production process where long-run average cost declines as output expands. Efficiency-improving expansion leads to a number of technical advantages: increased purchasing power along with specialization and division of labor to improve productivity.

This creates the ability to lower the per-unit cost of production. b. Incorrect. Economies of scale refers to a situation in a production process where long-run average cost declines as output expands. Efficiency-improving expansion leads to a number of technical advantages: increased purchasing power along with specialization and division of labor to improve productivity.

This creates the ability to lower the per-unit cost of production. c. Incorrect. Economies of scale refers to a situation in a production process where long-run average cost declines as output expands. Efficiency-improving expansion leads to a number of technical advantages: increased purchasing power along with specialization and division of labor to improve productivity.

This creates the ability to lower the per-unit cost of production. d. Incorrect. Economies of scale refers to a situation in a production process where long-run average cost declines as output expands. Efficiency-improving expansion leads to a number of technical advantages: increased purchasing power along with specialization and division of labor to improve productivity.

This creates the ability to lower the per-unit cost of production. e. Incorrect. Economies of scale refers to a situation in a production process where long-run average cost declines as output expands. Efficiency-improving expansion leads to a number of technical advantages: increased purchasing power along with specialization and division of labor to improve productivity.

This creates the ability to lower the per-unit cost of production.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-13 - The Theory of Consolidation DATE CREATED: 2/18/2022 1:44 AM DATE MODIFIED: 2/18/2022 1:46 AM

20. Horizontal integration allows firms to do all of the following except: a. take advantage of cost savings due to economies of scale. b. reduce administrative costs. c. create brand identity. d. integrate with primary care clinics and acute care nursing facilities.

ANSWER: d FEEDBACK: a. Incorrect. Horizontal integration provides opportunities to consolidate service lines across facilities to increase productivity and reduce costs, including administrative costs. Integration with primary care clinics and nursing facilities is vertical integration. b. Incorrect. Horizontal integration provides opportunities to consolidate service lines across facilities to increase productivity and reduce costs, including administrative costs. Integration with primary care clinics and nursing facilities is vertical integration. c. Incorrect. Horizontal integration provides opportunities to consolidate service lines across facilities to increase productivity and reduce costs, including administrative costs. Integration with primary care clinics and nursing facilities is vertical integration. d. Correct. Horizontal integration provides opportunities to consolidate service lines across facilities to increase productivity and reduce costs, including administrative costs. Integration with primary care clinics and nursing facilities is vertical integration.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-13 - The Theory of Consolidation DATE CREATED: 2/18/2022 1:48 AM DATE MODIFIED: 2/18/2022 1:50 AM 21. Consolidation activity in the hospital industry: a. has slowed due to federal government legislation. b. has created a large number of nationwide for-profit hospital chains. c. has occurred almost exclusively at the local level. d. occurs for the same reasons that cause consolidation in other industries.

ANSWER: d FEEDBACK: a. Incorrect. Consolidation in the hospital industry, whether it is horizontal or vertical integration, allows firms to take advantage of economies of scale, reduce administrative costs, and improve customer access to information.

These are the same reason they occur in any industry. b. Incorrect. Consolidation in the hospital industry, whether it is horizontal or vertical integration, allows firms to take advantage of economies of scale, reduce administrative costs, and improve customer access to information.

These are the same reason they occur in any industry. c. Incorrect. Consolidation in the hospital industry, whether it is horizontal or vertical integration, allows firms to take advantage of economies of scale, reduce administrative costs, and improve customer access to information.

These are the same reason they occur in any industry. d. Correct. Consolidation in the hospital industry, whether it is horizontal or vertical integration, allows firms to take advantage of economies of scale, reduce administrative costs, and improve customer access to information.

These are the same reason they occur in any industry.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 11-13 - The Theory of Consolidation DATE CREATED: 2/18/2022 1:52 AM DATE MODIFIED: 2/18/2022 1:54 AM

Chapter 12: Pharmaceuticals 1. Pharmaceutical development provides a good example of rent-seeking behavior, the pursuit of which results in . a. increased economic activity by promoting efficiency. b. lower economic activity by diverting resource to less-productive uses. c. a more equitable distribution of income and wealth. d. lower prices throughout the economy. e. greater income and wealth in the private sector.

ANSWER: b FEEDBACK: a. Incorrect. Rent seeking distorts incentives and encourages the inefficient use of resources. In pharmaceutical development, patents create rents and provide incentives for non-patent holders to create copycat drugs to compete with the patent holder that add little to consumer welfare. b. Correct. Rent seeking distorts incentives and encourages the inefficient use of resources. In pharmaceutical development, patents create rents and provide incentives for non-patent holders to create copycat drugs to compete with the patent holder that add little to consumer welfare. c. Incorrect. Rent seeking distorts incentives and encourages the inefficient use of resources. In pharmaceutical development, patents create rents and provide incentives for non-patent holders to create copycat drugs to compete with the patent holder that add little to consumer welfare. d. Incorrect. Rent seeking distorts incentives and encourages the inefficient use of resources. In pharmaceutical development, patents create rents and provide incentives for non-patent holders to create copycat drugs to compete with the patent holder that add little to consumer welfare. e. Incorrect. Rent seeking distorts incentives and encourages the inefficient use of resources. In pharmaceutical development, patents create rents and provide incentives for non-patent holders to create copycat drugs to compete with the patent holder that add little to consumer welfare.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-1 - The Structure of the Industry DATE CREATED: 2/14/2022 5:39 AM DATE MODIFIED: 2/28/2022 7:45 AM 2. What percentage of the new drugs introduced in the United States between 1940 and 1990 were discovered by firms in the United States? a. 15 percent b. 30 percent c. 45 percent d. 60 percent e. 75 percent ANSWER: d FEEDBACK: a. Incorrect. The United States’ supremacy in drug development is clear.

Weidenbaum (1993) shows that of the 1,265 drugs introduced in the U.S. market from 1940–1990, over 60 percent were developed by U.S. firms. Since 1995, several of the large pharmaceutical companies have moved their operations to the United States. b. Incorrect. The United States’ supremacy in drug development is clear.

Weidenbaum (1993) shows that of the 1,265 drugs introduced in the United States’ market from 1940–1990, over 60 percent were developed by firms in the United States. Since 1995, several of the large pharmaceutical companies have moved their operations to the United States. c. Incorrect. The United States’ supremacy in drug development is clear.

Weidenbaum (1993) shows that of the 1,265 drugs introduced in the United States’ market from 1940–1990, over 60 percent were developed by firms in the United States. Since 1995, several of the large pharmaceutical companies have moved their operations to the United States. d. Correct. The United States’ supremacy in drug development is clear.

Weidenbaum (1993) shows that of the 1,265 drugs introduced in the United States’ market from 1940–1990, over 60 percent were developed by firms in the United States. Since 1995, several of the large pharmaceutical companies have moved their operations to the United States. e. Incorrect. The United States’ supremacy in drug development is clear.

Weidenbaum (1993) shows that of the 1,265 drugs introduced in the United States’ market from 1940–1990, over 60 percent were developed by firms in the United States. Since 1995, several of the large pharmaceutical companies have moved their operations to the United States.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-2 - The Role of Research and Development DATE CREATED: 2/14/2022 5:43 AM DATE MODIFIED: 2/28/2022 7:49 AM 3. The regulatory agency with oversight responsibility for the pharmaceutical industry is: a. the Health Care Financing Administration. b. the Centers for Disease Control. c. the National Institutes for Health. d. the Food and Drug Administration. e. the Federal Emergency Medical Administration.

ANSWER: d FEEDBACK: a. Incorrect. Regulation of pharmaceutical drugs became the responsibility of the Food and Drug Administration (FDA) in the early twentieth century. Initially concerned with drug safety, the FDA was given authority over drug studies in 1962. b. Incorrect. Regulation of pharmaceutical drugs became the responsibility of the Food and Drug Administration (FDA) in the early twentieth century. Initially concerned with drug safety, the FDA was given authority over drug studies in 1962. c. Incorrect. Regulation of pharmaceutical drugs became the responsibility of the Food and Drug Administration (FDA) in the early twentieth century. Initially concerned with drug safety, the FDA was given authority over drug studies in 1962. d. Correct. Regulation of pharmaceutical drugs became the responsibility of the Food and Drug Administration (FDA) in the early twentieth century. Initially concerned with drug safety, the FDA was given authority over drug studies in 1962. e. Incorrect. Regulation of pharmaceutical drugs became the responsibility of the Food and Drug Administration (FDA) in the early twentieth century. Initially concerned with drug safety, the FDA was given authority over drug studies in 1962.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-2 - The Role of Research and Development DATE CREATED: 2/14/2022 5:55 AM DATE MODIFIED: 2/28/2022 7:50 AM 4. Which of the following characteristics is true of the pharmaceutical industry? a. Low fixed cost b. High variable cost c. Non-segmentable markets d. Exclusive rights to market and sell patented products e. Virtually guaranteed profits when the product is introduced ANSWER: d FEEDBACK: a. Incorrect. Patent protection grants monopoly rights to the firm that discovers a new chemical entity (NCE). These rights allow pharmaceutical companies exclusive rights to the market and set their own prices. However, even patented drugs are not guaranteed winners when they are introduced. b. Incorrect. Patent protection grants monopoly rights to the firm that discovers a new chemical entity (NCE). These rights allow pharmaceutical companies exclusive rights to the market and set their own prices. However, even patented drugs are not guaranteed winners when they are introduced. c. Incorrect. Patent protection grants monopoly rights to the firm that discovers a new chemical entity (NCE). These rights allow pharmaceutical companies exclusive rights to the market and set their own prices. However, even patented drugs are not guaranteed winners when they are introduced. d. Correct. Patent protection grants monopoly rights to the firm that discovers a new chemical entity (NCE). These rights allow pharmaceutical companies exclusive rights to the market and set their own prices. However, even patented drugs are not guaranteed winners when they are introduced. e. Incorrect. Patent protection grants monopoly rights to the firm that discovers a new chemical entity (NCE). These rights allow pharmaceutical companies exclusive rights to the market and set their own prices. However, even patented drugs are not guaranteed winners when they are introduced.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-2 - The Role of Research and Development DATE CREATED: 2/14/2022 5:57 AM DATE MODIFIED: 2/28/2022 7:51 AM 5. By the time a drug enters the clinical trial phase of testing on humans, a. its approval is virtually assured. b. its safety and effectiveness are no longer major concerns. c. an average of five years of the overall patent life has already expired. d. it has already completed most of the investment in research and development. e. the only step left in the process is testing to see if the drug accomplishes its intended purpose.

ANSWER: c FEEDBACK: a. Incorrect. The preclinical phase of testing takes an average of five years to

complete. Only 5 out of 250 chemical compounds make it successfully through the preclinical phase to be tested on humans. The three phases of human testing examine drug safety, efficacy, and effectiveness. These three phases take up to seven years to complete and are responsible for over one-half of the overall development costs. Of the five that make it to the clinical phase, the FDA only approves one for marketing and distribution. b. Incorrect. The preclinical phase of testing takes an average of five years to complete. Only 5 out of 250 chemical compounds make it successfully through the preclinical phase to be tested on humans. The three phases of human testing examine drug safety, efficacy, and effectiveness. These three phases take up to seven years to complete and are responsible for over one-half of the overall development costs. Of the five that make it to the clinical phase, the FDA only approves one for marketing and distribution. c. Correct. The preclinical phase of testing takes an average of five years to complete. Only 5 out of 250 chemical compounds make it successfully through the preclinical phase to be tested on humans. The three phases of human testing examine drug safety, efficacy, and effectiveness. These three phases take up to seven years to complete and are responsible for over one-half of the overall development costs. Of the five that make it to the clinical phase, the FDA only approves one for marketing and distribution. d. Incorrect. The preclinical phase of testing takes an average of five years to complete. Only 5 out of 250 chemical compounds make it successfully through the preclinical phase to be tested on humans. The three phases of human testing examine drug safety, efficacy, and effectiveness. These three phases take up to seven years to complete and are responsible for over one-half of the overall development costs. Of the five that make it to the clinical phase, the FDA only approves one for marketing and distribution. e. Incorrect. The preclinical phase of testing takes an average of five years to complete. Only 5 out of 250 chemical compounds make it successfully through the preclinical phase to be tested on humans. The three phases of human testing examine drug safety, efficacy, and effectiveness. These three phases take up to seven years to complete and are responsible for over one-half of the overall development costs. Of the five that make it to the clinical phase, the FDA only approves one for marketing and distribution.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-2 - The Role of Research and Development DATE CREATED: 2/14/2022 6:00 AM DATE MODIFIED: 2/28/2022 7:51 AM 6. Approximately what percentage of worldwide research and development spending on pharmaceuticals is based in the United States? a. 25 percent b. 45 percent c. 55 percent d. 75 percent e. 95 percent ANSWER: d FEEDBACK: a. Incorrect. According to PhRMA (Pharmaceutical Research and Manufacturers of America), approximately 75 percent of the world’s total research and development (R&D) spending in pharmaceuticals is concentrated in the United States.

b. Incorrect. According to PhRMA (Pharmaceutical Research and Manufacturers

of America), approximately 75 percent of the world’s total research and development (R&D) spending in pharmaceuticals is concentrated in the United States. c. Incorrect. According to PhRMA (Pharmaceutical Research and Manufacturers of America), approximately 75 percent of the world’s total research and development (R&D) spending in pharmaceuticals is concentrated in the United States. d. Correct. According to PhRMA (Pharmaceutical Research and Manufacturers of America), approximately 75 percent of the world’s total research and development (R&D) spending in pharmaceuticals is concentrated in the United States. e. Incorrect. According to PhRMA (Pharmaceutical Research and Manufacturers of America), approximately 75 percent of the world’s total research and development (R&D) spending in pharmaceuticals is concentrated in the United States.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-2 - The Role of Research and Development DATE CREATED: 2/14/2022 6:04 AM DATE MODIFIED: 2/28/2022 7:52 AM 7. In general, the longer a drug is on the market, the: a. higher its return on sales. b. lower its return on sales. c. higher its after-tax profit. d. less likely it is that the company will develop other new drugs.

ANSWER: b FEEDBACK: a. Incorrect. Firms tend to earn normal profits on older drugs and higher profits on newer drugs. According to Baily (1972), the introduction of new drugs is a major determinant in profitability. As a result, many pharmaceutical companies invest a large proportion of their sales revenue on research and development. b. Correct. Firms tend to earn normal profits on older drugs and higher profits on newer drugs. According to Baily (1972), the introduction of new drugs is a major determinant in profitability. As a result, many pharmaceutical companies invest a large proportion of their sales revenue on research and development. c. Incorrect. Firms tend to earn normal profits on older drugs and higher profits on newer drugs. According to Baily (1972), the introduction of new drugs is a major determinant in profitability. As a result, many pharmaceutical companies invest a large proportion of their sales revenue on research and development. d. Incorrect. Firms tend to earn normal profits on older drugs and higher profits on newer drugs. According to Baily (1972), the introduction of new drugs is a major determinant in profitability. As a result, many pharmaceutical companies invest a large proportion of their sales revenue on research and development.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-2 - The Role of Research and Development DATE CREATED: 2/14/2022 6:06 AM DATE MODIFIED: 2/28/2022 7:53 AM

8. On average, biopharmaceutical companies spend approximately what percentage of their sales revenue on research and development? a. 5–10 percent b. 10–15 percent c. 15–20 percent d. 20–25 percent e. 25–30 percent ANSWER: a FEEDBACK: a. Correct. Biopharmaceutical companies consistently spend 15 to 20 percent of sales revenue on research and development (R&D). In comparison, the United States’ industry average, excluding drugs and medicine, is less than 5 percent.

In 2015, 8 of the top 20 corporations ranked according to research and development (R&D) spending were pharmaceutical companies. b. Incorrect. Biopharmaceutical companies consistently spend 15 to 20 percent of sales revenue on research and development (R&D). In comparison, the United States’ industry average, excluding drugs and medicine, is less than 5 percent.

In 2015, 8 of the top 20 corporations ranked according to research and development (R&D) spending were pharmaceutical companies. c. Incorrect. Biopharmaceutical companies consistently spend 15 to 20 percent of sales revenue on research and development (R&D). In comparison, the United States’ industry average, excluding drugs and medicine, is less than 5 percent.

In 2015, 8 of the top 20 corporations ranked according to research and development (R&D) spending were pharmaceutical companies. d. Incorrect. Biopharmaceutical companies consistently spend 15 to 20 percent of sales revenue on research and development (R&D). In comparison, the United States’ industry average, excluding drugs and medicine, is less than 5 percent.

In 2015, 8 of the top 20 corporations ranked according to research and development (R&D) spending were pharmaceutical companies. e. Incorrect. Biopharmaceutical companies consistently spend 15 to 20 percent of sales revenue on research and development (R&D). In comparison, the United States’ industry average, excluding drugs and medicine, is less than 5 percent.

In 2015, 8 of the top 20 corporations ranked according to research and development (R&D) spending were pharmaceutical companies.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-2 - The Role of Research and Development DATE CREATED: 2/14/2022 6:08 AM DATE MODIFIED: 2/28/2022 7:53 AM 9. How does the probability of a chemical compound making it onto the market offset its high profit potential?

ANSWER: Though new drugs may have a very large profit potential thanks to the monopoly rights granted through patents, there is an extremely low probability that a certain chemical compound will make it onto the shelves of a pharmacy. The odds of FDA approval are very low. Of the more than 5,000 compounds evaluated by researchers during the discovery phase, only 250 will move on to the preclinical testing phase. Of these compounds, only five will enter human trials and only one will receive FDA approval. In addition, only 2 of 10 approved drugs are likely to earn enough in sales to cover the average research and development (R&D) expenditures (Vernon, Golec, and DiMasi, 2010).

POINTS: 1 QUESTION TYPE: Essay

HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 12-2 - The Role of Research and Development DATE CREATED: 2/14/2022 6:10 AM DATE MODIFIED: 2/28/2022 7:54 AM 10. Explain why pharmaceutical companies invest such a large proportion of their sales revenues in research in development in comparison to other industries in the United States.

ANSWER: According to Baily (1972), the introduction of new drugs is a major determinant in profitability for pharmaceutical companies. For older drugs, they tend to earn normal profits, whereas with newer drugs tend to bring in larger profits. With this incentive to discover new chemical compounds, pharmaceutical companies consistently invest about 15 to 20 percent of their sales revenues on research and development (R&D), which is far greater than the United States’ industry average of less than 5 percent (excluding drugs and medicine).

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 12-2 - The Role of Research and Development DATE CREATED: 2/14/2022 6:10 AM DATE MODIFIED: 2/28/2022 7:55 AM 11. A type I error is: a. when a harmful drug is allowed into the market. b. when a beneficial drug is blocked from entering a market. c. the statistical notion of accepting a false hypothesis. d. difficult to detect and virtually ignored by the Food and Drug Administration (FDA).

ANSWER: a FEEDBACK: a. Correct. Take the case where a harmful drug is being tested. In drug studies, the researcher is testing the hypothesis that the drug is harmful. A type I error occurs when a hypothesis (the drug is harmful) that is actually true (in reality, the drug is harmful) is rejected. If that hypothesis is rejected, the drug does pass the test, the Food and Drug Administration (FDA) approves it for marketing, and a harmful drug enters the market. If the hypothesis is accepted, the drug fails the test and is not approved for marketing. b. Incorrect. Take the case where a harmful drug is being tested. In drug studies, the researcher is testing the hypothesis that the drug is harmful. A type I error occurs when a hypothesis (the drug is harmful) that is actually true (in reality, the drug is harmful) is rejected. If that hypothesis is rejected, the drug does pass the test, the Food and Drug Administration (FDA) approves it for marketing, and a harmful drug enters the market. If the hypothesis is accepted, the drug fails the test and is not approved for marketing. c. Incorrect. Take the case where a harmful drug is being tested. In drug studies, the researcher is testing the hypothesis that the drug is harmful. A type I error occurs when a hypothesis (the drug is harmful) that is actually true (in reality, the drug is harmful) is rejected. If that hypothesis is rejected, the drug does pass the test, the Food and Drug Administration (FDA) approves it for marketing, and a harmful drug enters the market. If the hypothesis is accepted, the drug fails the test and is not approved for marketing. d. Incorrect. Take the case where a harmful drug is being tested. In drug studies, the researcher is testing the hypothesis that the drug is harmful. A type I error

occurs when a hypothesis (the drug is harmful) that is actually true (in reality, the drug is harmful) is rejected. If that hypothesis is rejected, the drug does pass the test, the Food and Drug Administration (FDA) approves it for marketing, and a harmful drug enters the market. If the hypothesis is accepted, the drug fails the test and is not approved for marketing.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-3 - The Role of Government DATE CREATED: 2/14/2022 6:11 AM DATE MODIFIED: 2/28/2022 7:56 AM 12. A type II error is: a. when a harmful drug is allowed into the market. b. when a beneficial drug is blocked from entering a market. c. the statistical notion of rejecting a true hypothesis. d. easy to detect and seldom happens.

ANSWER: b FEEDBACK: a. Incorrect. Take the case where a beneficial drug is being tested. In drug studies, the researcher is testing the hypothesis that the drug is harmful. A type II error occurs when a hypothesis (the drug is harmful) that is actually false (in reality, the drug is beneficial) is accepted. If that hypothesis is accepted, the drug does not pass the test, the Food and Drug Administration (FDA) rejects it for marketing, and a beneficial drug does not enter the market. If the hypothesis is rejected, the drug passes the test and is approved for marketing. b. Correct. Take the case where a beneficial drug is being tested. In drug studies, the researcher is testing the hypothesis that the drug is harmful. A type II error occurs when a hypothesis (the drug is harmful) that is actually false (in reality, the drug is beneficial) is accepted. If that hypothesis is accepted, the drug does not pass the test, the Food and Drug Administration (FDA) rejects it for marketing, and a beneficial drug does not enter the market. If the hypothesis is rejected, the drug passes the test and is approved for marketing. c. Incorrect. Take the case where a beneficial drug is being tested. In drug studies, the researcher is testing the hypothesis that the drug is harmful. A type II error occurs when a hypothesis (the drug is harmful) that is actually false (in reality, the drug is beneficial) is accepted. If that hypothesis is accepted, the drug does not pass the test, the Food and Drug Administration (FDA) rejects it for marketing, and a beneficial drug does not enter the market. If the hypothesis is rejected, the drug passes the test and is approved for marketing. d. Incorrect. Take the case where a beneficial drug is being tested. In drug studies, the researcher is testing the hypothesis that the drug is harmful. A type II error occurs when a hypothesis (the drug is harmful) that is actually false (in reality, the drug is beneficial) is accepted. If that hypothesis is accepted, the drug does not pass the test, the Food and Drug Administration (FDA) rejects it for marketing, and a beneficial drug does not enter the market. If the hypothesis is rejected, the drug passes the test and is approved for marketing.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-3 - The Role of Government DATE CREATED: 2/14/2022 6:14 AM DATE MODIFIED: 2/28/2022 7:57 AM

13. What was the main effect of the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) on United States’ domestic policy? a. It lowered the life of patents from 20 years from the date of grant to 17 years from the date of application. b. It significantly increased the ability of generic substitutes to compete with brand name drugs. c. It allowed generic drugs to rely on the original safety and efficacy evidence provided by the equivalent branded drug. d. It extended the life of patents from 17 years from the date of grant to 20 years from the date of application.

ANSWER: d FEEDBACK: a. Incorrect. The Uruguay Round in the General Agreement on Tariffs and Trade (GATT) produced an agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which brought about major changes in the patent policies of other countries. In terms of its effect on the United States, the agreement increased the patent term from 17 years from the date of grant to 20 years from the date of application. b. Incorrect. The Uruguay Round in the General Agreement on Tariffs and Trade (GATT) produced an agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which brought about major changes in the patent policies of other countries. In terms of its effect on the United States, the agreement increased the patent term from 17 years from the date of grant to 20 years from the date of application. c. Incorrect. The Uruguay Round in the General Agreement on Tariffs and Trade (GATT) produced an agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which brought about major changes in the patent policies of other countries. In terms of its effect on the United States, the agreement increased the patent term from 17 years from the date of grant to 20 years from the date of application. d. Correct. The Uruguay Round in the General Agreement on Tariffs and Trade (GATT) produced an agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which brought about major changes in the patent policies of other countries. In terms of its effect on the United States, the agreement increased the patent term from 17 years from the date of grant to 20 years from the date of application.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-3 - The Role of Government DATE CREATED: 2/14/2022 6:17 AM DATE MODIFIED: 2/28/2022 7:57 AM 14. Which of the following simplifies the approval process for generic drugs and facilitates their entry onto the market? a. Trade-Related Aspects of Intellectual Property Rights (TRIPS) b. Abbreviated New Drug Application (ANDA) c. General Agreement on Tariffs and Trade (GATT) d. Food and Drug Administration (FDA) ANSWER: b FEEDBACK: a. Incorrect. The Abbreviated New Drug Application (ANDA) is a low-cost option for the producers of generic drugs and simplifies the approval process by cutting at least two years off the application process and saving millions of dollars (Grabowski and Vernon, 1986). b. Correct. The Abbreviated New Drug Application (ANDA) is a low-cost option for the producers of generic drugs and simplifies the approval process by cutting at least two years off the application process and saving millions of dollars

(Grabowski and Vernon, 1986).

c. Incorrect. The Abbreviated New Drug Application (ANDA) is a low-cost option for the producers of generic drugs and simplifies the approval process by cutting at least two years off the application process and saving millions of dollars (Grabowski and Vernon, 1986). d. Incorrect. The Abbreviated New Drug Application (ANDA) is a low-cost option for the producers of generic drugs and simplifies the approval process by cutting at least two years off the application process and saving millions of dollars (Grabowski and Vernon, 1986).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-3 - The Role of Government DATE CREATED: 2/14/2022 6:19 AM DATE MODIFIED: 2/28/2022 7:58 AM 15. Summarize the dilemma concerning the overreliance of government on avoiding the negative effects of harmful drugs.

ANSWER: The success in keeping harmful drugs off the market is clear and easily observed, such as the benefits of keeping thalidomide out of the United States in the 1960s. However, there are also costs associated with an overly cautious approach. Excessive government regulation delays the approval of new drugs, reduces competition to develop new drugs, and raises the overall development costs (Miller, 2010). Delaying a beneficial drug from reaching the market receives little attention. For example, Kazman (1990) estimated that 10,000 Americans died prematurely between 1967 and 1976 because of the Food and Drug Administration (FDA) delay in approving beta blockers for reducing the risk of heart attacks.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 12-3 - The Role of Government DATE CREATED: 2/14/2022 6:27 AM DATE MODIFIED: 2/28/2022 7:59 AM 16. Pharmaceutical companies receive patents as an exclusive right to produce a drug. This results in: a. normal profits on the patented drug. b. monopoly rights in the production of the drug. c. lower prices for patients requiring the drug. d. normal profits on orphan drug status. e. fewer new chemical compounds being discovered.

ANSWER: b FEEDBACK: a. Incorrect. Patent protection grants monopoly rights to the firm that discovers a new chemical entity and is the first to apply for a patent. Exclusive rights to produce, market, and sell an approved drug provide the firm with the ability to limit the availability of the product and set prices above the marginal cost of production. The entire process of getting a drug to market is long and expensive and a relative few successfully complete the process. High risk brings with it the potential for high reward. b. Correct. Patent protection grants monopoly rights to the firm that discovers a new chemical entity and is the first to apply for a patent. Exclusive rights to

produce, market, and sell an approved drug provide the firm with the ability to limit the availability of the product and set prices above the marginal cost of production. The entire process of getting a drug to market is long and expensive and a relative few successfully complete the process. High risk brings with it the potential for high reward. c. Incorrect. Patent protection grants monopoly rights to the firm that discovers a new chemical entity and is the first to apply for a patent. Exclusive rights to produce, market, and sell an approved drug provide the firm with the ability to limit the availability of the product and set prices above the marginal cost of production. The entire process of getting a drug to market is long and expensive and a relative few successfully complete the process. High risk brings with it the potential for high reward. d. Incorrect. Patent protection grants monopoly rights to the firm that discovers a new chemical entity and is the first to apply for a patent. Exclusive rights to produce, market, and sell an approved drug provide the firm with the ability to limit the availability of the product and set prices above the marginal cost of production. The entire process of getting a drug to market is long and expensive and a relative few successfully complete the process. High risk brings with it the potential for high reward. e. Incorrect. Patent protection grants monopoly rights to the firm that discovers a new chemical entity and is the first to apply for a patent. Exclusive rights to produce, market, and sell an approved drug provide the firm with the ability to limit the availability of the product and set prices above the marginal cost of production. The entire process of getting a drug to market is long and expensive and a relative few successfully complete the process. High risk brings with it the potential for high reward.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-4 - The Impact of Patents on Drug Prices DATE CREATED: 2/14/2022 6:27 AM DATE MODIFIED: 2/28/2022 8:00 AM 17. Patents create monopolies, and monopolies have the ability to exercise market power. This ability results in which of the following? (Select all that apply) a. Restrict output below the social optimum b. Charge higher prices c. Appropriate all surplus value and turn it into monopoly profits d. Gain exclusive rights to a market and sell a product for a specific time period ANSWER: a FEEDBACK: a. Correct. Patent holders have exclusive rights to market and sell a product for a fixed period, giving them the power to restrict output below the social optimum and charge a price above the marginal cost of production. They are unable to appropriate all surplus value. Even at higher prices, there is still positive consumer surplus and deadweight loss. b. Correct. Patent holders have exclusive rights to market and sell a product for a fixed period, giving them the power to restrict output below the social optimum and charge a price above the marginal cost of production. They are unable to appropriate all surplus value. Even at higher prices, there is still positive consumer surplus and deadweight loss. c. Incorrect. Patent holders have exclusive rights to market and sell a product for a fixed period, giving them the power to restrict output below the social optimum and charge a price above the marginal cost of production. They are unable to appropriate all surplus value. Even at higher prices, there is still

positive consumer surplus and deadweight loss.

d. Correct. Patent holders have exclusive rights to market and sell a product for a fixed period, giving them the power to restrict output below the social optimum and charge a price above the marginal cost of production. They are unable to appropriate all surplus value. Even at higher prices, there is still positive consumer surplus and deadweight loss.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-4 - The Impact of Patents on Drug Prices DATE CREATED: 2/14/2022 6:30 AM DATE MODIFIED: 2/28/2022 8:01 AM 18. In a brief essay, explain how the patent system distorts the pharmaceutical market.

ANSWER: The granting of patents for new drugs gives pharmaceutical companies monopoly rights, which allows them to limit the availability of their product and set its price above the marginal cost of production. Through this distortion of drug prices, the treatment options for individuals who do not have the means to pay are limited and American consumers are faced with overpriced prescription medications.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 12-4 - The Impact of Patents on Drug Prices DATE CREATED: 2/15/2022 12:12 AM DATE MODIFIED: 2/28/2022 8:01 AM 19. One of the primary reasons that costly technology is being introduced into the health care system is: a. research scientists have successfully mapped the human genome. b. high cost is synonymous with better outcomes. c. third-party insurance finances most of the cost of care. d. better access to technology, especially diagnostic imaging, results in lower spending.

ANSWER: c FEEDBACK: a. Incorrect. Insurance increases consumer demand for the covered services and enables the monopolist provider to respond by raising prices. Higher prices increase the incentive to innovate and develop new products. b. Incorrect. Insurance increases consumer demand for the covered services and enables the monopolist provider to respond by raising prices. Higher prices increase the incentive to innovate and develop new products. c. Correct. Insurance increases consumer demand for the covered services and enables the monopolist provider to respond by raising prices. Higher prices increase the incentive to innovate and develop new products. d. Incorrect. Insurance increases consumer demand for the covered services and enables the monopolist provider to respond by raising prices. Higher prices increase the incentive to innovate and develop new products.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-5 - The Impact of Insurance on Drug Prices

DATE CREATED: DATE MODIFIED:

2/15/2022 12:12 AM 2/28/2022 8:02 AM

20. In the figure below, D1 depicts the market situation where no insurance is available to assist consumers in purchasing the monopolist’s product. The introduction of insurance with an average of 25 percent copay (shown by D2) will have the following effect:

a. Insurance will increase consumption of the product to the social optimum. b. There will be no significant change in price if the firm is already charging the monopoly price. c. Prices will increase, but not enough information is provided to determine the magnitude of the increase. d. Prices will increase by as much as 400 percent as insurance coverage expands. e. Market forces will move the monopolist to charge a price equal to the marginal cost of production.

ANSWER: d FEEDBACK: a. Incorrect. Insurance increases the demand for the covered products; the profit maximizing monopolist will be reluctant to increase output. To counteract market forces, the monopolist will increase price. The increase may be calculated by dividing the uninsured price (in this case, P1) and dividing it by the coinsurance rate (25 percent, or 0.25). For P1 = 1, the price change is 400 percent (1/0.25). Thus, P2 = 4 x P1. b. Incorrect. Insurance increases the demand for the covered products; the profit maximizing monopolist will be reluctant to increase output. To counteract market forces, the monopolist will increase price. The increase may be calculated by dividing the uninsured price (in this case, P1) and dividing it by the coinsurance rate (25 percent, or 0.25). For P1 = 1, the price change is 400 percent (1/0.25). Thus, P2 = 4 x P1. c. Incorrect. Insurance increases the demand for the covered products; the profit maximizing monopolist will be reluctant to increase output. To counteract market forces, the monopolist will increase price. The increase may be calculated by dividing the uninsured price (in this case, P1) and dividing it by the coinsurance rate (25 percent, or 0.25). For P1 = 1, the price change is 400 percent (1/0.25). Thus, P2 = 4 x P1. d. Correct. Insurance increases the demand for the covered products; the profit maximizing monopolist will be reluctant to increase output. To counteract market forces, the monopolist will increase price. The increase may be calculated by dividing the uninsured price (in this case, P1) and dividing it by the coinsurance rate (25 percent, or 0.25). For P1 = 1, the price change is 400 percent (1/0.25). Thus, P2 = 4 x P1. e. Incorrect. Insurance increases the demand for the covered products; the profit

maximizing monopolist will be reluctant to increase output. To counteract market forces, the monopolist will increase price. The increase may be calculated by dividing the uninsured price (in this case, P1) and dividing it by the coinsurance rate (25 percent, or 0.25). For P1 = 1, the price change is 400 percent (1/0.25). Thus, P2 = 4 x P1.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-5 - The Impact of Insurance on Drug Prices DATE CREATED: 2/15/2022 12:17 AM DATE MODIFIED: 2/28/2022 8:03 AM 21. Summarize the impact of insurance on drug prices.

ANSWER: The creation of a prescription drug insurance plan with a copayment provision invites the monopolist’s response. As insurance coverage increases consumer demand for covered services and products, monopolies are reluctant to increase output and will instead respond by raising the drug price in proportion to the inverse of the copay. For example, a 50 percent copay would imply that the monopolist would double prices from their initial level.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 12-5 - The Impact of Insurance on Drug Prices DATE CREATED: 2/15/2022 12:22 AM DATE MODIFIED: 2/28/2022 8:04 AM 22. Which of the following statements is true of direct-to-consumer advertising? a. There is a positive correlation between a drug’s price and the amount of direct-to-consumer advertising practiced. b. direct-to-consumer advertising attracts more patients to consider using the product who might not have known about the drug. c. direct-to-consumer advertising increases pharmaceutical profits but does little to improve consumer welfare. d. The majority of pharmaceutical spending on advertising is focused on the patient. e. Pharmaceutical advertising does little to educate patients. Its sole purpose is to promote product use.

ANSWER: b FEEDBACK: a. Incorrect. The purpose of advertising is to motivate and educate. In addition to increasing patient awareness about the drug and its benefits, proponents of the practice claim that it improves communication between patients and physicians about health issues. b. Correct. The purpose of advertising is to motivate and educate. In addition to increasing patient awareness about the drug and its benefits, proponents of the practice claim that it improves communication between patients and physicians about health issues. c. Incorrect. The purpose of advertising is to motivate and educate. In addition to increasing patient awareness about the drug and its benefits, proponents of the practice claim that it improves communication between patients and physicians about health issues. d. Incorrect. The purpose of advertising is to motivate and educate. In addition to increasing patient awareness about the drug and its benefits, proponents of the practice claim that it improves communication between patients and physicians

about health issues.

e. Incorrect. The purpose of advertising is to motivate and educate. In addition to increasing patient awareness about the drug and its benefits, proponents of the practice claim that it improves communication between patients and physicians about health issues.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-6 - Advertising and Promotion DATE CREATED: 2/15/2022 12:23 AM DATE MODIFIED: 2/28/2022 8:04 AM 23. The majority of pharmaceutical advertising is directed at which of the following groups? a. Potential patients b. Government regulators c. Politicians d. Investors e. Physicians ANSWER: e FEEDBACK: a. Incorrect. Approximately 70 percent of the $27 billion spent by pharmaceutical companies on marketing and promotion in 2010 was directed toward physicians in the form of free samples and promotion. b. Incorrect. Approximately 70 percent of the $27 billion spent by pharmaceutical companies on marketing and promotion in 2010 was directed toward physicians in the form of free samples and promotion. c. Incorrect. Approximately 70 percent of the $27 billion spent by pharmaceutical companies on marketing and promotion in 2010 was directed toward physicians in the form of free samples and promotion. d. Incorrect. Approximately 70 percent of the $27 billion spent by pharmaceutical companies on marketing and promotion in 2010 was directed toward physicians in the form of free samples and promotion. e. Correct. Approximately 70 percent of the $27 billion spent by pharmaceutical companies on marketing and promotion in 2010 was directed toward physicians in the form of free samples and promotion.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-6 - Advertising and Promotion DATE CREATED: 2/15/2022 12:26 AM DATE MODIFIED: 2/28/2022 8:05 AM 24. How much did pharmaceutical companies spend on direct-to-consumer advertising in 2019? a. $791 million b. $4.3 billion c. $6.1 billion d. $9.8 billion e. $27 billion ANSWER: c

FEEDBACK:

a. Incorrect. Direct-to-consumer advertising spending jumped from $791 million in 1996 to $6.1 billion in 2019. This controversial practice was essentially illegal prior to 1996, when the Food and Drug Administration (FDA) began to allow television advertising to provide information on the benefits of specific drugs by name without also listing all the side effects and warnings that normally accompany print ads. b. Incorrect. Direct-to-consumer advertising spending jumped from $791 million in 1996 to $6.1 billion in 2019. This controversial practice was essentially illegal prior to 1996, when the Food and Drug Administration (FDA) began to allow television advertising to provide information on the benefits of specific drugs by name without also listing all the side effects and warnings that normally accompany print ads. c. Correct. Direct-to-consumer advertising spending jumped from $791 million in 1996 to $6.1 billion in 2019. This controversial practice was essentially illegal prior to 1996, when the Food and Drug Administration (FDA) began to allow television advertising to provide information on the benefits of specific drugs by name without also listing all the side effects and warnings that normally accompany print ads. d. Incorrect. Direct-to-consumer advertising spending jumped from $791 million in 1996 to $6.1 billion in 2019. This controversial practice was essentially illegal prior to 1996, when the Food and Drug Administration (FDA) began to allow television advertising to provide information on the benefits of specific drugs by name without also listing all the side effects and warnings that normally accompany print ads. e. Incorrect. Direct-to-consumer advertising spending jumped from $791 million in 1996 to $6.1 billion in 2019. This controversial practice was essentially illegal prior to 1996, when the Food and Drug Administration (FDA) began to allow television advertising to provide information on the benefits of specific drugs by name without also listing all the side effects and warnings that normally accompany print ads.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-6 - Advertising and Promotion DATE CREATED: 2/15/2022 12:28 AM DATE MODIFIED: 2/28/2022 8:06 AM 25. Price controls are a common feature in the pharmaceutical industry in most developed countries. Which one of the following statements about price controls is true? a. Most developed countries use similar methods to control prices in pharmaceutical markets. b. Countries with the most stringent price controls do the least research. c. Canada’s use of price ceilings has become the standard practice across Europe. d. Generic competition is more common in countries with strict price controls. e. The United States is the only major country that relies strictly on market pricing and refuses to use price controls of any kind.

ANSWER: b FEEDBACK: a. Incorrect. Countries around the world use various methods to control pharmaceutical prices. The United Kingdom places profit limits on pharmaceutical companies, Germany uses reference pricing, and Canada uses straight price ceilings. However, some evidence points to the fact that countries with more strict price controls tend to do less research. b. Correct. Countries around the world use various methods to control pharmaceutical prices. The United Kingdom places profit limits on

pharmaceutical companies, Germany uses reference pricing, and Canada uses straight price ceilings. However, some evidence points to the fact that countries with more strict price controls tend to do less research. c. Incorrect. Countries around the world use various methods to control pharmaceutical prices. The United Kingdom places profit limits on pharmaceutical companies, Germany uses reference pricing, and Canada uses straight price ceilings. However, some evidence points to the fact that countries with more strict price controls tend to do less research. d. Incorrect. Countries around the world use various methods to control pharmaceutical prices. The United Kingdom places profit limits on pharmaceutical companies, Germany uses reference pricing, and Canada uses straight price ceilings. However, some evidence points to the fact that countries with more strict price controls tend to do less research. e. Incorrect. Countries around the world use various methods to control pharmaceutical prices. The United Kingdom places profit limits on pharmaceutical companies, Germany uses reference pricing, and Canada uses straight price ceilings. However, some evidence points to the fact that countries with more strict price controls tend to do less research.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-7 - Future Directions for the Industry DATE CREATED: 2/15/2022 12:30 AM DATE MODIFIED: 2/28/2022 8:06 AM 26. Data from a study of retail drug prices by the Organization for Economic Co-operation and Development and Eurostat (2008) showed that: a. the United States had the highest retail drug prices among the 30 countries studied. b. there is some evidence that pharmaceutical prices are highly correlated with a country’s per capita gross domestic product. c. United States’ drug prices are double the Organization for Economic Co-operation and Development average. d. high-income countries can keep their drug prices below the Organization for Economic Co-operation and Development average by relying on strict price controls.

ANSWER: b FEEDBACK: a. Incorrect. According to study results, several countries have higher retail drug prices than the United States, including Switzerland and Canada. Prices in the United States are 30 percent above the Organization for Economic Cooperation and Development average, whereas prices in Switzerland are 85 percent higher and Canada’s prices are 34 percent higher. Both of these countries use a form of price control on drugs, showing that use of controls does not guarantee lower prices. The correlation coefficient between the pharmaceutical price index and per capita gross domestic product is +0.51 and statistically significant. b. Correct. According to study results, several countries have higher retail drug prices than the United States, including Switzerland and Canada. Prices in the United States are 30 percent above the Organization for Economic Cooperation and Development average, whereas prices in Switzerland are 85 percent higher and Canada’s prices are 34 percent higher. Both of these countries use a form of price control on drugs, showing that use of controls does not guarantee lower prices. The correlation coefficient between the pharmaceutical price index and per capita gross domestic product is +0.51 and statistically significant. c. Incorrect. According to study results, several countries have higher retail drug prices than the United States, including Switzerland and Canada. Prices in the

United States are 30 percent above the Organization for Economic Cooperation and Development average, whereas prices in Switzerland are 85 percent higher and Canada’s prices are 34 percent higher. Both of these countries use a form of price control on drugs, showing that use of controls does not guarantee lower prices. The correlation coefficient between the pharmaceutical price index and per capita gross domestic product is +0.51 and statistically significant. d. Incorrect. According to study results, several countries have higher retail drug prices than the United States, including Switzerland and Canada. Prices in the United States are 30 percent above the Organization for Economic Cooperation and Development average, whereas prices in Switzerland are 85 percent higher and Canada’s prices are 34 percent higher. Both of these countries use a form of price control on drugs, showing that use of controls does not guarantee lower prices. The correlation coefficient between the pharmaceutical price index and per capita gross domestic product is +0.51 and statistically significant.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-7 - Future Directions for the Industry DATE CREATED: 2/15/2022 12:33 AM DATE MODIFIED: 2/28/2022 8:08 AM 27. Danzon and Furukawa (2003) argue that: a. pharmaceutical price differences across countries are roughly in line with differences in per capita gross domestic product, supporting the predictions of Ramsey pricing practices. b. price controls in the United States would lower drug prices without affecting the overall availability of branded drugs or lowering incentives for future drug development. c. generic competition in the United States has not done much to lower drug prices or spending. d. the provision of government-provided free care increases the availability of newly introduced drugs to everyone covered by the government plan.

ANSWER: a FEEDBACK: a. Correct. This study concludes that the disparities between drug prices in the United States and in the rest of the developed world are roughly in line with differences in per capita gross domestic product, and in turn, with the predictions of a Ramsey pricing scheme. Countries with strict price controls are slow to introduce new drugs into their market, and lower prices have a negative effect on drug innovation. Without generics, which make up over 80 percent of the United States’ market, drug spending would be substantially higher. b. Incorrect. This study concludes that the disparities between drug prices in the United States and in the rest of the developed world are roughly in line with differences in per capita gross domestic product, and in turn, with the predictions of a Ramsey pricing scheme. Countries with strict price controls are slow to introduce new drugs into their market, and lower prices have a negative effect on drug innovation. Without generics, which make up over 80 percent of the United States’ market, drug spending would be substantially higher. c. Incorrect. This study concludes that the disparities between drug prices in the United States and in the rest of the developed world are roughly in line with differences in per capita gross domestic product, and in turn, with the predictions of a Ramsey pricing scheme. Countries with strict price controls are slow to introduce new drugs into their market, and lower prices have a negative effect on drug innovation. Without generics, which make up over 80 percent of the United States’ market, drug spending would be substantially higher. d. Incorrect. This study concludes that the disparities between drug prices in the

United and in the rest of the developed world are roughly in line with differences in per capita gross domestic product, and in turn, with the predictions of a Ramsey pricing scheme. Countries with strict price controls are slow to introduce new drugs into their market, and lower prices have a negative effect on drug innovation. Without generics, which make up over 80 percent of the United States’ market, drug spending would be substantially higher.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-7 - Future Directions for the Industry DATE CREATED: 2/15/2022 12:37 AM DATE MODIFIED: 2/28/2022 8:08 AM 28. Government regulators sometimes set the price of a drug at its marginal cost of production without including a fair share of the global joint cost of research and development. Which of the following statements is true about this practice? a. It assures consumers of the unlimited availability of the drug. b. This practice is a classic example of free riding. c. This behavior is highly unlikely because every country pays its fair share of the cost of research and development. d. The described practice is almost impossible because development costs are easily divided among consumers and prices to reflect differences in the relative benefits each receives. e. Setting drug prices at the marginal cost of production expands the market and guarantees that total drug spending covers all costs, including fixed development costs.

ANSWER: b FEEDBACK: a. Incorrect. While it is difficult to define “fair share,” equitable cost sharing of the global fixed cost of development would closely replicate a Ramsey pricing strategy with each country paying a price for the drug based on its price elasticity of demand for the drug. Paying a price equal to the marginal cost of production but not including a fair share of the development cost is a classic example of free riding. b. Correct. While it is difficult to define “fair share,” equitable cost sharing of the global fixed cost of development would closely replicate a Ramsey pricing strategy with each country paying a price for the drug based on its price elasticity of demand for the drug. Paying a price equal to the marginal cost of production but not including a fair share of the development cost is a classic example of free riding. c. Incorrect. While it is difficult to define “fair share,” equitable cost sharing of the global fixed cost of development would closely replicate a Ramsey pricing strategy with each country paying a price for the drug based on its price elasticity of demand for the drug. Paying a price equal to the marginal cost of production but not including a fair share of the development cost is a classic example of free riding. d. Incorrect. While it is difficult to define “fair share,” equitable cost sharing of the global fixed cost of development would closely replicate a Ramsey pricing strategy with each country paying a price for the drug based on its price elasticity of demand for the drug. Paying a price equal to the marginal cost of production but not including a fair share of the development cost is a classic example of free riding. e. Incorrect. While it is difficult to define “fair share,” equitable cost sharing of the global fixed cost of development would closely replicate a Ramsey pricing strategy with each country paying a price for the drug based on its price elasticity of demand for the drug. Paying a price equal to the marginal cost of production but not including a fair share of the development cost is a classic

example of free riding.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 12-8 - International Issues DATE CREATED: 2/15/2022 12:39 AM DATE MODIFIED: 2/28/2022 8:09 AM

Chapter 13: Medicare 1. Medicare and Medicaid were enacted by the Johnson administration in 1965 as amendments to which federal law already in existence? a. Welfare Act of 1960 b. Social Security Act c. Employee Retirement and Income Security Act d. Managed Care Act e. Equal Rights Act ANSWER: b FEEDBACK: a. Incorrect. The 1965 legislation that enacted Medicare and Medicaid was an amendment to the Social Security Act. Title 18 created Medicare (hospital and physicians’ services insurance for the elderly), and Title 19 created Medicaid (medical insurance for certain vulnerable populations, including the poor and indigent). b. Correct. The 1965 legislation that enacted Medicare and Medicaid was an amendment to the Social Security Act. Title 18 created Medicare (hospital and physicians’ services insurance for the elderly), and Title 19 created Medicaid (medical insurance for certain vulnerable populations, including the poor and indigent). c. Incorrect. The 1965 legislation that enacted Medicare and Medicaid was an amendment to the Social Security Act. Title 18 created Medicare (hospital and physicians’ services insurance for the elderly), and Title 19 created Medicaid (medical insurance for certain vulnerable populations, including the poor and indigent). d. Incorrect. The 1965 legislation that enacted Medicare and Medicaid was an amendment to the Social Security Act. Title 18 created Medicare (hospital and physicians’ services insurance for the elderly), and Title 19 created Medicaid (medical insurance for certain vulnerable populations, including the poor and indigent). e. Incorrect. The 1965 legislation that enacted Medicare and Medicaid was an amendment to the Social Security Act. Title 18 created Medicare (hospital and physicians’ services insurance for the elderly), and Title 19 created Medicaid (medical insurance for certain vulnerable populations, including the poor and indigent).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-1 - Medical Care for the Older Americans DATE CREATED: 2/15/2022 12:51 AM DATE MODIFIED: 2/28/2022 8:14 AM 2. The only disease-specific group eligible for Medicare are those suffering from: a. end-stage renal disease. b. advanced coronary artery disease. c. acquired immunodeficiency syndromes (AIDS). d. metastasized cancer. e. diabetes.

ANSWER: a FEEDBACK: a. Correct. Medicare’s end-stage renal program went into effect in 1973. United States citizens with stage five chronic kidney disease are eligible. The program covers approximately 400,000 and pays for dialysis treatment and

transplantation.

b. Incorrect. Medicare’s end-stage renal program went into effect in 1973. United States citizens with stage five chronic kidney disease are eligible. The program covers approximately 400,000 and pays for dialysis treatment and transplantation. c. Incorrect. Medicare’s end-stage renal program went into effect in 1973. United States citizens with stage five chronic kidney disease are eligible. The program covers approximately 400,000 and pays for dialysis treatment and transplantation. d. Incorrect. Medicare’s end-stage renal program went into effect in 1973. United States citizens with stage five chronic kidney disease are eligible. The program covers approximately 400,000 and pays for dialysis treatment and transplantation. e. Incorrect. Medicare’s end-stage renal program went into effect in 1973. United States citizens with stage five chronic kidney disease are eligible. The program covers approximately 400,000 and pays for dialysis treatment and transplantation.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-1 - Medical Care for the Older Americans DATE CREATED: 2/15/2022 12:54 AM DATE MODIFIED: 2/28/2022 8:15 AM 3. In 2019, Medicare covered approximately how many Americans? a. 50 million b. 60 million c. 70 million d. 80 million e. 90 million ANSWER: b FEEDBACK: a. Incorrect. Medicare enrollment grew from 19.1 million in 1966 to over 60 million in 2019, which represents almost 20 percent of the United States’ population.

By 2029, the program is expected to grow to cover over 76 million Americans. b. Correct. Medicare enrollment grew from 19.1 million in 1966 to over 60 million in 2019, which represents almost 20 percent of the United States’ population.

By 2029, the program is expected to grow to cover over 76 million Americans. c. Incorrect. Medicare enrollment grew from 19.1 million in 1966 to over 60 million in 2019, which represents almost 20 percent of the United States’ population.

By 2029, the program is expected to grow to cover over 76 million Americans. d. Incorrect. Medicare enrollment grew from 19.1 million in 1966 to over 60 million in 2019, which represents almost 20 percent of the United States’ population.

By 2029, the program is expected to grow to cover over 76 million Americans. e. Incorrect. Medicare enrollment grew from 19.1 million in 1966 to over 60 million in 2019, which represents almost 20 percent of the United States’ population.

By 2029, the program is expected to grow to cover over 76 million Americans.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-1 - Medical Care for the Older Americans DATE CREATED: 2/15/2022 12:57 AM

DATE MODIFIED:

2/28/2022 8:15 AM

4. Medicare Advantage (Part C) plans: a. are much like traditional Medicare and do not offer maximum out-of-pocket limits. b. are offered by private insurance companies and provide hospital, physician, outpatient, and prescription drug coverage for a single premium. c. are not very popular among seniors because they often require additional premiums. d. never include dental, vision, and hearing coverage as part of their covered services. e. do not receive any federal support because private insurance companies sell them.

ANSWER: b FEEDBACK: a. Incorrect. Medicare Advantage (MA) plans are offered by private insurance companies and provide all the benefits of Medicare Part A, B, and D for a single premium. They are very popular among seniors, with over 33 percent choosing Medicare Advantage plans in 2017, up from less than 20 percent a decade earlier. Many provide dental, vision, and hearing coverage and have out-of-pocket spending limits similar to Affordable Care Act compliant plans.

Federal subsidies provide premium support for those choosing these plans. b. Correct. Medicare Advantage (MA) plans are offered by private insurance companies and provide all the benefits of Medicare Part A, B, and D for a single premium. They are very popular among seniors, with over 33 percent choosing Medicare Advantage plans in 2017, up from less than 20 percent a decade earlier. Many provide dental, vision, and hearing coverage and have out-of-pocket spending limits similar to Affordable Care Act compliant plans.

Federal subsidies provide premium support for those choosing these plans. c. Incorrect. Medicare Advantage (MA) plans are offered by private insurance companies and provide all the benefits of Medicare Part A, B, and D for a single premium. They are very popular among seniors, with over 33 percent choosing Medicare Advantage plans in 2017, up from less than 20 percent a decade earlier. Many provide dental, vision, and hearing coverage and have out-of-pocket spending limits similar to Affordable Care Act compliant plans.

Federal subsidies provide premium support for those choosing these plans. d. Incorrect. Medicare Advantage (MA) plans are offered by private insurance companies and provide all the benefits of Medicare Part A, B, and D for a single premium. They are very popular among seniors, with over 33 percent choosing Medicare Advantage plans in 2017, up from less than 20 percent a decade earlier. Many provide dental, vision, and hearing coverage and have out-of-pocket spending limits similar to Affordable Care Act compliant plans.

Federal subsidies provide premium support for those choosing these plans. e. Incorrect. Medicare Advantage (MA) plans are offered by private insurance companies and provide all the benefits of Medicare Part A, B, and D for a single premium. They are very popular among seniors, with over 33 percent choosing Medicare Advantage plans in 2017, up from less than 20 percent a decade earlier. Many provide dental, vision, and hearing coverage and have out-of-pocket spending limits similar to Affordable Care Act compliant plans.

Federal subsidies provide premium support for those choosing these plans.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-2 - Institutional Features DATE CREATED: 2/15/2022 1:00 AM DATE MODIFIED: 2/28/2022 8:16 AM 5. Physicians who agree to accept Medicare’s approved payment as full payment are participating providers. Nonparticipating providers are allowed to balance bill their patients. What does this mean?

a. Non-participating physicians can bill the patients the difference between their usual fees and the amount Medicare actually pays (not to exceed 15 percent of the allowable fee). b. The patient must pay the entire bill without the assistance of Part B insurance. c. The physician balances their usual fee equally between Medicare and the patient. d. The physician has a guarantee that the patient will pay the balance of the bill left after Medicare pays its approved fee.

ANSWER: a FEEDBACK: a. Correct. Balanced billing indicates that a non-participating physician who accepts Medicare patients bills the patient the difference between the usual fee and 95 percent of the approved fee. The physician has no recourse to force Medicare to pay the balance if the patient does not. b. Incorrect. Balanced billing indicates that a non-participating physician who accepts Medicare patients bills the patient the difference between the usual fee and 95 percent of the approved fee. The physician has no recourse to force Medicare to pay the balance if the patient does not. c. Incorrect. Balanced billing indicates that a non-participating physician who accepts Medicare patients bills the patient the difference between the usual fee and 95 percent of the approved fee. The physician has no recourse to force Medicare to pay the balance if the patient does not. d. Incorrect. Balanced billing indicates that a non-participating physician who accepts Medicare patients bills the patient the difference between the usual fee and 95 percent of the approved fee. The physician has no recourse to force Medicare to pay the balance if the patient does not.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-2 - Institutional Features DATE CREATED: 2/15/2022 1:05 AM DATE MODIFIED: 2/28/2022 8:17 AM 6. The tax fully dedicated to provide support for Medicare Part A is: a. the federal income tax. b. the mandate tax paid by individuals who do not purchase health insurance. c. a 2.9 percent payroll tax paid by all workers, regardless of their age. d. levied on the Medicare Trust Fund. e. a tax on the health insurance premiums paid for all group plans.

ANSWER: c FEEDBACK: a. Incorrect. A payroll tax of 2.9 percent of a worker’s gross income is collected through a payroll deduction along with Social Security taxes. This payroll tax is shared equally between the employer and the employee, with each paying 1.45 percent. Since passage of the Affordable Care Act, certain high-income workers (single taxpayers making over $200,000 annually and joint filers making over $250,000) pay an additional 0.9 percent tax surcharge, bringing their total payroll tax to 3.9 percent. b. Incorrect. A payroll tax of 2.9 percent of a worker’s gross income is collected through a payroll deduction along with Social Security taxes. This payroll tax is shared equally between the employer and the employee, with each paying 1.45 percent. Since passage of the Affordable Care Act, certain high-income workers (single taxpayers making over $200,000 annually and joint filers making over $250,000) pay an additional 0.9 percent tax surcharge, bringing their total payroll tax to 3.9 percent. c. Correct. A payroll tax of 2.9 percent of a worker’s gross income is collected

through a payroll deduction along with Social Security taxes. This payroll tax is shared equally between the employer and the employee, with each paying 1.45 percent. Since passage of the Affordable Care Act, certain high-income workers (single taxpayers making over $200,000 annually and joint filers making over $250,000) pay an additional 0.9 percent tax surcharge, bringing their total payroll tax to 3.9 percent. d. Incorrect. A payroll tax of 2.9 percent of a worker’s gross income is collected through a payroll deduction along with Social Security taxes. This payroll tax is shared equally between the employer and the employee, with each paying 1.45 percent. Since passage of the Affordable Care Act, certain high-income workers (single taxpayers making over $200,000 annually and joint filers making over $250,000) pay an additional 0.9 percent tax surcharge, bringing their total payroll tax to 3.9 percent. e. Incorrect. A payroll tax of 2.9 percent of a worker’s gross income is collected through a payroll deduction along with Social Security taxes. This payroll tax is shared equally between the employer and the employee with each paying 1.45 percent. Since passage of the Affordable Care Act, certain high-income workers (single taxpayers making over $200,000 annually and joint filers making over $250,000) pay an additional 0.9 percent tax surcharge, bringing their total payroll tax to 3.9 percent.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-2 - Institutional Features DATE CREATED: 2/15/2022 1:07 AM DATE MODIFIED: 2/28/2022 8:18 AM 7. Finkelstein and McKnight (2008) provide an empirical estimate of the benefits to seniors of the 1965 introduction of Medicare. Which of the following statements is true concerning the results of this study? a. The introduction of Medicare in 1965 played an essential role in the decline in mortality rates for the elderly over the following decade. b. There is evidence of a significant reduction in mortality from specific causes (e.g., cardiovascular disease) and the mortality rates of certain vulnerable population groups (e.g., non-whites). c. The real impact of the introduction of Medicare was on the reduction in out-of-pocket health care spending for households faced with catastrophic events (those in the top 25 percent of spenders). d. The long-run benefits of Medicare may be due to encouraging the use of preventive care to control chronic illnesses.

ANSWER: c FEEDBACK: a. Incorrect. While there is no evidence that the introduction of Medicare was responsible for the improvement in mortality rates among seniors, its introduction was associated with a substantial reduction in financial risk for its participants. b. Incorrect. While there is no evidence that the introduction of Medicare was responsible for the improvement in mortality rates among seniors, its introduction was associated with a substantial reduction in financial risk for its participants. c. Correct. While there is no evidence that the introduction of Medicare was responsible for the improvement in mortality rates among seniors, its introduction was associated with a substantial reduction in financial risk for its participants. d. Incorrect. While there is no evidence that the introduction of Medicare was responsible for the improvement in mortality rates among seniors, its introduction was associated with a substantial reduction in financial risk for its

participants.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-2 - Institutional Features DATE CREATED: 2/15/2022 1:10 AM DATE MODIFIED: 2/28/2022 8:18 AM 8. Which benefits are provided through Part A of Medicare? a. Medicare Advantage (MA) b. Supplemental medical insurance c. Medical hospital insurance d. Outpatient prescription drug insurance ANSWER: c FEEDBACK: a. Incorrect. Part A of Medicare provides medical hospital insurance. Patients will pay a deductible approximately equal to the cost of the first day in the hospital, and Medicare will pay for days 2 through 60 with no coinsurance requirement.

However, there is more cost sharing for subsequent days. b. Incorrect. Part A of Medicare provides medical hospital insurance. Patients will pay a deductible approximately equal to the cost of the first day in the hospital, and Medicare will pay for days 2 through 60 with no coinsurance requirement.

However, there is more cost sharing for subsequent days. c. Correct. Part A of Medicare provides medical hospital insurance. Patients will pay a deductible approximately equal to the cost of the first day in the hospital, and Medicare will pay for days 2 through 60 with no coinsurance requirement.

However, there is more cost sharing for subsequent days. d. Incorrect. Part A of Medicare provides medical hospital insurance. Patients will pay a deductible approximately equal to the cost of the first day in the hospital, and Medicare will pay for days 2 through 60 with no coinsurance requirement.

However, there is more cost sharing for subsequent days.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-2 - Institutional Features DATE CREATED: 2/15/2022 1:12 AM DATE MODIFIED: 2/28/2022 8:19 AM 9. Briefly outline the different Medicare benefits provided through its four major programs.

ANSWER: Medicare provides benefits through four major programs: Parts A, B, C, and D. Part A provides medical hospital insurance and helps patients cover the costs of their hospital stays. Part B is supplemental medical insurance, which primarily covers the costs of physicians’ services. Part C is Medicare Advantage (MA) plans, which are private insurance plans that include the benefits of Parts A, B, and D of Medicare for a single premium. Some may also include additional coverage for services related to vision, dental, and hearing. Part D is outpatient prescription drug insurance.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic

LEARNING OBJECTIVES: 13-2 - Institutional Features DATE CREATED: 2/15/2022 1:41 AM DATE MODIFIED: 2/28/2022 8:20 AM 10. How do individuals enroll in Part A of Medicare? a. Individuals must first enroll in Part B in order to be considered for Part A. b. Enrollment is based on physician recommendation. c. Enrollment is voluntary and must be requested through the Centers for Medicare and Medicaid Services (CMS). d. Individuals are automatically enrolled on their 65th birthday as long as they or their spouse has paid into the Social Security system for 10 years.

ANSWER: d FEEDBACK: a. Incorrect. Individuals who have paid into the Social Security system for 10 years, and/or their spouses, receive automatic enrollment in traditional fee-forservice (FFS) Part A hospital insurance upon reaching their 65th birthday. b. Incorrect. Individuals who have paid into the Social Security system for 10 years, and/or their spouses, receive automatic enrollment in traditional fee-forservice (FFS) Part A hospital insurance upon reaching their 65th birthday. c. Incorrect. Individuals who have paid into the Social Security system for 10 years, and/or their spouses, receive automatic enrollment in traditional fee-forservice (FFS) Part A hospital insurance upon reaching their 65th birthday. d. Correct. Individuals who have paid into the Social Security system for 10 years, and/or their spouses, receive automatic enrollment in traditional fee-for-service (FFS) Part A hospital insurance upon reaching their 65th birthday.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-2 - Institutional Features DATE CREATED: 2/15/2022 1:41 AM DATE MODIFIED: 2/28/2022 8:20 AM 11. Which of the following services is covered under Part B of Medicare? a. Emergency room services b. The first day of a hospital stay c. Days 2 through 60 of a hospital stay d. Dental care ANSWER: a FEEDBACK: a. Correct. Part B of Medicare pays for physicians’ services and outpatient hospital services, including emergency room services, diagnostic testing, laboratory services, outpatient physical therapy, speech-pathology services, and durable medical equipment. b. Incorrect. Part B of Medicare pays for physicians’ services and outpatient hospital services, including emergency room services, diagnostic testing, laboratory services, outpatient physical therapy, speech-pathology services, and durable medical equipment. c. Incorrect. Part B of Medicare pays for physicians’ services and outpatient hospital services, including emergency room services, diagnostic testing, laboratory services, outpatient physical therapy, speech-pathology services, and durable medical equipment. d. Incorrect. Part B of Medicare pays for physicians’ services and outpatient

hospital services, including emergency room services, diagnostic testing, laboratory services, outpatient physical therapy, speech-pathology services, and durable medical equipment.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-2 - Institutional Features DATE CREATED: 2/15/2022 1:45 AM DATE MODIFIED: 2/28/2022 8:21 AM 12. Summarize how the Medicare program is financed.

ANSWER: The Medicare program is funded through four major sources: payroll taxes, income taxes, trust fund interest, and enrollee premiums. About 90 percent of these funds come from individuals under the age of 65, and the remainder comes from enrollee premiums of those over 65. All working Americans pay a payroll tax of 2.9 percent of their gross income, which is collected alongside the Social Security tax. This tax is shared equally between the employer and the employee, and all payroll income is now subject to the levy. Highincome individuals (earning more than $200,000) and couples (earning more than a combined $250,000) must also pay an additional 1.8 percent tax surcharge.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 13-2 - Institutional Features DATE CREATED: 2/15/2022 1:47 AM DATE MODIFIED: 2/28/2022 8:22 AM 13. Part B pays what percentage of the allowable fee set by Medicare? a. 70 percent b. 90 percent c. 85 percent d. 75 percent e. 80 percent ANSWER: e FEEDBACK: a. Incorrect. Part B pays 80 percent of the allowable fee set by Medicare after the patient pays a $203 annual deductible. b. Incorrect. Part B pays 80 percent of the allowable fee set by Medicare after the patient pays a $203 annual deductible. c. Incorrect. Part B pays 80 percent of the allowable fee set by Medicare after the patient pays a $203 annual deductible. d. Incorrect. Part B pays 80 percent of the allowable fee set by Medicare after the patient pays a $203 annual deductible. e. Correct. Part B pays 80 percent of the allowable fee set by Medicare after the patient pays a $203 annual deductible.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-2 - Institutional Features

DATE CREATED: DATE MODIFIED:

2/15/2022 1:48 AM 2/28/2022 8:23 AM

14. Approximately what percentage of Medicare enrollees received inpatient hospital care in 2018? a. 10 percent b. 15 percent c. 18 percent d. 20 percent e. 22 percent ANSWER: b FEEDBACK: a. Incorrect. Of the 60 million Medicare enrollees, only about 15 percent, or 10.8 million, had any inpatient hospital spending. The top 20 percent of spenders, averaging over $51,000 per person, were responsible for almost 60 percent of the $190.68 billion in inpatient service expenditures. b. Correct. Of the 60 million Medicare enrollees, only about 15 percent, or 10.8 million, had any inpatient hospital spending. The top 20 percent of spenders, averaging over $51,000 per person, were responsible for almost 60 percent of the $190.68 billion in inpatient service expenditures. c. Incorrect. Of the 60 million Medicare enrollees, only about 15 percent, or 10.8 million, had any inpatient hospital spending. The top 20 percent of spenders, averaging over $51,000 per person, were responsible for almost 60 percent of the $190.68 billion in inpatient service expenditures. d. Incorrect. Of the 60 million Medicare enrollees, only about 15 percent, or 10.8 million, had any inpatient hospital spending. The top 20 percent of spenders, averaging over $51,000 per person, were responsible for almost 60 percent of the $190.68 billion in inpatient service expenditures. e. Incorrect. Of the 60 million Medicare enrollees, only about 15 percent, or 10.8 million, had any inpatient hospital spending. The top 20 percent of spenders, averaging over $51,000 per person, were responsible for almost 60 percent of the $190.68 billion in inpatient service expenditures.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-2 - Institutional Features DATE CREATED: 2/15/2022 1:50 AM DATE MODIFIED: 2/28/2022 8:23 AM 15. In a short paragraph, explain who benefits the most from Medicare coverage.

ANSWER: In 2018, only 15 percent, or 10.8 million, of Medicare’s 60 million enrollees had any inpatient hospital spending under Part A. The top 20 percent of spenders, who average over $51,000 per person, were responsible for almost 60 percent of the total $190.68 billion in inpatient service expenditure. The bottom 20 percent of enrollees average only $2,200 per person and were responsible for 2.5 percent of Part A costs. The breakdown is similar for Part B spending. About 65 percent of the $198.8 billion spent on physician outpatient services purchased care for 10 percent of the population whose per capita spending exceeded $5,000.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 13-2 - Institutional Features

DATE CREATED: DATE MODIFIED:

2/15/2022 1:53 AM 2/28/2022 8:24 AM

16. One of the most serious weaknesses in traditional Medicare is that: a. patients are not able to choose their own physicians. b. the definition of an episode of illness is too restrictive. c. it provides poor insurance coverage for unusually long hospital stays. d. patients must pay a deductible every time they enter the hospital. e. Part B is voluntary.

ANSWER: c FEEDBACK: a. Incorrect. Each part of traditional Medicare is set up with its own deductible and coinsurance requirements. Part A deductibles are $1,340 for each hospital stay, Part B has a $183 annual deductible, and the typical Part D deductible is $405 per year with about half of the plans having lower deductibles.

Coinsurance rates vary. It is a per diem in Part A and a percentage of spending in the other two. There is no maximum out-of-pocket spending level in traditional Medicare. Because costs can escalate rapidly, most participants purchase complementary Medigap policies that help cover some (but not all) of the out-of-pocket costs for Parts A and B. Part C plans (Medicare Advantage) have an annual out-of-pocket maximum that can be as high as $6,700. b. Incorrect. Each part of traditional Medicare is set up with its own deductible and coinsurance requirements. Part A deductibles are $1,340 for each hospital stay, Part B has a $183 annual deductible, and the typical Part D deductible is $405 per year with about half of the plans having lower deductibles.

Coinsurance rates vary. It is a per diem in Part A and a percentage of spending in the other two. There is no maximum out-of-pocket spending level in traditional Medicare. Because costs can escalate rapidly, most participants purchase complementary Medigap policies that help cover some (but not all) of the out-of-pocket costs for Parts A and B. Part C plans (Medicare Advantage) have an annual out-of-pocket maximum that can be as high as $6,700. c. Correct. Each part of traditional Medicare is set up with its own deductible and coinsurance requirements. Part A deductibles are $1,340 for each hospital stay, Part B has a $183 annual deductible, and the typical Part D deductible is $405 per year with about half of the plans having lower deductibles.

Coinsurance rates vary. It is a per diem in Part A and a percentage of spending in the other two. There is no maximum out-of-pocket spending level in traditional Medicare. Because costs can escalate rapidly, most participants purchase complementary Medigap policies that help cover some (but not all) of the out-of-pocket costs for Parts A and B. Part C plans (Medicare Advantage) have an annual out-of-pocket maximum that can be as high as $6,700. d. Incorrect. Each part of traditional Medicare is set up with its own deductible and coinsurance requirements. Part A deductibles are $1,340 for each hospital stay, Part B has a $183 annual deductible, and the typical Part D deductible is $405 per year with about half of the plans having lower deductibles.

Coinsurance rates vary. It is a per diem in Part A and a percentage of spending in the other two. There is no maximum out-of-pocket spending level in traditional Medicare. Because costs can escalate rapidly, most participants purchase complementary Medigap policies that help cover some (but not all) of the out-of-pocket costs for Parts A and B. Part C plans (Medicare Advantage) have an annual out-of-pocket maximum that can be as high as $6,700. e. Incorrect. Each part of traditional Medicare is set up with its own deductible and coinsurance requirements. Part A deductibles are $1,340 for each hospital stay, Part B has a $183 annual deductible, and the typical Part D deductible is $405 per year with about half of the plans having lower deductibles.

Coinsurance rates vary. It is a per diem in Part A and a percentage of spending in the other two. There is no maximum out-of-pocket spending level in

traditional Medicare. Because costs can escalate rapidly, most participants purchase complementary Medigap policies that help cover some (but not all) of the out-of-pocket costs for Parts A and B. Part C plans (Medicare Advantage) have an annual out-of-pocket maximum that can be as high as $6,700.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-3 - Economic Consequences DATE CREATED: 2/15/2022 1:54 AM DATE MODIFIED: 2/28/2022 8:25 AM 17. Medigap policies are designed to offer: a. catastrophic coverage for costs that exceed traditional Medicare’s out-of-pocket maximum. b. coverage for Part D out-of-pocket spending. c. first-dollar coverage for out-of-pocket spending on deductibles and coinsurance. d. long-term care coverage for the elderly. e. coverage for dental and vision care.

ANSWER: c FEEDBACK: a. Incorrect. Private insurance companies sell Medigap policies that cover most Part A and Part B deductibles and some of the copays. The limits vary depending on the policy purchased and the premium paid. You can buy a Medigap policy that covers health care spending during travel to a foreign country, but not long-term care, dental, or vision. b. Incorrect. Private insurance companies sell Medigap policies that cover most Part A and Part B deductibles and some of the copays. The limits vary depending on the policy purchased and the premium paid. You can buy a Medigap policy that covers health care spending during travel to a foreign country, but not long-term care, dental, or vision. c. Correct. Private insurance companies sell Medigap policies that cover most Part A and Part B deductibles and some of the copays. The limits vary depending on the policy purchased and the premium paid. You can buy a Medigap policy that covers health care spending during travel to a foreign country, but not long-term care, dental, or vision. d. Incorrect. Private insurance companies sell Medigap policies that cover most Part A and Part B deductibles and some of the copays. The limits vary depending on the policy purchased and the premium paid. You can buy a Medigap policy that covers health care spending during travel to a foreign country, but not long-term care, dental, or vision. e. Incorrect. Private insurance companies sell Medigap policies that cover most Part A and Part B deductibles and some of the copays. The limits vary depending on the policy purchased and the premium paid. You can buy a Medigap policy that covers health care spending during travel to a foreign country, but not long-term care, dental, or vision.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-3 - Economic Consequences DATE CREATED: 2/15/2022 1:58 AM DATE MODIFIED: 2/28/2022 8:26 AM 18. Briefly describe the unintended negative consequence of the “spell of illness” concept.

The original “spell of illness” concept was intended to be beneficial to enrollees in that discharged patients that are readmitted to the hospital within 60 days is part of the same illness. The idea was that seniors will seek care when needed and are not exposed to the burden of paying the deductible again. However, the unintended consequence of this provision is the increased chance that a long hospital stay will expose the participant to the risk of a catastrophic financial loss. In this case, the patient is responsible for the entire bill after the 60 lifetime reserve days are exhausted.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 13-3 - Economic Consequences DATE CREATED: 2/15/2022 2:01 AM DATE MODIFIED: 2/28/2022 8:27 AM

ANSWER:

19. What is the name designated to private health insurance companies with jurisdiction to process Medicare claims? a. Medicare Advantage b. Medigap c. Fee for Service d. Medicare Administrative Contractors e. Centers for Medicate and Medicaid Services ANSWER: d FEEDBACK: a. Incorrect. MACs, or Medicare Administrative Contractors, are private health insurance companies with jurisdiction to process Medicare claims (both Parts A and B) in 1 of 12 geographic regions across the United States. They administer all aspects of the claims process including enrollment in the program, processing claims, payment of providers, and dispute resolution. Medicare Administrative Contractors enrolled almost 37.5 million participants in 2020, processed more than a billion claims, and paid out over $400 billion for services delivered by over 1 million providers. b. Incorrect. MACs, or Medicare Administrative Contractors, are private health insurance companies with jurisdiction to process Medicare claims (both Parts A and B) in 1 of 12 geographic regions across the United States. They administer all aspects of the claims process including enrollment in the program, processing claims, payment of providers, and dispute resolution. Medicare Administrative Contractors enrolled almost 37.5 million participants in 2020, processed more than a billion claims, and paid out over $400 billion for services delivered by over 1 million providers. c. Incorrect. MACs, or Medicare Administrative Contractors, are private health insurance companies with jurisdiction to process Medicare claims (both Parts A and B) in 1 of 12 geographic regions across the United States. They administer all aspects of the claims process including enrollment in the program, processing claims, payment of providers, and dispute resolution. Medicare Administrative Contractors enrolled almost 37.5 million participants in 2020, processed more than a billion claims, and paid out over $400 billion for services delivered by over 1 million providers. d. Correct. MACs, or Medicare Administrative Contractors, are private health insurance companies with jurisdiction to process Medicare claims (both Parts A and B) in 1 of 12 geographic regions across the United States. They administer all aspects of the claims process including enrollment in the program, processing claims, payment of providers, and dispute resolution. Medicare Administrative Contractors enrolled almost 37.5 million participants in 2020, processed more than a billion claims, and paid out over $400 billion for services

delivered by over 1 million providers.

e. Incorrect. MACs, or Medicare Administrative Contractors, are private health insurance companies with jurisdiction to process Medicare claims (both Parts A and B) in 1 of 12 geographic regions across the United States. They administer all aspects of the claims process including enrollment in the program, processing claims, payment of providers, and dispute resolution. Medicare Administrative Contractors enrolled almost 37.5 million participants in 2020, processed more than a billion claims, and paid out over $400 billion for services delivered by over 1 million providers.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-4 - The Role of Private Insurance DATE CREATED: 2/15/2022 2:02 AM DATE MODIFIED: 2/28/2022 8:27 AM 20. The Medicare pay-as-you-go system is jeopardized by: a. an overly generous fee schedule that pays physicians more than private insurance for most procedures. b. The changing demographics of the United States’ population, with an increasing percentage over the age of 65. c. a reliance on the premiums paid by the elderly themselves to fund a majority of the total cost of the system. d. allowing physicians to balance bill their patients. e. the rising costs of long-term care.

ANSWER: b FEEDBACK: a. Incorrect. The pay-as-you-go funding structure of Medicare leaves the system vulnerable to changes in the proportion of the population that is providing the funding relative to the size of the recipient group. Much like a Ponzi scheme (remember Bernie Madoff), early recipients of the financial support do quite well because there are plenty of people paying into the system. As time passes, the size of the recipient group grows relative to the payer group and the system begins to run out of money. Current workers support current retirees. As long as income exceeds outgo, there is no problem. With the baby-boom generation becoming eligible for Medicare in growing numbers each year, the financial solvency of the program comes into question. b. Correct. The pay-as-you-go funding structure of Medicare leaves the system vulnerable to changes in the proportion of the population that is providing the funding relative to the size of the recipient group. Much like a Ponzi scheme (remember Bernie Madoff), early recipients of the financial support do quite well because there are plenty of people paying into the system. As time passes, the size of the recipient group grows relative to the payer group and the system begins to run out of money. Current workers support current retirees. As long as income exceeds outgo, there is no problem. With the baby-boom generation becoming eligible for Medicare in growing numbers each year, the financial solvency of the program comes into question. c. Incorrect. The pay-as-you-go funding structure of Medicare leaves the system vulnerable to changes in the proportion of the population that is providing the funding relative to the size of the recipient group. Much like a Ponzi scheme (remember Bernie Madoff), early recipients of the financial support do quite well because there are plenty of people paying into the system. As time passes, the size of the recipient group grows relative to the payer group and the system begins to run out of money. Current workers support current retirees. As long as income exceeds outgo, there is no problem. With the baby-boom generation becoming eligible for Medicare in growing numbers each year, the financial solvency of the program comes into question.

d. Incorrect. The pay-as-you-go funding structure of Medicare leaves the system vulnerable to changes in the proportion of the population that is providing the funding relative to the size of the recipient group. Much like a Ponzi scheme (remember Bernie Madoff), early recipients of the financial support do quite well because there are plenty of people paying into the system. As time passes, the size of the recipient group grows relative to the payer group and the system begins to run out of money. Current workers support current retirees. As long as income exceeds outgo, there is no problem. With the baby-boom generation becoming eligible for Medicare in growing numbers each year, the financial solvency of the program comes into question. e. Incorrect. The pay-as-you-go funding structure of Medicare leaves the system vulnerable to changes in the proportion of the population that is providing the funding relative to the size of the recipient group. Much like a Ponzi scheme (remember Bernie Madoff), early recipients of the financial support do quite well because there are plenty of people paying into the system. As time passes, the size of the recipient group grows relative to the payer group and the system begins to run out of money. Current workers support current retirees. As long as income exceeds outgo, there is no problem. With the baby-boom generation becoming eligible for Medicare in growing numbers each year, the financial solvency of the program comes into question.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-5 - The Future of Medicare DATE CREATED: 2/15/2022 2:05 AM DATE MODIFIED: 2/28/2022 8:28 AM 21. Each year, the Medicare trustees issue a report on the health of the program. According to the 2016 report, which of the following statements is true? a. Medicare spending has been holding steady at approximately 1 percent of gross domestic product since 1975 and is expected to remain below 3 percent of gross domestic product over the next decade. b. The Medicare Hospital Trust fund provides permanent funding for Part A spending. c. Fortunately, Medicare’s trustees have historically overstated the system’s future revenue shortfalls. d. The net present value of future Medicare obligations that are currently unfunded will require Congress to appropriate funds beyond current law approaching $60 trillion dollars, over 300 percent of current gross domestic product. e. Based on historical evidence, hospital productivity is expected to increase substantially in the future, lowering Part A spending substantially.

ANSWER: d FEEDBACK: a. Incorrect. Using an infinite time horizon, Medicare’s unfunded obligations were estimated at $58.6 trillion in the 2016 report, up from $36.6 trillion in the 2010 report. Gross domestic product was $18.6 trillion. Unfunded obligations were 315 percent of gross domestic product. As a percent of gross domestic product, unfunded obligations are growing. They were 244 percent of the gross domestic product in 2010, which was $15 trillion. b. Incorrect. Using an infinite time horizon, Medicare’s unfunded obligations were estimated at $58.6 trillion in the 2016 report, up from $36.6 trillion in the 2010 report. Gross domestic product was $18.6 trillion. Unfunded obligations were 315 percent of gross domestic product. As a percent of gross domestic product, unfunded obligations are growing. They were 244 percent of the gross domestic product in 2010, which was $15 trillion. c. Incorrect. Using an infinite time horizon, Medicare’s unfunded obligations were estimated at $58.6 trillion in the 2016 report, up from $36.6 trillion in the 2010 report. Gross domestic product was $18.6 trillion. Unfunded obligations were

315 percent of gross domestic product. As a percent of gross domestic product, unfunded obligations are growing. They were 244 percent of the gross domestic product in 2010, which was $15 trillion. d. Correct. Using an infinite time horizon, Medicare’s unfunded obligations were estimated at $58.6 trillion in the 2016 report, up from $36.6 trillion in the 2010 report. Gross domestic product was $18.6 trillion. Unfunded obligations were 315 percent of gross domestic product. As a percent of gross domestic product, unfunded obligations are growing. They were 244 percent of the gross domestic product in 2010, which was $15 trillion. e. Incorrect. Using an infinite time horizon, Medicare’s unfunded obligations were estimated at $58.6 trillion in the 2016 report, up from $36.6 trillion in the 2010 report. Gross domestic product was $18.6 trillion. Unfunded obligations were 315 percent of gross domestic product. As a percent of gross domestic product, unfunded obligations are growing. They were 244 percent of the gross domestic product in 2010, which was $15 trillion.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-5 - The Future of Medicare DATE CREATED: 2/15/2022 2:09 AM DATE MODIFIED: 2/28/2022 8:29 AM 22. Several reform options have been discussed by Congress to solve some of the structural problems that plague the program. Which of the following options has received little support? a. Place limits on the purchase of complementary Medigap insurance that provides first-dollar coverage to pay deductibles and coinsurance. b. To simplify the benefit structure, roll Parts A, B, and D into one plan with one deductible and uniform coinsurance rates. c. Raise the eligibility age gradually, much like the changes that were made to Social Security eligibility. d. Instead of the current open-ended structure of the program, provide premium support directly to individuals allowing them to purchase the plan of their choice. e. Limit the coverage for end-of-life care, the most expensive single item in Medicare, to include only essential palliative care.

ANSWER: e FEEDBACK: a. Incorrect. Insurance with first-dollar coverage promotes moral hazard and encourages overspending. Limiting this option along with simplifying the structure of the overall program, raising the eligibility age, and adopting premium support have all received serious discussion in policy circles. There are some passing comments about limiting end-of-life care, but there have not been any serious discussions about it among members of Congress. b. Incorrect. Insurance with first-dollar coverage promotes moral hazard and encourages overspending. Limiting this option along with simplifying the structure of the overall program, raising the eligibility age, and adopting premium support have all received serious discussion in policy circles. There are some passing comments about limiting end-of-life care, but there have not been any serious discussions about it among members of Congress. c. Incorrect. Insurance with first-dollar coverage promotes moral hazard and encourages overspending. Limiting this option along with simplifying the structure of the overall program, raising the eligibility age, and adopting premium support have all received serious discussion in policy circles. There are some passing comments about limiting end-of-life care, but there have not been any serious discussions about it among members of Congress. d. Incorrect. Insurance with first-dollar coverage promotes moral hazard and

encourages overspending. Limiting this option along with simplifying the structure of the overall program, raising the eligibility age, and adopting premium support have all received serious discussion in policy circles. There are some passing comments about limiting end-of-life care, but there have not been any serious discussions about it among members of Congress. e. Correct. Insurance with first dollar coverage promotes moral hazard and encourages overspending. Limiting this option along with simplifying the structure of the overall program, raising the eligibility age, and adopting premium support have all received serious discussion in policy circles. There are some passing comments about limiting end-of-life care, but there have not been any serious discussions about it among members of Congress.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 13-5 - The Future of Medicare DATE CREATED: 2/15/2022 2:12 AM DATE MODIFIED: 2/28/2022 8:30 AM 23. In a few sentences, outline the market-oriented approach that has been proposed to reform the open-ended nature of Medicare.

ANSWER: The open-ended nature of the original entitlement is the primary focus of the debate surrounding Medicare sustainability. A market-oriented approach to address this problem would restructure Medicare from defined benefit to defined contribution. Instead of an open-ended entitlement that results from a promised benefit (regardless of its cost), Medicare would provide a direct subsidy to individuals allowing them to purchase the coverage of their choice. This approach is also referred to as premium support, and it would eventually shift most seniors into private insurance plans (Schwartz and Merlis, 2012).

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 13-5 - The Future of Medicare DATE CREATED: 2/15/2022 2:15 AM DATE MODIFIED: 2/28/2022 8:31 AM 24. In 2017, of the United States’ population was over the age of 65. By the year 2030, projections place that at . a. 8.1 percent; 12 percent b. 10.3 percent; 16 percent c. 15.6 percent; 20 percent d. 15.0 percent; 25 percent e. 18.9 percent; 30 percent ANSWER: c FEEDBACK: a. Incorrect. With the large baby-boomer population starting to surpass the age of eligibility for Medicare, 15.6 percent of the United States’ population was over the age of 65 in 2017. By 2030, it is estimated that over 20 percent will be 65 or older. b. Incorrect. With the large baby-boomer population starting to surpass the age of eligibility for Medicare, 15.6 percent of the United States’ population was over

the age of 65 in 2017. By 2030, it is estimated that over 20 percent will be 65 or older. c. Correct. With the large baby-boomer population starting to surpass the age of eligibility for Medicare, 15.6 percent of the United States’ population was over the age of 65 in 2017. By 2030, it is estimated that over 20 percent will be 65 or older. d. Incorrect. With the large baby-boomer population starting to surpass the age of eligibility for Medicare, 15.6 percent of the United States’ population was over the age of 65 in 2017. By 2030, it is estimated that over 20 percent will be 65 or older. e. Incorrect. With the large baby-boomer population starting to surpass the age of eligibility for Medicare, 15.6 percent of the United States’ population was over the age of 65 in 2017. By 2030, it is estimated that over 20 percent will be 65 or older.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: Appendix 13-A - Changing Demographics: The Aging of America DATE CREATED: 2/15/2022 2:16 AM DATE MODIFIED: 2/28/2022 8:31 AM 25. The primary reason for an aging population is: a. the expansion of insurance coverage because of Medicare. b. advances in pharmaceutical innovation. c. improvements in the treatment of chronic illness. d. increased life expectancies and lower fertility rates. e. a decreased need for elders to enter nursing homes.

ANSWER: d FEEDBACK: a. Incorrect. Improvements in longevity and falling fertility rates are responsible for most of the increase in aging populations. In fact, those countries with fertility rates between 2.5 to 3.0 (not the 1.4 to 1.8 common in the developed world today) have a much smaller percentage of their populations over 65. b. Incorrect. Improvements in longevity and falling fertility rates are responsible for most of the increase in aging populations. In fact, those countries with fertility rates between 2.5 to 3.0 (not the 1.4 to 1.8 common in the developed world today) have a much smaller percentage of their populations over 65. c. Incorrect. Improvements in longevity and falling fertility rates are responsible for most of the increase in aging populations. In fact, those countries with fertility rates between 2.5 to 3.0 (not the 1.4 to 1.8 common in the developed world today) have a much smaller percentage of their populations over 65. d. Correct. Improvements in longevity and falling fertility rates are responsible for most of the increase in aging populations. In fact, those countries with fertility rates between 2.5 to 3.0 (not the 1.4 to 1.8 common in the developed world today) have a much smaller percentage of their populations over 65. e. Incorrect. Improvements in longevity and falling fertility rates are responsible for most of the increase in aging populations. In fact, those countries with fertility rates between 2.5 to 3.0 (not the 1.4 to 1.8 common in the developed world today) have a much smaller percentage of their populations over 65.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: Appendix 13-A - Changing Demographics: The Aging of America

DATE CREATED: DATE MODIFIED:

2/15/2022 2:18 AM 2/28/2022 8:32 AM

26. Which of the following is a true statement about long-term care? a. The cost of long-term care is funded primarily by private insurance. b. Almost half of all nursing home residents are over age 85. c. Over 20 percent of the elderly population currently live in nursing homes. d. Nursing homes are largely populated by elderly men. e. There would be fewer residents of nursing homes if more people had long-term care insurance.

ANSWER: b FEEDBACK: a. Incorrect. By 2008, over half of the 1.4 million nursing home residents in the United States were over 85. By the time a person reaches that age, the probability of being in a nursing home is one in three. Most nursing home costs are covered by Medicaid; less than 5 percent of seniors live in nursing facilities; most residents are elderly females; and nursing home insurance would promote moral hazard and encourage more to enter facilities. b. Correct. By 2008, over half of the 1.4 million nursing home residents in the United States were over 85. By the time a person reaches that age, the probability of being in a nursing home is one in three. Most nursing home costs are covered by Medicaid; less than 5 percent of seniors live in nursing facilities; most residents are elderly females; and nursing home insurance would promote moral hazard and encourage more to enter facilities. c. Incorrect. By 2008, over half of the 1.4 million nursing home residents in the United States were over 85. By the time a person reaches that age, the probability of being in a nursing home is one in three. Most nursing home costs are covered by Medicaid; less than 5 percent of seniors live in nursing facilities; most residents are elderly females; and nursing home insurance would promote moral hazard and encourage more to enter facilities. d. Incorrect. By 2008, over half of the 1.4 million nursing home residents in the United States were over 85. By the time a person reaches that age, the probability of being in a nursing home is one in three. Most nursing home costs are covered by Medicaid; less than 5 percent of seniors live in nursing facilities; most residents are elderly females; and nursing home insurance would promote moral hazard and encourage more to enter facilities. e. Incorrect. By 2008, over half of the 1.4 million nursing home residents in the United States were over 85. By the time a person reaches that age, the probability of being in a nursing home is one in three. Most nursing home costs are covered by Medicaid; less than 5 percent of seniors live in nursing facilities; most residents are elderly females; and nursing home insurance would promote moral hazard and encourage more to enter facilities.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: Appendix 13-A - Changing Demographics: The Aging of America DATE CREATED: 2/15/2022 2:20 AM DATE MODIFIED: 2/28/2022 8:33 AM 27. Medical care spending escalates as an individual reaches old age. Which of the following statements is true regarding medical care spending and the elderly? a. Most of the medical care cost explosion is due to the high cost of treating the elderly. b. Chronic illnesses increase as we age as do the multiplicity of services available to treat those illnesses. c. The high cost of acute care spending for the elderly is a major contributing factor in the increase in medical

spending. d. The easy way to control end-of-life spending is to limit use of all but the most cost-effective treatments to those over the age of 65.

ANSWER: b FEEDBACK: a. Incorrect. As we live longer, the focus of medical treatment changes from responding to acute illnesses to treating chronic illnesses. Individuals who once died from acute conditions at an early age now live into old age to experience a plethora of chronic conditions. The cost of dying is expensive, but that is true at any age. Today, we see a greater percentage of the population surviving into old age and merely shifting the high cost of dying to later ages. Few policymakers are seriously considering rationing care to the elderly. b. Correct. As we live longer, the focus of medical treatment changes from responding to acute illnesses to treating chronic illnesses. Individuals who once died from acute conditions at an early age now live into old age to experience a plethora of chronic conditions. The cost of dying is expensive, but that is true at any age. Today, we see a greater percentage of the population surviving into old age and merely shifting the high cost of dying to later ages. Few policymakers are seriously considering rationing care to the elderly. c. Incorrect. As we live longer, the focus of medical treatment changes from responding to acute illnesses to treating chronic illnesses. Individuals who once died from acute conditions at an early age now live into old age to experience a plethora of chronic conditions. The cost of dying is expensive, but that is true at any age. Today, we see a greater percentage of the population surviving into old age and merely shifting the high cost of dying to later ages. Few policymakers are seriously considering rationing care to the elderly. d. Incorrect. As we live longer, the focus of medical treatment changes from responding to acute illnesses to treating chronic illnesses. Individuals who once died from acute conditions at an early age now live into old age to experience a plethora of chronic conditions. The cost of dying is expensive, but that is true at any age. Today, we see a greater percentage of the population surviving into old age and merely shifting the high cost of dying to later ages. Few policymakers are seriously considering rationing care to the elderly.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: Appendix 13-A - Changing Demographics: The Aging of America DATE CREATED: 2/15/2022 2:22 AM DATE MODIFIED: 2/28/2022 8:33 AM

Chapter 14: Medicaid 1. The expansion of Medicaid under the Affordable Care Act (ACA) resulted in an additional 5 million participants under the new eligibility standards within the first three years, and it also made it costlier to fund the program both by the federal government and by the states. In your words, explain the pros and cons of this expanded Medicaid.

ANSWER: The Affordable Care Act expanded coverage by providing 100 percent funding for states that increased the income threshold to 138 percent of the federal poverty level (FPL).

Thirty states plus the District of Columbia accepted the funds. Proponents of the Affordable Care Act expansion and their forecasting models, including the Kaiser Family Foundation (2013), claimed that it would create jobs and stimulate economic activity at little or no cost to the states. However, the actual experience of many of the states that expanded Medicaid is different from what the models predicted. Overall, enrollment surged and program costs increased much faster than projections, even with 19 states refusing to participate in the expansion. New enrollees are costlier than expected. Initial expectations were that the expansion enrollees would be healthier and have per capita costs that were 30 percent below those previously enrolled. Instead, new enrollees spent 23 percent more than previous enrollees, or 49 percent more than predicted.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 14-1 - Medicaid: Medical Care for Vulnerable Population Groups DATE CREATED: 2/25/2022 11:59 PM DATE MODIFIED: 2/26/2022 1:22 AM 2. Under the Affordable Care Act (ACA), states were required to initiate which of the following changes in the administration of their respective programs? a. Extend eligibility to participants with household incomes less than 138 percent of the federal poverty level. b. Expand coverage to include pregnant females. c. Prohibit eligibility of nondisabled adults without children regardless of income. d. Accept temporary reductions in federal matching funds for the expansion population. e. Require physicians to accept new Medicaid patients in order to practice medicine in the state.

ANSWER: a FEEDBACK: a. Correct. The basic Affordable Care Act requirement for expansion was to extend eligibility to all individuals living in households with family incomes not exceeding 138 percent of the federal poverty level (FPL). Legislation in 1992 extended coverage to pregnant females with children under age 6 with incomes less than 133 percent of the federal poverty level and children ages 6–18 in families with incomes less than 100 percent of the federal poverty level. Thirty states and the District of Columbia took the offer of a 100 percent federal medical assistance percentage for three years and expanded their programs.

Now that the federal medical assistance percentage (FMAP) is sliding toward 90 percent, it still exceeds the matching rate for any previously covered group. b. Incorrect. The basic Affordable Care Act requirement for expansion was to extend eligibility to all individuals living in households with family incomes not exceeding 138 percent of the federal poverty level (FPL). Legislation in 1992 extended coverage to pregnant females with children under age 6 with incomes less than 133 percent of the federal poverty level and children ages 6–18 in families with incomes less than 100 percent of the federal poverty level. Thirty states and the District of Columbia took the offer of a 100 percent federal medical assistance percentage for three years and expanded their programs.

Now that the federal medical assistance percentage (FMAP) is sliding toward 90 percent, it still exceeds the matching rate for any previously covered group.

c. Incorrect. The basic Affordable Care Act requirement for expansion was to extend eligibility to all individuals living in households with family incomes not exceeding 138 percent of the federal poverty level (FPL). Legislation in 1992 extended coverage to pregnant females with children under age 6 with incomes less than 133 percent of the federal poverty level and children ages 6–18 in families with incomes less than 100 percent of the federal poverty level. Thirty states and the District of Columbia took the offer of a 100 percent federal medical assistance percentage for three years and expanded their programs.

Now that the federal medical assistance percentage (FMAP) is sliding toward 90 percent, it still exceeds the matching rate for any previously covered group. d. Incorrect. The basic Affordable Care Act requirement for expansion was to extend eligibility to all individuals living in households with family incomes not exceeding 138 percent of the federal poverty level (FPL). Legislation in 1992 extended coverage to pregnant females with children under age 6 with incomes less than 133 percent of the federal poverty level and children ages 6–18 in families with incomes less than 100 percent of the federal poverty level. Thirty states and the District of Columbia took the offer of a 100 percent federal medical assistance percentage for three years and expanded their programs.

Now that the federal medical assistance percentage (FMAP) is sliding toward 90 percent, it still exceeds the matching rate for any previously covered group. e. Incorrect. The basic Affordable Care Act requirement for expansion was to extend eligibility to all individuals living in households with family incomes not exceeding 138 percent of the federal poverty level (FPL). Legislation in 1992 extended coverage to pregnant females with children under age 6 with incomes less than 133 percent of the federal poverty level and children ages 6–18 in families with incomes less than 100 percent of the federal poverty level. Thirty states and the District of Columbia took the offer of a 100 percent federal medical assistance percentage for three years and expanded their programs.

Now that the federal medical assistance percentage (FMAP) is sliding toward 90 percent, it still exceeds the matching rate for any previously covered group.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 14-2 - Institutional Features DATE CREATED: 2/26/2022 12:03 AM DATE MODIFIED: 2/26/2022 12:06 AM 3. Congress initially intended for the Medicaid program to provide basic safety net coverage for certain vulnerable populations, including which of the following? a. Single, pregnant women with or without dependents b. Single men with dependents c. Working age adults without dependents d. Children in low-income households e. Disabled individuals less than 65 ANSWER: a, b, d, e FEEDBACK: a. Correct. The original legislation covered recipients of public assistance, primarily single-parent families and the aged, blind, and disabled. Able-bodied, working age adults without dependents were not considered part of this vulnerable population and were not covered. b. Correct. The original legislation covered recipients of public assistance, primarily single-parent families and the aged, blind, and disabled. Able-bodied, working age adults without dependents were not considered part of this vulnerable population and were not covered. c. Incorrect. The original legislation covered recipients of public assistance,

primarily single-parent families and the aged, blind, and disabled. Able-bodied, working age adults without dependents were not considered part of this vulnerable population and were not covered. d. Correct. The original legislation covered recipients of public assistance, primarily single-parent families and the aged, blind, and disabled. Able-bodied, working age adults without dependents were not considered part of this vulnerable population and were not covered. e. Correct. The original legislation covered recipients of public assistance, primarily single-parent families and the aged, blind, and disabled. Able-bodied, working age adults without dependents were not considered part of this vulnerable population and were not covered.

POINTS: 1 QUESTION TYPE: Multiple Response HAS VARIABLES: False LEARNING OBJECTIVES: 14-2 - Institutional Features DATE CREATED: 2/26/2022 5:32 AM DATE MODIFIED: 2/26/2022 5:34 AM 4. The average federal medical assistance (FMAP) percentage across the United States received by the typical state is approximately what percentage of overall Medicaid spending? a. 50 percent b. 55 percent c. 60 percent d. 70 percent e. 75 percent ANSWER: c FEEDBACK: a. Incorrect. The federal medical assistance percentage is determined by an established formula based on the per capita income in the state relative to United States per capita income. The law sets a minimum of 50 percent of overall spending in those states with per capita incomes that exceed the national average. b. Incorrect. The federal medical assistance percentage is determined by an established formula based on the per capita income in the state relative to United States per capita income. The law sets a minimum of 50 percent of overall spending in those states with per capita incomes that exceed the national average. c. Correct. The federal medical assistance percentage is determined by an established formula based on the per capita income in the state relative to United States per capita income. The law sets a minimum of 50 percent of overall spending in those states with per capita incomes that exceed the national average. d. Incorrect. The federal medical assistance percentage is determined by an established formula based on the per capita income in the state relative to United States per capita income. The law sets a minimum of 50 percent of overall spending in those states with per capita incomes that exceed the national average. e. Incorrect. The federal medical assistance percentage is determined by an established formula based on the per capita income in the state relative to United States per capita income. The law sets a minimum of 50 percent of overall spending in those states with per capita incomes that exceed the national average.

POINTS: QUESTION TYPE:

1 Multiple Choice

HAS VARIABLES: False LEARNING OBJECTIVES: 14-2 - Institutional Features DATE CREATED: 2/26/2022 12:11 AM DATE MODIFIED: 2/26/2022 12:13 AM 5. The most costly expansion of Medicaid since its inception is referred to as: a. The State Children’s Health Insurance Program. b. State Health Insurance Program. c. Temporary Assistance for Needy Families. d. Aid For Dependent Children. e. the 2014 Medicaid expansion.

ANSWER: a FEEDBACK: a. Correct. The State Children’s Health Insurance Program (SCHIP) was created in 1997. It covers about 35 million low-income children. The program has the lowest per capita among all enrollee groups but comprises almost 40 percent of overall enrollment. The program spends more on the elderly and disabled, but those two groups were part of the original program. The State Children’s Health Insurance Program actually added more total spending than the more recent expansion legislated by the Affordable Care Act. b. Incorrect. The State Children’s Health Insurance Program (SCHIP) was created in 1997. It covers about 35 million low-income children. The program has the lowest per capita among all enrollee groups but comprises almost 40 percent of overall enrollment. The program spends more on the elderly and disabled, but those two groups were part of the original program. The State Children’s Health Insurance Program actually added more total spending than the more recent expansion legislated by the Affordable Care Act. c. Incorrect. The State Children’s Health Insurance Program (SCHIP) was created in 1997. It covers about 35 million low-income children. The program has the lowest per capita among all enrollee groups but comprises almost 40 percent of overall enrollment. The program spends more on the elderly and disabled, but those two groups were part of the original program. The State Children’s Health Insurance Program actually added more total spending than the more recent expansion legislated by the Affordable Care Act. d. Incorrect. The State Children’s Health Insurance Program (SCHIP) was created in 1997. Covering about 35 million low-income children. The program has the lowest per capita among all enrollee groups, but comprises almost 40 percent of overall enrollment. The program spends more on the elderly and disabled, but those two groups were part of the original program. The State Children’s Health Insurance Program actually added more total spending than the more recent expansion legislated by the Affordable Care Act. e. Incorrect. The State Children’s Health Insurance Program (SCHIP) was created in 1997. It covers about 35 million low-income children. The program has the lowest per capita among all enrollee groups but comprises almost 40 percent of overall enrollment. The program spends more on the elderly and disabled, but those two groups were part of the original program. The State Children’s Health Insurance Program actually added more total spending than the more recent expansion legislated by the Affordable Care Act.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 14-3 - State Children’s Health Insurance Program DATE CREATED: 2/26/2022 12:14 AM DATE MODIFIED: 2/26/2022 12:17 AM

6. Which of the following statements is true about the Medicaid program? a. Eligibility standards are uniform across all states. b. Federal tax revenues provide 100 percent of the program’s funding. c. Everyone in the poverty-level population is eligible for benefits. d. The majority of total outlays are for the elderly and disabled. e. The law places a ceiling on state per capita spending for enrollees.

ANSWER: d FEEDBACK: a. Incorrect. Medicaid eligibility standards vary across states, even within the states that increased the minimum threshold in 2014 to meet the Affordable Care Act standard of 138 percent of the federal poverty level (FPL). The federal government provides approximately 60 percent of the total funds; the source of the remainder is state revenues. Only 60 percent of the poverty level population is enrolled in the program, and a substantial number of single adults without dependents whose incomes are less than the federal poverty level are not eligible in the states that did not expand. An open-ended program, Medicaid devotes 56 percent of spending to provide care for low-income elderly and disabled. b. Incorrect. Medicaid eligibility standards vary across states, even within the states that increased the minimum threshold in 2014 to meet the Affordable Care Act standard of 138 percent of the federal poverty level (FPL). The federal government provides approximately 60 percent of the total funds; the source of the remainder is state revenues. Only 60 percent of the poverty level population is enrolled in the program, and a substantial number of single adults without dependents whose incomes are less than the federal poverty level are not eligible in the states that did not expand. An open-ended program, Medicaid devotes 56 percent of spending to provide care for low-income elderly and disabled. c. Incorrect. Medicaid eligibility standards vary across states, even within the states that increased the minimum threshold in 2014 to meet the Affordable Care Act standard of 138 percent of the federal poverty level (FPL). The federal government provides approximately 60 percent of the total funds; the source of the remainder is state revenues. Only 60 percent of the poverty level population is enrolled in the program, and a substantial number of single adults without dependents whose incomes are less than the federal poverty level are not eligible in the states that did not expand. An open-ended program, Medicaid devotes 56 percent of spending to provide care for low-income elderly and disabled. d. Correct. Medicaid eligibility standards vary across states, even within the states that increased the minimum threshold in 2014 to meet the Affordable Care Act standard of 138 percent of the federal poverty level (FPL). The federal government provides approximately 60 percent of the total funds; the source of the remainder is state revenues. Only 60 percent of the poverty level population is enrolled in the program, and a substantial number of single adults without dependents whose incomes are less than the federal poverty level are not eligible in the states that did not expand. An open-ended program, Medicaid devotes 56 percent of spending to provide care for low-income elderly and disabled. e. Incorrect. Medicaid eligibility standards vary across states, even within the states that increased the minimum threshold in 2014 to meet the Affordable Care Act standard of 138 percent of the federal poverty level (FPL). The federal government provides approximately 60 percent of the total funds; the source of the remainder is state revenues. Only 60 percent of the poverty level population is enrolled in the program, and a substantial number of single adults without dependents whose incomes are less than the federal poverty level are not eligible in the states that did not expand. An open-ended program, Medicaid devotes 56 percent of spending to provide care for low-income elderly and

disabled.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 14-4 - Economic Consequences DATE CREATED: 2/26/2022 12:18 AM DATE MODIFIED: 2/26/2022 12:23 AM 7. To better control overall Medicaid spending, most states: a. set strict limits on the number of primary care physicians that can accept Medicaid patients. b. charge participants modest copays on physicians’ services. c. require eligible enrollees to participate in wellness education programs, such as smoking secession and nutrition classes. d. enroll all eligible recipients in managed care plans. e. establish strict rules against using the emergency room in non-emergency situations.

ANSWER: d FEEDBACK: a. Incorrect. Over 75 percent of the Medicaid population is enrolled in managed care plans; in some states, the number approaches 100 percent. Physicians are free to make their own decisions on whether to accept Medicaid patients, and states wishing to initiate cost sharing must seek waivers from the federal government to do so. Many states are considering work requirements as a prerequisite for able-bodied adults, but the open-ended program actually places few restrictions on participation. b. Incorrect. Over 75 percent of the Medicaid population is enrolled in managed care plans; in some states, the number approaches 100 percent. Physicians are free to make their own decisions on whether to accept Medicaid patients, and states wishing to initiate cost sharing must seek waivers from the federal government to do so. Many states are considering work requirements as a prerequisite for able-bodied adults, but the open-ended program actually places few restrictions on participation. c. Incorrect. Over 75 percent of the Medicaid population is enrolled in managed care plans; in some states, the number approaches 100 percent. Physicians are free to make their own decisions on whether to accept Medicaid patients, and states wishing to initiate cost sharing must seek waivers from the federal government to do so. Many states are considering work requirements as a prerequisite for able-bodied adults, but the open-ended program actually places few restrictions on participation. d. Correct. Over 75 percent of the Medicaid population is enrolled in managed care plans; in some states, the number approaches 100 percent. Physicians are free to make their own decisions on whether to accept Medicaid patients, and states wishing to initiate cost sharing must seek waivers from the federal government to do so. Many states are considering work requirements as a prerequisite for able-bodied adults, but the open-ended program actually places few restrictions on participation. e. Incorrect. Over 75 percent of the Medicaid population is enrolled in managed care plans; in some states, the number approaches 100 percent. Physicians are free to make their own decisions on whether to accept Medicaid patients, and states wishing to initiate cost sharing must seek waivers from the federal government to do so. Many states are considering work requirements as a prerequisite for able-bodied adults, but the open-ended program actually places few restrictions on participation.

POINTS: QUESTION TYPE:

1 Multiple Choice

HAS VARIABLES: False LEARNING OBJECTIVES: 14-4 - Economic Consequences DATE CREATED: 2/26/2022 12:23 AM DATE MODIFIED: 2/26/2022 12:25 AM 8. Congress originally established the Medicaid program to provide basic medical benefits, including hospital and physicians’ services, for certain vulnerable population groups, including pregnant women, children, and the disabled.

However, many of those who are now eligible for Medicaid have a difficult time finding a physician who will treat them.

Why is that?

ANSWER: Although medical payments for welfare recipients were originally supposed to be funded under Medicaid, over the years, the amount of non-medical and non-Medicare recipients has grown. The expansion of the eligible population resulting from the newly passed Affordable Care Act exacerbated this problem. Even with the federal government picking up 100 percent of the increase in spending over the first three years of the expansion, many states have shown an unwillingness to participate in the expansion due to added cost. Many policymakers are also convinced that the shortage of physicians willing to serve the Medicaid population is due to low reimbursement rates. Research has shown that higher fees increase physician participation in the Medicaid program (Hadley, 1979; Mitchell, 1991; Sloan, Mitchell, and Cromwell, 1978).

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 14-4 - Economic Consequences DATE CREATED: 2/26/2022 12:26 AM DATE MODIFIED: 2/26/2022 12:27 AM 9. Research indicates that the 2014 expansion of Medicaid has led to a number of unintended consequences including: a. higher per capita spending on the expansion population than anticipated. b. more physicians accepting new Medicaid patients. c. an increase in the birthrate among the eligible population. d. expanded opiate use among the elderly. e. fewer Medicaid enrollees seeking emergency room treatment.

ANSWER: a FEEDBACK: a. Correct. Prior to the implementation of the Affordable Care Act, the Congressional Budget Office (CBO) expected that per capita spending on the expansion population would be less than per capita spending on previously eligible non-elderly adults. The new enrollees were expected to be healthier.

The Congressional Budget Office was wrong. Combining higher than expected enrollment with higher than expected per capita spending, overall spending was 62 percent higher in 2015 than expected. b. Incorrect. Prior to the implementation of the Affordable Care Act, the Congressional Budget Office (CBO) expected that per capita spending on the expansion population would be less than per capita spending on previously eligible non-elderly adults. The new enrollees were expected to be healthier.

The Congressional Budget Office was wrong. Combining higher than expected enrollment with higher-than-expected per capita spending, overall spending was 62 percent higher in 2015 than expected. c. Incorrect. Prior to the implementation of the Affordable Care Act, the Congressional Budget Office (CBO) expected that per capita spending on the expansion population would be less than per capita spending on previously

eligible non-elderly adults. The new enrollees were expected to be healthier.

The Congressional Budget Office was wrong. Combining higher than expected enrollment with higher-than-expected per capita spending, overall spending was 62 percent higher in 2015 than expected. d. Incorrect. Prior to the implementation of the Affordable Care Act, the Congressional Budget Office (CBO) expected that per capita spending on the expansion population would be less than per capita spending on previously eligible non-elderly adults. The new enrollees were expected to be healthier.

The Congressional Budget Office was wrong. Combining higher than expected enrollment with higher-than-expected per capita spending, overall spending was 62 percent higher in 2015 than expected. e. Incorrect. Prior to the implementation of the ACA, the Congressional Budget Office (CBO) expected that per capita spending on the expansion population would be less than per capita spending on previously eligible non-elderly adults. The new enrollees were expected to be healthier. The CBO was wrong.

Combining higher than expected enrollment with higher-than-expected per capita spending, overall spending was 62 percent higher in 2015 than expected.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 14-5 - Medicaid Expansion under the Affordable Care Act DATE CREATED: 2/26/2022 12:28 AM DATE MODIFIED: 2/26/2022 12:31 AM 10. The federal share of Medicaid financing, or federal medical assistance percentage (FMAP), ranges from a minimum of what percent in 13 high-income states to what percent in Mississippi? a. 25%; 50% b. 25%; 75% c. 50%; 60% d. 50%; 75% ANSWER: d FEEDBACK: a. Incorrect. The federal medical assistance percentage is determined by an established formula based on the per capita income in the state relative to the United States’ per capita income. The law sets a minimum of 50 percent of overall spending in those states with per capita incomes that exceed the national average. The average is slightly over 60 percent, ranging from 50 percent in 13 high-income states to 75 percent in Mississippi, the state with the lowest per capita income. b. Incorrect. The federal medical assistance percentage is determined by an established formula based on the per capita income in the state relative to the United States’ per capita income. The law sets a minimum of 50 percent of overall spending in those states with per capita incomes that exceed the national average. The average is slightly over 60 percent, ranging from 50 percent in 13 high-income states to 75 percent in Mississippi, the state with the lowest per capita income. c. Incorrect. The federal medical assistance percentage is determined by an established formula based on the per capita income in the state relative to the United States’ per capita income. The law sets a minimum of 50 percent of overall spending in those states with per capita incomes that exceed the national average. The average is slightly over 60 percent, ranging from 50 percent in 13 high-income states to 75 percent in Mississippi, the state with the lowest per capita income. d. Correct. The federal medical assistance percentage is determined by an

established formula based on the per capita income in the state relative to the United States’ per capita income. The law sets a minimum of 50 percent of overall spending in those states with per capita incomes that exceed the national average. The average is slightly over 60 percent, ranging from 50 percent in 13 high-income states to 75 percent in Mississippi, the state with the lowest per capita income.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 14-5 - Medicaid Expansion under the Affordable Care Act DATE CREATED: 2/26/2022 12:33 AM DATE MODIFIED: 2/26/2022 12:35 AM 11. Many of the states that expanded Medicaid coverage to meet the criteria of the Affordable Care Act did not expect: a. the large increase in the number of new enrollees already eligible under previous standards. b. the large interstate migration of new enrollees from non-expansion states. c. the increase in the number of physicians willing to accept new Medicaid patients. d. Congress to change the federal matching assistance percentage on new enrollees who were eligible under previous standards but had not enrolled.

ANSWER: a FEEDBACK: a. Correct. Prior to passage of the Affordable Care Act, the take-up rate for the program was 65–70 percent, indicating that a large portion of the eligible population did not participate. Policymakers expected the take-up rate for those previously eligible to rise, but not by the amount that it did. Many more of those previously eligible emerged out of the woodwork, and states were responsible for 50 percent or more of their medical care spending, compared to zero for the expansion population. b. Incorrect. Prior to passage of the Affordable Care Act, the take-up rate for the program was 65–70 percent, indicating that a large portion of the eligible population did not participate. Policymakers expected the take-up rate for those previously eligible to rise, but not by the amount that it did. Many more of those previously eligible emerged out of the woodwork, and states were responsible for 50 percent or more of their medical care spending, compared to zero for the expansion population. c. Incorrect. Prior to passage of the Affordable Care Act, the take-up rate for the program was 65–70 percent, indicating that a large portion of the eligible population did not participate. Policymakers expected the take-up rate for those previously eligible to rise, but not by the amount that it did. Many more of those previously eligible emerged out of the woodwork, and states were responsible for 50 percent or more of their medical care spending, compared to zero for the expansion population. d. Incorrect. Prior to passage of the Affordable Care Act, the take-up rate for the program was 65–70 percent, indicating that a large portion of the eligible population did not participate. Policymakers expected the take-up rate for those previously eligible to rise, but not by the amount that it did. Many more of those previously eligible emerged out of the woodwork, and states were responsible for 50 percent or more of their medical care spending, compared to zero for the expansion population.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 14-5 - Medicaid Expansion under the Affordable Care Act DATE CREATED: 2/26/2022 12:48 AM

DATE MODIFIED:

2/26/2022 12:49 AM

12. In 2008, the state of Oregon used a lottery to extend Medicaid coverage to an additional 10,000 residents (often called the Oregon Experiment). Two years after enrollment, the lottery winners (the treatment group): a. had significant improvement in their quality of life measured by blood pressure, cholesterol, and blood sugar levels. b. had fewer emergency room visits than those who lost the lottery (the control group). c. had lower predicted risk of cardiovascular episodes. d. experienced an increase in the probability of receiving a diagnosis of diabetes and the use of drugs to control the condition. e. had lower overall health care spending.

ANSWER: d FEEDBACK: a. Incorrect. After two years, the lottery winners (the treatment group) had no overall improvement in their quality of life, visited the emergency room more often, and spent more on their health care without any appreciable change in their risk of suffering a heart attack. The probability of a diabetes diagnosis increased, as did the likelihood that the condition would be treated with medication. b. Incorrect. After two years, the lottery winners (the treatment group) had no overall improvement in their quality of life, visited the emergency room more often, and spent more on their health care without any appreciable change in their risk of suffering a heart attack. The probability of a diabetes diagnosis increased, as did the likelihood that the condition would be treated with medication. c. Incorrect. After two years, the lottery winners (the treatment group) had no overall improvement in their quality of life, visited the emergency room more often, and spent more on their health care without any appreciable change in their risk of suffering a heart attack. The probability of a diabetes diagnosis increased, as did the likelihood that the condition would be treated with medication. d. Correct. After two years, the lottery winners (the treatment group) had no overall improvement in their quality of life, visited the emergency room more often, and spent more on their health care without any appreciable change in their risk of suffering a heart attack. The probability of a diabetes diagnosis increased, as did the likelihood that the condition would be treated with medication. e. Incorrect. After two years, the lottery winners (the treatment group) had no overall improvement in their quality of life, visited the emergency room more often, and spent more on their health care without any appreciable change in their risk of suffering a heart attack. The probability of a diabetes diagnosis increased, as did the likelihood that the condition would be treated with medication.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 14-5 - Medicaid Expansion under the Affordable Care Act DATE CREATED: 2/26/2022 12:50 AM DATE MODIFIED: 2/26/2022 12:52 AM 13. One of the reasons the 2008 Oregon Experiment was so important is because it(s): a. proved unequivocally that having Medicaid coverage resulted in better physical health outcomes than being uninsured. b. experimental design included random selection of the treatment and control groups.

c. provided solid evidence that expanding Medicaid coverage would improve health outcomes. d. showed that individuals with Medicaid would receive more primary and preventive care, reducing overall health care spending relative to the uninsured. e. provided evidence that individuals with Medicaid had lower mortality risk than those without insurance.

ANSWER: b FEEDBACK: a. Incorrect. The experiment did not provide evidence of better physical health, improved health outcomes, increased use of primary and preventive care, or lower overall mortality risk. Its importance was in the experimental design, which randomly selected treatment and control groups. b. Correct. The experiment did not provide evidence of better physical health, improved health outcomes, increased use of primary and preventive care, or lower overall mortality risk. Its importance was in the experimental design, which randomly selected treatment and control groups. c. Incorrect. The experiment did not provide evidence of better physical health, improved health outcomes, increased use of primary and preventive care, or lower overall mortality risk. Its importance was in the experimental design, which randomly selected treatment and control groups. d. Incorrect. The experiment did not provide evidence of better physical health, improved health outcomes, increased use of primary and preventive care, or lower overall mortality risk. Its importance was in the experimental design, which randomly selected treatment and control groups. e. Incorrect. The experiment did not provide evidence of better physical health, improved health outcomes, increased use of primary and preventive care, or lower overall mortality risk. Its importance was in the experimental design, which randomly selected treatment and control groups.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 14-5 - Medicaid Expansion under the Affordable Care Act DATE CREATED: 2/26/2022 12:53 AM DATE MODIFIED: 2/26/2022 12:55 AM 14. Medicaid payment rates to physicians are significantly below those paid by private insurers. Using the results of a Merritt Hawkins (2014, 2017) survey, how do these lower payment rates affect physician access for enrollees? a. Despite low payment rates, access to physicians is relatively good across the country. b. Overall, almost 75 percent of physicians accept new Medicaid patients into their practices. c. The average number of days it takes to get an appointment to see a physician is lower where there are more physicians per capita. d. The greater the supply of physicians, the more likely they are to accept new Medicaid patients. e. Metropolitan areas with fewer than average number of physicians per capita are more likely to accept new Medicaid patients.

ANSWER: d FEEDBACK: a. Incorrect. There is a positive and significant correlation (correlation coefficient of 0.56) between the number of physicians per capita and the likelihood of accepting new Medicaid patients. b. Incorrect. There is a positive and significant correlation (correlation coefficient of 0.56) between the number of physicians per capita and the likelihood of accepting new Medicaid patients. c. Incorrect. There is a positive and significant correlation (correlation coefficient of 0.56) between the number of physicians per capita and the likelihood of accepting new Medicaid patients.

d. Correct. There is a positive and significant correlation (correlation coefficient of 0.56) between the number of physicians per capita and the likelihood of accepting new Medicaid patients. e. Incorrect. There is a positive and significant correlation (correlation coefficient of 0.56) between the number of physicians per capita and the likelihood of accepting new Medicaid patients.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 14-5 - Medicaid Expansion under the Affordable Care Act DATE CREATED: 2/26/2022 12:56 AM DATE MODIFIED: 2/26/2022 12:58 AM 15. One of the stated goals of the Medicaid program is to improve the health of the eligible population. Explain how has the Medicaid program has affected the health outcomes of its enrollees, giving at least one argument in favor and one argument opposed.

ANSWER: Currie and Gruber (1996) found evidence that Medicaid eligibility expansions among pregnant women improved prenatal care utilization, which resulted in a reduction in the proportion of low-birth-weight deliveries and an improvement in birth outcomes. On the other hand, other research has shown that patients with Medicaid coverage have worse outcomes than virtually all other patients (those with private insurance, Medicare, and even the uninsured). For example, studies indicate that Medicaid enrollees had more complications and a lower chance of survival after colon cancer surgery (Kelz et al., 2004).

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 14-6a - Medicaid’s Impact on Enrollees DATE CREATED: 2/26/2022 12:59 AM DATE MODIFIED: 2/26/2022 1:00 AM 16. What is an in-kind transfer, and how does it relate to Medicaid? And is it valuable for individuals?

ANSWER: In-kind transfers are welfare subsidies provided in the form of vouchers for specific goods and services, such as food stamps and Medicaid. For individuals on public welfare assistance, Medicaid eligibility is a valuable benefit. Many hesitate to accept jobs, fearing the loss of free, public health insurance.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 14-6c - Medicaid’s Impact on Enrollees DATE CREATED: 2/26/2022 1:05 AM DATE MODIFIED: 2/26/2022 1:07 AM 17. Research indicates that Medicaid has a significant impact on enrollee behavior. Which of the following are true statements? Select all that apply. a. Medicaid enrollees use more emergency department services than the uninsured. b. Medicaid coverage is associated with worse health outcomes than either private insurance or even no insurance at all.

c. A significant number of low-income jobholders drop private insurance coverage when they qualify for Medicaid. d. Many individuals, especially women with small children, will refuse to accept jobs in order to maintain Medicaid eligibility. e. Because they are not required to pay premiums, Medicaid enrollees have higher savings rates.

ANSWER: a, b, c, d FEEDBACK: a. Correct. Medicare enrollment is associated with more emergency room visits, worse health outcomes, and lower labor force participation (especially among single women with small children). Further, evidence indicates Medicaid enrollment affects individual savings rates negatively. By reducing the financial risk associated with an illness, the need for precautionary savings diminishes. b. Correct. Medicare enrollment is associated with more emergency room visits, worse health outcomes, and lower labor force participation (especially among single women with small children). Further, evidence indicates Medicaid enrollment affects individual savings rates negatively. By reducing the financial risk associated with an illness, the need for precautionary savings diminishes. c. Correct. Medicare enrollment is associated with more emergency room visits, worse health outcomes, and lower labor force participation (especially among single women with small children). Further, evidence indicates Medicaid enrollment affects individual savings rates negatively. By reducing the financial risk associated with an illness, the need for precautionary savings diminishes. d. Correct. Medicare enrollment is associated with more emergency room visits, worse health outcomes, and lower labor force participation (especially among single women with small children). Further, evidence indicates Medicaid enrollment affects individual savings rates negatively. By reducing the financial risk associated with an illness, the need for precautionary savings diminishes. e. Incorrect. Medicare enrollment is associated with more emergency room visits, worse health outcomes, and lower labor force participation (especially among single women with small children). Further, evidence indicates Medicaid enrollment affects individual savings rates negatively. By reducing the financial risk associated with an illness, the need for precautionary savings diminishes.

POINTS: 1 QUESTION TYPE: Multiple Response HAS VARIABLES: False LEARNING OBJECTIVES: 14-6e - Medicaid’s Impact on Enrollees DATE CREATED: 2/26/2022 5:37 AM DATE MODIFIED: 2/26/2022 5:39 AM 18. Which of the following statements about the 2014 Medicaid expansion is true? Select all that apply. a. It included a work requirement for able-bodied, working-aged adults without dependents. b. The expansion included mandatory participation by the states until the Supreme Court ruled that the requirement was too punitive and thus unconstitutional. c. The expansion accounted for over 85 percent of the overall increase in the number of Americans with insurance coverage from 2014–2016. d. Eventually, 30 states and the District of Columbia agreed to accept the 100 percent FMAP for the newly covered and expanded the program. The remainder have chosen not to participate. e. The expansion was partially financed by a reduction in future Medicare spending.

ANSWER: b, c, d, e FEEDBACK: a. Incorrect. Medicaid does not have a work requirement for participation. A recent presidential order (in 2018) provided states with the option of initiating one using a waiver. Several states are considering requiring some form of work activity, including job search, training, and volunteer service.

b. Correct. Medicaid does not have a work requirement for participation. A recent presidential order (in 2018) provided states with the option of initiating one using a waiver. Several states are considering requiring some form of work activity, including job search, training, and volunteer service. c. Correct. Medicaid does not have a work requirement for participation. A recent presidential order (in 2018) provided states with the option of initiating one using a waiver. Several states are considering requiring some form of work activity, including job search, training, and volunteer service. d. Correct. Medicaid does not have a work requirement for participation. A recent presidential order (in 2018) provided states with the option of initiating one using a waiver. Several states are considering requiring some form of work activity, including job search, training, and volunteer service. e. Correct. Medicaid does not have a work requirement for participation. A recent presidential order (in 2018) provided states with the option of initiating one using a waiver. Several states are considering requiring some form of work activity, including job search, training, and volunteer service.

POINTS: 1 QUESTION TYPE: Multiple Response HAS VARIABLES: False LEARNING OBJECTIVES: 14-7 - The Future of Medicaid DATE CREATED: 2/26/2022 5:43 AM DATE MODIFIED: 2/26/2022 5:45 AM 19. Most of the states, including those that did not expand Medicaid, have eligibility thresholds that exceed the level set for household incomes set by the Affordable Care Act (138 percent of the federal poverty level). This is true for which of the following groups? Select all that apply. a. Working-aged adults without dependents b. Pregnant women c. Disabled, regardless of marital status d. Children (under age 19) living in those households ANSWER: b, c, d FEEDBACK: a. Incorrect. Only the expansion states extend eligibility to single, working-aged adults without dependents. For the other three categories, the threshold exceeds 100 percent of the federal poverty level. For pregnant women, the threshold exceeds 200 percent of the federal poverty level; 18 states set the level at 100 percent of the federal poverty level for the disabled; and the level for children ranges from 190–405 percent of the federal poverty level (averaging 250 percent). b. Correct. Only the expansion states extend eligibility to single, working-aged adults without dependents. For the other three categories, the threshold exceeds 100 percent of the federal poverty level . For pregnant women, the threshold exceeds 200 percent of the federal poverty level; 18 states set the level at 100 percent of the federal poverty level for the disabled; and the level for children ranges from 190–405 percent of the federal poverty level (averaging 250 percent). c. Correct. Only the expansion states extend eligibility to single, working-aged adults without dependents. For the other three categories, the threshold exceeds 100 percent of the federal poverty level. For pregnant women, the threshold exceeds 200 percent of the federal poverty level; 18 states set the level at 100 percent of the federal poverty level for the disabled; and the level for children ranges from 190–405 percent of the federal poverty level (averaging 250 percent). d. Correct. Only the expansion states extend eligibility to single, working-aged adults without dependents. For the other three categories, the threshold

exceeds 100 percent of the federal poverty level. For pregnant women, the threshold exceeds 200 percent of the federal poverty level; 18 states set the level at 100 percent of the federal poverty level for the disabled; and the level for children ranges from 190–405 percent of the federal poverty level (averaging 250 percent).

POINTS: 1 QUESTION TYPE: Multiple Response HAS VARIABLES: False LEARNING OBJECTIVES: 14-7 - The Future of Medicaid DATE CREATED: 2/26/2022 5:47 AM DATE MODIFIED: 2/26/2022 5:49 AM 20. Of the four categories of the Medicaid-eligible population, which of these could benefit by opening up the health exchanges to some degree of privatization? a. Medicare-eligible older adults b. The disabled c. Children d. Adults ANSWER: d FEEDBACK: a. Incorrect. Medicare-eligible older adults, the disabled, and children who qualify are already covered under Medicaid and, when needed, under the health exchanges. However, adults could benefit from some degree of privatization by opening up the exchanges to their participation. By adding a cost-sharing requirement based on income and ability to pay, states could contribute to health savings accounts for participants (without treating it as a direct cash grant). b. Incorrect. Medicare-eligible older adults, the disabled, and children who qualify are already covered under Medicaid and, when needed, under the health exchanges. However, adults could benefit from some degree of privatization by opening up the exchanges to their participation. By adding a cost-sharing requirement based on income and ability to pay, states could contribute to health savings accounts for participants (without treating it as a direct cash grant). c. Incorrect. Medicare-eligible older adults, the disabled, and children who qualify are already covered under Medicaid and, when needed, under the health exchanges. However, adults could benefit from some degree of privatization by opening up the exchanges to their participation. By adding a cost-sharing requirement based on income and ability to pay, states could contribute to health savings accounts for participants (without treating it as a direct cash grant). d. Correct. Medicare-eligible older adults, the disabled, and children who qualify are already covered under Medicaid and, when needed, under the health exchanges. However, adults could benefit from some degree of privatization by opening up the exchanges to their participation. By adding a cost-sharing requirement based on income and ability to pay, states could contribute to health savings accounts for participants (without treating it as a direct cash grant).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 14-7 - The Future of Medicaid DATE CREATED: 2/26/2022 1:19 AM

DATE MODIFIED:

2/26/2022 1:21 AM

Chapter 15: Health Systems in High-Income Countries 1. In a 2000 study conducted by the World Health Organization (WHO) as to which of the health care systems was the best in the world, which country came out on top in overall performance? The rankings were based on four composite indicators each weighted equally: (1) level of health, (2) health inequality, (3) health system responsiveness and its distribution across groups, and (4) financial fairness. a. Japan b. Germany c. Canada d. France e. United States ANSWER: a FEEDBACK: a. Incorrect. The World Health Organization report released in 2000 based its rankings on the overall performance, the most frequently reported index. Using this measure, the French health care system was rated number one. Using overall achievement instead of overall performance changes the rankings considerably with Japan number 1 and the United States number 15. b. Incorrect. The World Health Organization report released in 2000 based its rankings on the overall performance, the most frequently reported index. Using this measure, the French health care system was rated number one. Using overall achievement instead of overall performance changes the rankings considerably with Japan number 1 and the United States number 15. c. Incorrect. The World Health Organization report released in 2000 based its rankings on the overall performance, the most frequently reported index. Using this measure, the French health care system was rated number one. Using overall achievement instead of overall performance changes the rankings considerably with Japan number 1 and the United States number 15. d. Correct. The World Health Organization report released in 2000 based its rankings on the overall performance, the most frequently reported index. Using this measure, the French health care system was rated number one. Using overall achievement instead of overall performance changes the rankings considerably with Japan number 1 and the United States number 15. e. Incorrect. The World Health Organization report released in 2000 based its rankings on the overall performance, the most frequently reported index. Using this measure, the French health care system was rated number one. Using overall achievement instead of overall performance changes the rankings considerably with Japan number 1 and the United States number 15.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-1 - International Comparisons: Tread Lightly DATE CREATED: 2/26/2022 1:24 AM DATE MODIFIED: 2/26/2022 1:28 AM 2. Which developed country has the highest gross domestic product per capita? a. Japan b. Germany c. United States d. Switzerland e. France ANSWER: d

FEEDBACK:

a. Incorrect. Switzerland’s per capita gross domestic product was the highest, at $66,300, followed by the United States at $59,823, the Netherlands at $54,422, and Germany at $52,574. b. Incorrect. Switzerland’s per capita gross domestic product was the highest, at $66,300, followed by the United States at $59,823, the Netherlands at $54,422, and Germany at $52,574. c. Incorrect. Switzerland’s per capita gross domestic product was the highest, at $66,300, followed by the United States at $59,823, the Netherlands at $54,422, and Germany at $52,574. d. Correct. Switzerland’s per capita gross domestic product was the highest, at $66,300, followed by the United States at $59,823, the Netherlands at $54,422, and Germany at $52,574. e. Incorrect. Switzerland’s per capita gross domestic product was the highest, at $66,300, followed by the United States at $59,823, the Netherlands at $54,422, and Germany at $52,574.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-1 - International Comparisons: Tread Lightly DATE CREATED: 2/26/2022 1:29 AM DATE MODIFIED: 2/26/2022 1:32 AM 3. Infant mortality is one of the most common measures of health outcomes in cross-national comparisons. What is the United States’ infant mortality rate, and why does its difference from other countries make cross-country comparisons difficult?

ANSWER: The United States’ rate of 5.8 deaths per 1,000 live births is by far the worst of the group and 2.3 deaths higher than the average among developed countries. However, we should use this measure cautiously because of the wide variation in birth registration practices.

While as a rule most countries accept the World Health Organization definition of a live birth, they do not follow it in practice, particularly in those cases of borderline viability (babies born weighing less than 500 grams or at gestational ages between 22 and 24 weeks). This is evident when we compare infant mortality rates to perinatal mortality rates (late trimester fetal deaths plus neonatal deaths), which is 70 percent higher than the infant mortality rate (IMR) in the comparison group.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 15-1 - International Comparisons: Tread Lightly DATE CREATED: 2/26/2022 1:33 AM DATE MODIFIED: 2/26/2022 1:34 AM 4. In terms of health care spending as a percentage of gross domestic product, which country ranks highest? a. Japan b. Germany c. United States d. Switzerland e. France ANSWER: c FEEDBACK: a. Incorrect. Since 1990, the United States has consistently ranked number one,

reaching 16.9 percent of gross domestic product in 2018, compared to the 10.9 percent average of a comparison group of developed countries. b. Incorrect. Since 1990, the United States has consistently ranked number one, reaching 16.9 percent of gross domestic product in 2018, compared to the 10.9 percent average of a comparison group of developed countries. c. Correct. Since 1990, the United States has consistently ranked number one, reaching 16.9 percent of gross domestic product in 2018, compared to the 10.9 percent average of a comparison group of developed countries. d. Incorrect. Since 1990, the United States has consistently ranked number one, reaching 16.9 percent of gross domestic product in 2018, compared to the 10.9 percent average of a comparison group of developed countries. e. Incorrect. Since 1990, the United States has consistently ranked number one, reaching 16.9 percent of gross domestic product in 2018, compared to the 10.9 percent average of a comparison group of developed countries.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-3 - Health Care Spending DATE CREATED: 2/26/2022 1:41 AM DATE MODIFIED: 2/28/2022 8:47 AM 5. Global budgets coupled with price ceilings can control total spending as long as: a. the price ceilings are negotiated in good faith. b. utilization of services does not increase significantly. c. providers cooperate by only providing “medically necessary” services. d. patients are required to pay some of the expenses out-of-pocket. e. global budgets can never work to control spending.

ANSWER: b FEEDBACK: a. Incorrect. In medical markets, price controls are seldom successful in the long run. Providers eventually find they can bypass controls by seeing more patients, seeing them more often, and treating them more intensively.

Establishing global budgets can work to control spending (if strictly adhered to), but they also create shortages, increasing the political pressure to eliminate the waiting lists for services. b. Correct. In medical markets, price controls are seldom successful in the long run. Providers eventually find they can bypass controls by seeing more patients, seeing them more often, and treating them more intensively.

Establishing global budgets can work to control spending (if strictly adhered to), but they also create shortages, increasing the political pressure to eliminate the waiting lists for services. c. Incorrect. In medical markets, price controls are seldom successful in the long run. Providers eventually find they can bypass controls by seeing more patients, seeing them more often, and treating them more intensively.

Establishing global budgets can work to control spending (if strictly adhered to), but they also create shortages, increasing the political pressure to eliminate the waiting lists for services. d. Incorrect. In medical markets, price controls are seldom successful in the long run. Providers eventually find they can bypass controls by seeing more patients, seeing them more often, and treating them more intensively.

Establishing global budgets can work to control spending (if strictly adhered to), but they also create shortages, increasing the political pressure to eliminate the waiting lists for services. e. Incorrect. In medical markets, price controls are seldom successful in the long

run. Providers eventually find they can bypass controls by seeing more patients, seeing them more often, and treating them more intensively.

Establishing global budgets can work to control spending (if strictly adhered to), but they also create shortages, increasing the political pressure to eliminate the waiting lists for services.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-3 - Health Care Spending DATE CREATED: 2/26/2022 2:04 AM DATE MODIFIED: 2/26/2022 2:05 AM 6. In order for a single-payer system to work adequately, policymakers must be willing to: a. implement price controls, global budgets, and some method of direct rationing of services. b. make all forms of private insurance illegal. c. make all patient cost sharing illegal. d. close off all patient access to medical care outside the country. e. nationalize the hospital system and make all clinicians government employees.

ANSWER: a FEEDBACK: a. Correct. In order for a single-payer system to work as intended (achieving the triple aim), all three of the cost-control measures discussed must be implemented. Fee schedules alone are too easy to bypass, as providers can increase utilization to make up for their lost income. Pairing with global budgets (if strictly enforced) can keep spending within targets, but this will create shortages and their associated waiting lists. Some mechanism of denying services considered too costly (given their effectiveness) must be in place.

Private insurance, medical travel, and cost sharing are all safety valves that help maintain popular support for the system. b. Incorrect. In order for a single-payer system to work as intended (achieving the triple aim), all three of the cost-control measures discussed must be implemented. Fee schedules alone are too easy to bypass as providers can increase utilization to make up for their lost income. Pairing with global budgets (if strictly enforced) can keep spending within targets, but this will create shortages and their associated waiting lists. Some mechanism of denying services considered too costly (given their effectiveness) must be in place.

Private insurance, medical travel, and cost sharing are all safety valves that help maintain popular support for the system. c. Incorrect. In order for a single-payer system to work as intended (achieving the triple aim), all three of the cost-control measures discussed must be implemented. Fee schedules alone are too easy to bypass as providers can increase utilization to make up for their lost income. Pairing with global budgets (if strictly enforced) can keep spending within targets, but this will create shortages and their associated waiting lists. Some mechanism of denying services considered too costly (given their effectiveness) must be in place.

Private insurance, medical travel, and cost sharing are all safety valves that help maintain popular support for the system. d. Incorrect. In order for a single-payer system to work as intended (achieving the triple aim), all three of the cost-control measures discussed must be implemented. Fee schedules alone are too easy to bypass as providers can increase utilization to make up for their lost income. Pairing with global budgets (if strictly enforced) can keep spending within targets, but this will create shortages and their associated waiting lists. Some mechanism of denying services considered too costly (given their effectiveness) must be in place.

Private insurance, medical travel, and cost sharing are all safety valves that

help maintain popular support for the system.

e. Incorrect. In order for a single-payer system to work as intended (achieving the Triple Aim), all three of the cost-control measures discussed must be implemented. Fee schedules alone are too easy to bypass as providers can increase utilization to make up for their lost income. Pairing with global budgets (if strictly enforced) can keep spending within targets, but this will create shortages and their associated waiting lists. Some mechanism of denying services considered too costly (given their effectiveness) must be in place.

Private insurance, medical travel, and cost sharing are all safety valves that help maintain popular support for the system.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-3 - Health Care Spending DATE CREATED: 2/26/2022 2:06 AM DATE MODIFIED: 2/26/2022 2:09 AM 7. Which country has the largest percentage of its population covered by some form of private insurance? a. Canada b. France c. Japan d. United Kingdom e. United States ANSWER: b FEEDBACK: a. Incorrect. France actually has the largest percentage of its population covered by some form of private insurance. (The Swiss system has 100 percent private insurance coverage, but that choice was not an option.) Private insurance coverage ranges from 12 percent in the United Kingdom to over 70 percent in Japan. In the United States, about 65 percent of the population has private coverage. b. Correct. France actually has the largest percentage of its population covered by some form of private insurance. (The Swiss system has 100 percent private insurance coverage, but that choice was not an option.) Private insurance coverage ranges from 12 percent in the United Kingdom to over 70 percent in Japan. In the United States, about 65 percent of the population has private coverage. c. Incorrect. France actually has the largest percentage of its population covered by some form of private insurance. (The Swiss system has 100 percent private insurance coverage, but that choice was not an option.) Private insurance coverage ranges from 12 percent in the United Kingdom to over 70 percent in Japan. In the United States, about 65 percent of the population has private coverage. d. Incorrect. France actually has the largest percentage of its population covered by some form of private insurance. (The Swiss system has 100 percent private insurance coverage, but that choice was not an option.) Private insurance coverage ranges from 12 percent in the United Kingdom to over 70 percent in Japan. In the United States, about 65 percent of the population has private coverage. e. Incorrect. France actually has the largest percentage of its population covered by some form of private insurance. (The Swiss system has 100 percent private insurance coverage, but that choice was not an option.) Private insurance coverage ranges from 12 percent in the United Kingdom to over 70 percent in Japan. In the United States, about 65 percent of the population has private coverage.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-4 - Health System Classification DATE CREATED: 2/26/2022 3:47 AM DATE MODIFIED: 2/26/2022 3:50 AM 8. What are the distinguishing characteristics between the Beveridge model of health systems and the Bismarck model?

ANSWER: The Beveridge model, developed in the United Kingdom, is government ownership of most hospitals and clinics, with clinicians serving as government employees. General taxation is the primary funding source, and medical care is free at the point of service.

Private insurance is available and duplicates services provided in the public system. The Bismarck model, first developed in Germany, provides universal insurance coverage through not-for-profit insurance companies selling mandated benefit packages. France and Germany finance insurance coverage through payroll taxes, while the Swiss require individuals to purchase their own plans, paying fixed premiums.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 15-4 - Health System Classification DATE CREATED: 2/26/2022 3:51 AM DATE MODIFIED: 2/26/2022 3:52 AM 9. The biggest challenge faced by the German health care system in the 1990s was: a. eliminating the long waiting lists for expensive medical services. b. integrating East and West Germany into a single system. c. controlling overall health care spending as a percentage of gross domestic product. d. how to control rising physicians’ incomes in the name of social solidarity. e. how to provide high-income Germans with an effective safety valve so they would continue to support the system with their taxes.

ANSWER: b FEEDBACK: a. Incorrect. By far, the biggest challenge was the integration of the East German system into West Germany. The transition for the East Germans was challenging with the merger of the single-payer socialist system into one characterized by private sickness funds. Providers had to transition from salaried government employees to fee-for-service private practitioners. Today, high-income Germans are even allowed to completely abandon the public system and rely solely on private insurance. b. Correct. By far, the biggest challenge was the integration of the East German system into West Germany. The transition for the East Germans was challenging with the merger of the single-payer socialist system into one characterized by private sickness funds. Providers had to transition from salaried government employees to fee-for-service private practitioners. Today, high-income Germans are even allowed to completely abandon the public system and rely solely on private insurance. c. Incorrect. By far, the biggest challenge was the integration of the East German system into West Germany. The transition for the East Germans was challenging with the merger of the single-payer socialist system into one characterized by private sickness funds. Providers had to transition from salaried government employees to fee-for-service private practitioners. Today,

high-income Germans are even allowed to completely abandon the public system and rely solely on private insurance. d. Incorrect. By far, the biggest challenge was the integration of the East German system into West Germany. The transition for the East Germans was challenging with the merger of the single-payer socialist system into one characterized by private sickness funds. Providers had to transition from salaried government employees to fee-for-service private practitioners. Today, high-income Germans are even allowed to completely abandon the public system and rely solely on private insurance. e. Incorrect. By far, the biggest challenge was the integration of the East German system into West Germany. The transition for the East Germans was challenging with the merger of the single-payer socialist system into one characterized by private sickness funds. Providers had to transition from salaried government employees to fee-for-service private practitioners. Today, high-income Germans are even allowed to completely abandon the public system and rely solely on private insurance.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-5 - Germany: Sickness Funds DATE CREATED: 2/26/2022 3:52 AM DATE MODIFIED: 2/26/2022 3:57 AM 10. Relative to other developed countries, Germany has been successful in controlling excess health care spending. Which of the following have been major contributing factors? Select all that apply. a. A budget-capping mechanism that sets limits on per patient spending by each physician b. The strict division between ambulatory care and hospital care, with most physicians prohibited from treating patients in both settings c. The fact that Germans see their physicians less often, consume fewer prescription drugs, have lower hospital admission rates than their counterparts in other highly developed countries, and spend more time in the hospital d. Legislation that limits the growth of health care spending to the growth of wages and salaries e. The explicit tradeoff between service volume and price that keeps overall spending under global budget limits ANSWER: a, b, d, e FEEDBACK: a. Correct. Based on Organization for Economic Cooperation and Development statistics, Germans see their physicians more often, are provided more prescription drugs, have higher hospitalization rates, and spend more time in the hospital than their counterparts in most countries. b. Correct. Based on Organization for Economic Cooperation and Development statistics, Germans see their physicians more often, are provided more prescription drugs, have higher hospitalization rates, and spend more time in the hospital than their counterparts in most countries. c. Incorrect. Based on Organization for Economic Cooperation and Development statistics, Germans see their physicians more often, are provided more prescription drugs, have higher hospitalization rates, and spend more time in the hospital than their counterparts in most countries. d. Correct. Based on Organization for Economic Cooperation and Development statistics, Germans see their physicians more often, are provided more prescription drugs, have higher hospitalization rates, and spend more time in the hospital than their counterparts in most countries. e. Correct. Based on Organization for Economic Cooperation and Development statistics, Germans see their physicians more often, are provided more prescription drugs, have higher hospitalization rates, and spend more time in

the hospital than their counterparts in most countries.

POINTS: 1 QUESTION TYPE: Multiple Response HAS VARIABLES: False LEARNING OBJECTIVES: 15-5 - Germany: Sickness Funds DATE CREATED: 2/26/2022 3:57 AM DATE MODIFIED: 2/26/2022 4:00 AM 11. Which of the following is a unique characteristic of the German health care system? a. There are no deductibles or copays for medical services. b. There is a uniform fee schedule charged to all patients. c. Certain high-income individuals can choose to opt out of government-run insurance altogether and purchase private insurance coverage. d. Compared to other developed countries, overall service utilization rates are low.

ANSWER: c FEEDBACK: a. Incorrect. Deductibles and copays on most services, different fee schedules depending on the plan, and increased utilization rates are common of the German system. Individuals with annual incomes exceeding about $60,000 (2014) may opt out of the public system completely and purchase private insurance; about 15 percent of the population (including most government employees) do so. b. Incorrect. Deductibles and copays on most services, different fee schedules depending on the plan, and increased utilization rates are common of the German system. Individuals with annual incomes exceeding about $60,000 (2014) may opt out of the public system completely and purchase private insurance; about 15 percent of the population (including most government employees) do so. c. Correct. Deductibles and copays on most services, different fee schedules depending on the plan, and increased utilization rates are common of the German system. Individuals with annual incomes exceeding about $60,000 (2014) may opt out of the public system completely and purchase private insurance; about 15 percent of the population (including most government employees) do so. d. Incorrect. Deductibles and copays on most services, different fee schedules depending on the plan, and increased utilization rates are common of the German system. Individuals with annual incomes exceeding about $60,000 (2014) may opt out of the public system completely and purchase private insurance; about 15 percent of the population (including most government employees) do so.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-5 - Germany: Sickness Funds DATE CREATED: 2/26/2022 4:01 AM DATE MODIFIED: 2/26/2022 4:07 AM 12. The Japanese health care system most closely resembles the health care system of which country, from which it was copied? a. United States b. France c. Great Britain

d. Germany e. Canada ANSWER: FEEDBACK:

d a. Incorrect. In the mid-nineteenth century push to modernize during the Meiji Restoration, the Japanese incorporated the institutions and practices of the developed world. Their analysis considered that Germany had the most advanced medical system in the world, so they adopted the German system. b. Incorrect. In the mid-nineteenth century push to modernize during the Meiji Restoration, the Japanese incorporated the institutions and practices of the developed world. Their analysis considered that Germany had the most advanced medical system in the world, so they adopted the German system. c. Incorrect. In the mid- nineteenth century push to modernize during the Meiji Restoration, the Japanese incorporated the institutions and practices of the developed world. Their analysis considered that Germany had the most advanced medical system in the world, so they adopted the German system. d. Correct. In the mid- nineteenth century push to modernize during the Meiji Restoration, the Japanese incorporated the institutions and practices of the developed world. Their analysis considered that Germany had the most advanced medical system in the world, so they adopted the German system. e. Incorrect. In the mid- nineteenth century push to modernize during the Meiji Restoration, the Japanese incorporated the institutions and practices of the developed world. Their analysis considered that Germany had the most advanced medical system in the world, so they adopted the German system.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-6 - Japan: The Company Is People DATE CREATED: 2/26/2022 4:07 AM DATE MODIFIED: 2/26/2022 4:10 AM 13. Which of the following are common practices of Japanese physicians? Select all that apply. a. Performing an unusually large number of surgeries b. Seeing a large number of patients daily c. Dispensing medicine to their patients d. Accepting gifts of appreciation from their patients for special services e. Discharging patients from the hospital after relative short average stays ANSWER: a, b, c, d FEEDBACK: a. Correct. On average, Japanese patients spend more time in the hospital per inpatient admission. The Japanese prefer procedures that are less invasive, so they avoid surgery unless it is essential. Physicians typically spend very little time with their patients, so they can see many more per day. Most have dispending retail pharmacies as part of their practices and accept gifts of appreciation from patients (this is especially true for highly regarded surgeons). b. Correct. On average, Japanese patients spend more time in the hospital per inpatient admission. The Japanese prefer procedures that are less invasive, so they avoid surgery unless it is essential. Physicians typically spend very little time with their patients, so they can see many more per day. Most have dispending retail pharmacies as part of their practices and accept gifts of appreciation from patients (this is especially true for highly regarded surgeons). c. Correct. On average, Japanese patients spend more time in the hospital per inpatient admission. The Japanese prefer procedures that are less invasive, so they avoid surgery unless it is essential. Physicians typically spend very little

time with their patients, so they can see many more per day. Most have dispending retail pharmacies as part of their practices and accept gifts of appreciation from patients (this is especially true for highly regarded surgeons). d. Correct. On average, Japanese patients spend more time in the hospital per inpatient admission. The Japanese prefer procedures that are less invasive, so they avoid surgery unless it is essential. Physicians typically spend very little time with their patients, so they can see many more per day. Most have dispending retail pharmacies as part of their practices and accept gifts of appreciation from patients (this is especially true for highly regarded surgeons). e. Incorrect. On average, Japanese patients spend more time in the hospital per inpatient admission. The Japanese prefer procedures that are less invasive, so they avoid surgery unless it is essential. Physicians typically spend very little time with their patients, so they can see many more per day. Most have dispending retail pharmacies as part of their practices and accept gifts of appreciation from patients (this is especially true for highly regarded surgeons).

POINTS: 1 QUESTION TYPE: Multiple Response HAS VARIABLES: False LEARNING OBJECTIVES: 15-6 - Japan: The Company Is People DATE CREATED: 2/26/2022 4:11 AM DATE MODIFIED: 2/26/2022 4:13 AM 14. The French respect individual freedoms even as they accept collective action to reach important national goals of social solidarity and equality. What has been the major cost of a government-run system in France? a. The long waiting lists for expensive medical services b. The high out-of-pocket spending, with over 80 percent of the population purchasing supplementary private insurance c. The increase in the incomes of physicians relative to those of the average wage and salary worker d. An erosion of physician autonomy in making treatment decisions e. High out-of-pocket spending for the typical French citizen ANSWER: b FEEDBACK: a. Incorrect. The French system of insurance requires point-of-service payment from patients who then must file for reimbursement. Almost 90 percent have private complementary insurance that covers the required copays, keeping outof-pocket spending low. This arrangement is one of the reasons the system has avoided waiting lists for services without any erosion of physician autonomy.

Over time, French physicians have had a substantial drop in their incomes relative to the average wage and salary worker. b. Correct. The French system of insurance requires point-of-service payment from patients who then must file for reimbursement. Almost 90 percent have private complementary insurance that covers the required copays, keeping outof-pocket spending low. This arrangement is one of the reasons the system has avoided waiting lists for services without any erosion of physician autonomy.

Over time, French physicians have had a substantial drop in their incomes relative to the average wage and salary worker. c. Incorrect. The French system of insurance requires point-of-service payment from patients who then must file for reimbursement. Almost 90 percent have private complementary insurance that covers the required copays, keeping outof-pocket spending low. This arrangement is one of the reasons the system has avoided waiting lists for services without any erosion of physician autonomy.

Over time, French physicians have had a substantial drop in their incomes relative to the average wage and salary worker. d. Incorrect. The French system of insurance requires point-of-service payment

from patients who then must file for reimbursement. Almost 90 percent have private complementary insurance that covers the required copays, keeping outof-pocket spending low. This arrangement is one of the reasons the system has avoided waiting lists for services without any erosion of physician autonomy.

Over time, French physicians have had a substantial drop in their incomes relative to the average wage and salary worker. e. Incorrect. The French system of insurance requires point-of-service payment from patients who then must file for reimbursement. Almost 90 percent have private complementary insurance that covers the required copays, keeping outof-pocket spending low. This arrangement is one of the reasons the system has avoided waiting lists for services without any erosion of physician autonomy.

Over time, French physicians have had a substantial drop in their incomes relative to the average wage and salary worker.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-7 - France: Equality, Liberty, Fraternity DATE CREATED: 2/26/2022 4:14 AM DATE MODIFIED: 2/26/2022 4:19 AM 15. Describe a single-payer model and cite at least one country that uses it.

ANSWER: Under a single-payer model, everyone participates in a single health plan, administered and financed by the government or a quasi-governmental agency. A basic benefits package, defined to cover all medically necessary services, is available to the entire population.

Canada has one. Physicians do not bill patients directly. In Canada, they bill the single payer according to a fee schedule, determined legislatively or through negotiations between medical providers and the single payer.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 15-8 - Single Payer: Beveridge Model DATE CREATED: 2/26/2022 4:31 AM DATE MODIFIED: 2/26/2022 4:32 AM 16. Describe the economics of a safety valve as it relates to health care systems. Feel free to use graphs to emphasize your points.

ANSWER: The purpose of a safety valve is to relieve pressure. Consider two medical care markets separated in some manner: the primary market and the safety valve. Supply is restricted through limits on the number of operating rooms, imaging devices, and other procedures requiring sophisticated medical technology. To keep prices and spending down, the governing authorities place a price ceiling in the primary market. The price ceiling creates a shortage. The excess demand causes problems with waiting lists and frustrated patients.

Given a certain degree of geographic mobility, patients in the primary market can travel to the unrestricted market, the safety valve, and receive treatment.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 15-8 - Single Payer: Beveridge Model

DATE CREATED: DATE MODIFIED:

2/26/2022 4:32 AM 2/26/2022 4:33 AM

17. The strengths of the British National Health Service (NHS) include: a. patient access to all medically necessary care, regardless of cost. b. the fact that no one has the ability to jump to the top of the slow-moving waiting list for medical treatment. c. good access to primary and preventive care. d. a surplus of clinicians, so there is little need for foreign-trained physicians and nurses to practice in Britain. e. no differences in access to medical care based on socioeconomic status or geographic location.

ANSWER: c FEEDBACK: a. Incorrect. The National Health Service has invested resources in ensuring easy access to primary and preventive care. Recent structural changes in National Health Service funding set aside an additional $100 billion for primary care, providing general practitioners with the ability to coordinate the purchase of all medical care in the same way that health maintenance organizations do in the United States. The system is still plagued with long waiting lists, a shortage of clinicians, and health disparities across population groups. b. Incorrect. The National Health Service has invested resources in ensuring easy access to primary and preventive care. Recent structural changes in National Health Service funding set aside an additional $100 billion for primary care, providing general practitioners with the ability to coordinate the purchase of all medical care in the same way that health maintenance organizations do in the United States. The system is still plagued with long waiting lists, a shortage of clinicians, and health disparities across population groups. c. Correct. The National Health Service has invested resources in ensuring easy access to primary and preventive care. Recent structural changes in National Health Service funding set aside an additional $100 billion for primary care, providing general practitioners with the ability to coordinate the purchase of all medical care in the same way that health maintenance organizations do in the United States. The system is still plagued with long waiting lists, a shortage of clinicians, and health disparities across population groups. d. Incorrect. The National Health Service has invested resources in ensuring easy access to primary and preventive care. Recent structural changes in National Health Service funding set aside an additional $100 billion for primary care, providing general practitioners with the ability to coordinate the purchase of all medical care in the same way that health maintenance organizations do in the United States. The system is still plagued with long waiting lists, a shortage of clinicians, and health disparities across population groups. e. Incorrect. The National Health Service has invested resources in ensuring easy access to primary and preventive care. Recent structural changes in National Health Service funding set aside an additional $100 billion for primary care, providing general practitioners with the ability to coordinate the purchase of all medical care in the same way that health maintenance organizations do in the United States. The system is still plagued with long waiting lists, a shortage of clinicians, and health disparities across population groups.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-9 - United Kingdom: National Health Service DATE CREATED: 2/26/2022 4:33 AM DATE MODIFIED: 2/26/2022 4:35 AM 18. Critics of the policy that allows the private system of health insurance in the United Kingdom focus on what they

consider flaws in the model. They are concerned that private insurance: a. premiums are too high and unaffordable for everyone except the wealthy. b. is a waste of money because so few people participate in the private market. c. should not receive taxpayer subsidies. d. results in higher overall health care spending. e. slows improvements in the National Health Service by taking pressure off the system and results in a twotiered system.

ANSWER: e FEEDBACK: a. Incorrect. The main criticism is that the private health insurance system has created a two-tiered system where holders of private insurance can avoid waiting lists. Its existence takes pressure off the National Health Service to initiate important reforms. Most of the population enrolled in private insurance (approximately 12 percent) receive their policies through their employers.

Premiums are paid with after-tax income, so there is no premium support from taxpayers. b. Incorrect. The main criticism is that the private health insurance system has created a two-tiered system where holders of private insurance can avoid waiting lists. Its existence takes pressure off the National Health Service to initiate important reforms. Most of the population enrolled in private insurance (approximately 12 percent) receive their policies through their employers.

Premiums are paid with after-tax income, so there is no premium support from taxpayers. c. Incorrect. The main criticism is that the private health insurance system has created a two-tiered system where holders of private insurance can avoid waiting lists. Its existence takes pressure off the National Health Service to initiate important reforms. Most of the population enrolled in private insurance (approximately 12 percent) receive their policies through their employers.

Premiums are paid with after-tax income, so there is no premium support from taxpayers. d. Incorrect. The main criticism is that the private health insurance system has created a two-tiered system where holders of private insurance can avoid waiting lists. Its existence takes pressure off the National Health Service to initiate important reforms. Most of the population enrolled in private insurance (approximately 12 percent) receive their policies through their employers.

Premiums are paid with after-tax income, so there is no premium support from taxpayers. e. Correct. The main criticism is that the private health insurance system has created a two-tiered system where holders of private insurance can avoid waiting lists. Its existence takes pressure off the National Health Service to initiate important reforms. Most of the population enrolled in private insurance (approximately 12 percent) receive their policies through their employers.

Premiums are paid with after-tax income, so there is no premium support from taxpayers.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-9 - United Kingdom: National Health Service DATE CREATED: 2/26/2022 4:36 AM DATE MODIFIED: 2/26/2022 4:37 AM 19. Survey results indicate that support for the British National Health Service is quite strong: a. because of reductions in the length of time that patients must wait for elective surgeries. b. due to the narrowing of health inequalities across socioeconomic groups since its inception.

c. with widespread support of the functioning of the National Institute of Health and Clinical Excellence (NICE), which guarantees medical treatment to all segments of the population, regardless of cost or efficacy. d. even though the majority of those surveyed feel the quality of care would improve if patients could spend their own money for rationed services. e. even though a significant number of those surveyed are less concerned about equal access to care and more concerned about the quality of their own care.

ANSWER: d FEEDBACK: a. Incorrect. Waiting lists for hospitals in Britain include over 9 percent of the population, health disparities across population groups and regions, and treatment guidelines established by National Institute of Health and Clinical Excellence. Nevertheless, the majority of the surveyed population strongly supports the National Health Service, even though most people feel that quality of care would improve if patients could spend their own money to supplement payment for high-cost services delayed or denied by the system. b. Incorrect. Waiting lists for hospitals in Britain include over 9 percent of the population, health disparities across population groups and regions, and treatment guidelines established by National Institute of Health and Clinical Excellence. Nevertheless, the majority of the surveyed population strongly supports the National Health Service, even though most people feel that quality of care would improve if patients could spend their own money to supplement payment for high-cost services delayed or denied by the system. c. Incorrect. Waiting lists for hospitals in Britain include over 9 percent of the population, health disparities across population groups and regions, and treatment guidelines established by National Institute of Health and Clinical Excellence. Nevertheless, the majority of the surveyed population strongly supports the National Health Service, even though most people feel that quality of care would improve if patients could spend their own money to supplement payment for high-cost services delayed or denied by the system. d. Correct. Waiting lists for hospitals in Britain include over 9 percent of the population, health disparities across population groups and regions, and treatment guidelines established by National Institute of Health and Clinical Excellence. Nevertheless, the majority of the surveyed population strongly supports the National Health Service, even though most people feel that quality of care would improve if patients could spend their own money to supplement payment for high-cost services delayed or denied by the system. e. Incorrect. Waiting lists for hospitals in Britain include over 9 percent of the population, health disparities across population groups and regions, and treatment guidelines established by National Institute of Health and Clinical Excellence. Nevertheless, the majority of the surveyed population strongly supports the National Health Service, even though most people feel that quality of care would improve if patients could spend their own money to supplement payment for high-cost services delayed or denied by the system.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-9 - United Kingdom: National Health Service DATE CREATED: 2/26/2022 4:38 AM DATE MODIFIED: 2/26/2022 4:40 AM 20. A recent study of the Canadian health care system estimates that a significant portion of the difference between health care spending in the United States and Canada is due to age differences between the two populations. Other reasons for lower health care spending in Canada include: a. better access to advanced medical imaging in Canada. b. significant excess capacity of inpatient beds in the Canadian hospital system.

c. the monopsony power of the Canadian provincial health plans in negotiating fees with physicians’ associations and other providers. d. comprehensive first-dollar coverage for all medically necessary health care services. e. the geographic isolation of much of the Canadian population, which is a natural deterrent to accessing medical services.

ANSWER: c FEEDBACK: a. Incorrect. One of the most significant powers of the provincial health plans in Canada is their strong bargaining position relative to provider groups. Private insurance for covered services is essentially illegal, and physicians may not accept private payment for anyone if they choose to accept Medicare payment from anyone. It is all or none. Compared to the United States, Canada has less advanced imaging equipment and less inpatient bed capacity. Most of the population lives within 100 miles of the United States /Canadian border, resulting in many metropolitan areas within easy driving distance of United States facilities. b. Incorrect. One of the most significant powers of the provincial health plans in Canada is their strong bargaining position relative to provider groups. Private insurance for covered services is essentially illegal, and physicians may not accept private payment for anyone if they choose to accept Medicare payment from anyone. It is all or none. Compared to the United States, Canada has less advanced imaging equipment and less inpatient bed capacity. Most of the population lives within 100 miles of the United States/Canadian border, resulting in many metropolitan areas within easy driving distance of facilities in the United States. c. Correct. One of the most significant powers of the provincial health plans in Canada is their strong bargaining position relative to provider groups. Private insurance for covered services is essentially illegal, and physicians may not accept private payment for anyone if they choose to accept Medicare payment from anyone. It is all or none. Compared to the United States, Canada has less advanced imaging equipment and less inpatient bed capacity. Most of the population lives within 100 miles of the United States/Canadian border, resulting in many metropolitan areas within easy driving distance of facilities in the United States. d. Incorrect. One of the most significant powers of the provincial health plans in Canada is their strong bargaining position relative to provider groups. Private insurance for covered services is essentially illegal, and physicians may not accept private payment for anyone if they choose to accept Medicare payment from anyone. It is all or none. Compared to the United States, Canada has less advanced imaging equipment and less inpatient bed capacity. Most of the population lives within 100 miles of the United States/Canadian border, resulting in many metropolitan areas within easy driving distance of facilities in the United States. e. Incorrect. One of the most significant powers of the provincial health plans in Canada is their strong bargaining position relative to provider groups. Private insurance for covered services is essentially illegal, and physicians may not accept private payment for anyone if they choose to accept Medicare payment from anyone. It is all or none. Compared to the United States, Canada has less advanced imaging equipment and less inpatient bed capacity. Most of the population lives within 100 miles of the United States/Canadian border, resulting in many metropolitan areas within easy driving distance of facilities in the United States.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-10 - Canadian National Health Insurance: Medicare DATE CREATED: 2/26/2022 4:46 AM

DATE MODIFIED:

2/26/2022 4:48 AM

21. One lesson that American policymakers can learn from the health care systems of other countries is: a. that people must be willing to accept long waiting lists for expensive services. b. that a government-run system ensures equal access across socioeconomic groups. c. the importance of having a safety valve. d. that the mix between general practitioners and specialists is of little importance. e. that private insurance cannot complement government insurance.

ANSWER: c FEEDBACK: a. Incorrect. Providing an escape mechanism for individuals who have trouble assessing desired services keeps public support higher for a government-run system. Being able to spend your own money, purchase some form of private insurance, or travel abroad for care decreases the inconvenience of having to wait for care or not being able to access denied care. b. Incorrect. Providing an escape mechanism for individuals who have trouble assessing desired services keeps public support higher for a government-run system. Being able to spend your own money, purchase some form of private insurance, or travel abroad for care decreases the inconvenience of having to wait for care or not being able to access denied care. c. Correct. Providing an escape mechanism for individuals who have trouble assessing desired services keeps public support higher for a government-run system. Being able to spend your own money, purchase some form of private insurance, or travel abroad for care decreases the inconvenience of having to wait for care or not being able to access denied care. d. Incorrect. Providing an escape mechanism for individuals who have trouble assessing desired services keeps public support higher for a government-run system. Being able to spend your own money, purchase some form of private insurance, or travel abroad for care decreases the inconvenience of having to wait for care or not being able to access denied care. e. Incorrect. Providing an escape mechanism for individuals who have trouble assessing desired services keeps public support higher for a government-run system. Being able to spend your own money, purchase some form of private insurance, or travel abroad for care decreases the inconvenience of having to wait for care or not being able to access denied care.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-10 - Canadian National Health Insurance: Medicare DATE CREATED: 2/26/2022 4:49 AM DATE MODIFIED: 2/26/2022 4:51 AM 22. Which of the following statements is true about the Canadian health care system? a. More than 60,000 Canadians travel abroad each year to avoid waiting lists for services. b. Canadians have the option of purchasing private health insurance if they can afford it. c. Canadian physicians are salaried employees of the provincial health plans. d. Canadian hospitals have significant excess capacity that is used to treat patients from foreign countries. e. Canadian physicians are allowed to “balance bill” patients for certain high-cost procedures.

ANSWER: a FEEDBACK: a. Correct. Ren and Labrie (2017) estimated that approximately 63,500 Canadians traveled abroad for elective procedures in 2016. Private health insurance is illegal in a system where there is little excess capacity and

providers must strictly adhere to mandatory fee schedules.

b. Incorrect. Ren and Labrie (2017) estimated that approximately 63,500 Canadians traveled abroad for elective procedures in 2016. Private health insurance is illegal in a system where there is little excess capacity and providers must strictly adhere to mandatory fee schedules. c. Incorrect. Ren and Labrie (2017) estimated that approximately 63,500 Canadians traveled abroad for elective procedures in 2016. Private health insurance is illegal in a system where there is little excess capacity and providers must strictly adhere to mandatory fee schedules. d. Incorrect. Ren and Labrie (2017) estimated that approximately 63,500 Canadians traveled abroad for elective procedures in 2016. Private health insurance is illegal in a system where there is little excess capacity and providers must strictly adhere to mandatory fee schedules. e. Incorrect. Ren and Labrie (2017) estimated that approximately 63,500 Canadians traveled abroad for elective procedures in 2016. Private health insurance is illegal in a system where there is little excess capacity and providers must strictly adhere to mandatory fee schedules.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-10 - Canadian National Health Insurance: Medicare DATE CREATED: 2/26/2022 4:54 AM DATE MODIFIED: 2/26/2022 4:56 AM 23. When medical fee schedules are negotiated by two monopolists—one representing patients and one representing providers—the equilibrium medical fees will: a. be greater than fees determined in a competitive market. b. be less than fees determined in a competitive market. c. be greater than fees determined by provider groups alone. d. be less than fees determined by patient groups alone. e. depend on the relative bargaining strengths of the two groups negotiating the fee schedule.

ANSWER: e FEEDBACK: a. Incorrect. Fees could end up greater than or less than the competitive market fee levels, depending on the bargaining power of the health plan relative to the provider group. The negotiated fee will be somewhere below the fee desired by the provider group and above the fee offered by the patient group. b. Incorrect. Fees could end up greater than or less than the competitive market fee levels, depending on the bargaining power of the health plan relative to the provider group. The negotiated fee will be somewhere below the fee desired by the provider group and above the fee offered by the patient group. c. Incorrect. Fees could end up greater than or less than the competitive market fee levels, depending on the bargaining power of the health plan relative to the provider group. The negotiated fee will be somewhere below the fee desired by the provider group and above the fee offered by the patient group. d. Incorrect. Fees could end up greater than or less than the competitive market fee levels, depending on the bargaining power of the health plan relative to the provider group. The negotiated fee will be somewhere below the fee desired by the provider group and above the fee offered by the patient group. e. Correct. Fees could end up greater than or less than the competitive market fee levels, depending on the bargaining power of the health plan relative to the provider group. The negotiated fee will be somewhere below the fee desired by the provider group and above the fee offered by the patient group.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-10 - Canadian National Health Insurance: Medicare DATE CREATED: 2/26/2022 4:57 AM DATE MODIFIED: 2/26/2022 4:58 AM 24. Characteristics of the Swiss health care system include: a. individual insurance policies with age-related premiums issued at birth. b. government-run insurance coverage financed via payroll taxes. c. the ability to “opt out” of the government-run health insurance system and seek private coverage. d. a nationalized hospital system, where most clinicians are government employees. e. long waiting lists for all elective surgeries.

ANSWER: a FEEDBACK: a. Correct. Everyone purchases individual policies from birth from private insurance companies. Premiums are age-related (with three age bands) and vary according to the size of the deductible chosen. The majority of the population chooses either the high-deductible plan or a limited network, managed care plan. There are no group plans or employer-sponsored plans.

Government involvement is limited to the provision of subsidies for low-income individuals. There are no waiting lists. b. Incorrect. Everyone purchases individual policies from birth from private insurance companies. Premiums are age-related (with three age bands) and vary according to the size of the deductible chosen. The majority of the population chooses either the high-deductible plan or a limited network, managed care plan. There are no group plans or employer-sponsored plans.

Government involvement is limited to the provision of subsidies for low-income individuals. There are no waiting lists. c. Incorrect. Everyone purchases individual policies from birth from private insurance companies. Premiums are age-related (with three age bands) and vary according to the size of the deductible chosen. The majority of the population chooses either the high-deductible plan or a limited network, managed care plan. There are no group plans or employer-sponsored plans.

Government involvement is limited to the provision of subsidies for low-income individuals. There are no waiting lists. d. Incorrect. Everyone purchases individual policies from birth from private insurance companies. Premiums are age-related (with three age bands) and vary according to the size of the deductible chosen. The majority of the population chooses either the high-deductible plan or a limited network, managed care plan. There are no group plans or employer-sponsored plans.

Government involvement is limited to the provision of subsidies for low-income individuals. There are no waiting lists. e. Incorrect. Everyone purchases individual policies from birth from private insurance companies. Premiums are age-related (with three age bands) and vary according to the size of the deductible chosen. The majority of the population chooses either the high-deductible plan or a limited network, managed care plan. There are no group plans or employer-sponsored plans.

Government involvement is limited to the provision of subsidies for low-income individuals. There are no waiting lists.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-11 - Switzerland: Individual Responsibility in a Federalist Framework

DATE CREATED: DATE MODIFIED:

2/26/2022 4:59 AM 2/26/2022 5:01 AM

25. The Affordable Care Act incorporated many of the features of one of the countries discussed in this chapter: mandatory age-rated premiums sold in health insurance marketplaces by private insurance companies, income-based subsidies to make policies more affordable, and a tiered system of plans offering different provider networks, deductibles, and copays. Which country? a. France b. Germany c. Japan d. Switzerland e. United Kingdom ANSWER: d FEEDBACK: a. Incorrect. The model for the Affordable Care Act closely resembles the Swiss system. Its private health insurance system has mandatory age-rated premiums sold in health insurance marketplaces by private insurance companies; income-based subsidies to make policies more affordable; and a tiered system of plans offering different provider networks, deductibles, and copays. b. Incorrect. The model for the Affordable Care Act closely resembles the Swiss system. Its private health insurance system has mandatory age-rated premiums sold in health insurance marketplaces by private insurance companies; income-based subsidies to make policies more affordable; and a tiered system of plans offering different provider networks, deductibles, and copays. c. Incorrect. The model for the Affordable Care Act closely resembles the Swiss system. Its private health insurance system has mandatory age-rated premiums sold in health insurance marketplaces by private insurance companies; income-based subsidies to make policies more affordable; and a tiered system of plans offering different provider networks, deductibles, and copays. d. Correct. The model for the Affordable Care Act closely resembles the Swiss system. Its private health insurance system has mandatory age-rated premiums sold in health insurance marketplaces by private insurance companies; income-based subsidies to make policies more affordable; and a tiered system of plans offering different provider networks, deductibles, and copays. e. Incorrect. The model for the Affordable Care Act closely resembles the Swiss system. Its private health insurance system has mandatory age-rated premiums sold in health insurance marketplaces by private insurance companies; income-based subsidies to make policies more affordable; and a tiered system of plans offering different provider networks, deductibles, and copays.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 15-11 - Switzerland: Individual Responsibility in a Federalist Framework DATE CREATED: 2/26/2022 5:01 AM DATE MODIFIED: 2/26/2022 5:03 AM

Chapter 16: Medical Care Reform in the United States 1. The main goal of any health care system, sometimes called the triple aim, includes all of the following, except: (Select all that apply) a. Expand access to medical care. b. Provide universal insurance coverage. c. Control medical care spending to make access more affordable. d. Improve the overall quality of medical care services.

ANSWER: a FEEDBACK: a. Correct. The triple aim is stated in different ways but essentially identifies the three main objectives of a health care system: providing access to high-quality medical care at affordable prices. b. Incorrect. The triple aim is stated in different ways but essentially identifies the three main objectives of a health care system: providing access to high-quality medical care at affordable prices. c. Correct. The triple aim is stated in different ways but essentially identifies the three main objectives of a health care system: providing access to high-quality medical care at affordable prices. d. Correct. The triple aim is stated in different ways but essentially identifies the three main objectives of a health care system: providing access to high-quality medical care at affordable prices.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-1 - The Conditions for Reform DATE CREATED: 2/18/2022 1:59 AM DATE MODIFIED: 2/18/2022 2:03 AM 2. How is the issue of the “free rider” relevant to the discussion of whether access to medical care is a fundamental right? a. The free rider argument is based on the idea that access to medical care should be free and available to everyone. b. As long as there is excess capacity in the medical care system, providing free access to care does not present a resource allocation problem. c. Providing medical care at zero cost will maximize social welfare. d. The socially responsible approach is to provide free access to all the medical care a person desires.

ANSWER: a FEEDBACK: a. Correct. The free rider is an individual who does not make any provisions for insurance coverage, knowing that in the event of a serious illness or injury, they will receive free care. To justify free rider behavior, policymakers rely on society’s “moral responsibility” to provide medical care regardless of a person’s ability to pay. b. Incorrect. The free rider is an individual who does not make any provisions for insurance coverage, knowing that in the event of a serious illness or injury, they will receive free care. To justify free rider behavior, policymakers rely on society’s “moral responsibility” to provide medical care regardless of a person’s ability to pay. c. Incorrect. The free rider is an individual who does not make any provisions for insurance coverage, knowing that in the event of a serious illness or injury, they will receive free care. To justify free rider behavior, policymakers rely on society’s “moral responsibility” to provide medical care regardless of a person’s ability to pay. d. Incorrect. The free rider is an individual who does not make any provisions for

insurance coverage, knowing that in the event of a serious illness or injury, they will receive free care. To justify free rider behavior, policymakers rely on society’s “moral responsibility” to provide medical care regardless of a person’s ability to pay.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-2 - The Right to Medical Care DATE CREATED: 2/18/2022 2:04 AM DATE MODIFIED: 2/18/2022 2:05 AM 3. Before entering the debate of whether access to medical care is a right, it is important to distinguish between a negative right and a positive right. Which of the following statements is true? a. Positive rights are freedom-preserving rights; they are enumerated in the Constitution of the United States. b. Negative rights are resource-extracting rights. They require taking resources from one person in order for someone else to receive them. c. Consider that Peter has no money. In order for Peter to exercise his right to medical care, the law requires that Paul pay for it. This is an example of medical care as a positive right. d. Coercion of some kind is essential to guarantee a negative right. e. Entitlements such as Medicare and Medicaid are examples of negative rights.

ANSWER: c FEEDBACK: a. Incorrect. Positive rights are resource-extracting rights. Negative rights are freedom-preserving rights. Coercion is essential to guarantee that there are enough participants to ensure adequate funding to pay for the activity.

Medicare and Medicaid are positive rights created by law, providing insurance to the elderly and indigent by extracting resources from taxpayers. b. Incorrect. Positive rights are resource-extracting rights. Negative rights are freedom-preserving rights. Coercion is essential to guarantee that there are enough participants to ensure adequate funding to pay for the activity.

Medicare and Medicaid are positive rights created by law, providing insurance to the elderly and indigent by extracting resources from taxpayers. c. Correct. Positive rights are resource-extracting rights. Negative rights are freedom-preserving rights. Coercion is essential to guarantee that there are enough participants to ensure adequate funding to pay for the activity.

Medicare and Medicaid are positive rights created by law, providing insurance to the elderly and indigent by extracting resources from taxpayers. d. Incorrect. Positive rights are resource-extracting rights. Negative rights are freedom-preserving rights. Coercion is essential to guarantee that there are enough participants to ensure adequate funding to pay for the activity.

Medicare and Medicaid are positive rights created by law, providing insurance to the elderly and indigent by extracting resources from taxpayers. e. Incorrect. Positive rights are resource-extracting rights. Negative rights are freedom-preserving rights. Coercion is essential to guarantee that there are enough participants to ensure adequate funding to pay for the activity.

Medicare and Medicaid are positive rights created by law, providing insurance to the elderly and indigent by extracting resources from taxpayers.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-2 - The Right to Medical Care DATE CREATED: 2/18/2022 2:05 AM

DATE MODIFIED:

2/18/2022 2:09 AM

4. The legal obligation created by the Congress of the United States to provide medical care for the elderly and indigent creates: a. A natural right to medical care for these two groups. b. an entitlement subject to future changes based on shifts in public sentiment. c. a freedom-preserving right. d. a negative right. e. guaranteed access to treatment by all medical care providers.

ANSWER: a FEEDBACK: a. Incorrect. Medicare and Medicaid are entitlement programs created by law, providing insurance to the elderly and indigent by extracting resources from taxpayers. b. Correct. Medicare and Medicaid are entitlement programs created by law, providing insurance to the elderly and indigent by extracting resources from taxpayers. c. Incorrect. Medicare and Medicaid are entitlement programs created by law, providing insurance to the elderly and indigent by extracting resources from taxpayers. d. Incorrect. Medicare and Medicaid are entitlement programs created by law, providing insurance to the elderly and indigent by extracting resources from taxpayers. e. Incorrect. Medicare and Medicaid are entitlement programs created by law, providing insurance to the elderly and indigent by extracting resources from taxpayers.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-2 - The Right to Medical Care DATE CREATED: 2/18/2022 2:09 AM DATE MODIFIED: 2/18/2022 2:10 AM 5. Individuals on opposite sides of the political spectrum typically voice opposite viewpoints on universal access and universal coverage. All of the statements concerning the two concepts are true except which of the following? a. Universal coverage guarantees that everyone will have access to health insurance coverage. b. Universal access usually requires mandatory participation, while universal coverage is a voluntary system. c. Universal access guarantees that everyone who wants it has health insurance. d. Republicans typically support universal coverage, while Democrats support universal access. e. Universal access means that everyone has access to medical treatment from the provider of their choice.

ANSWER: b FEEDBACK: a. Incorrect. The concept of universal coverage applies to a program that provides universal insurance coverage to everyone; it is taxpayer financed and requires mandatory participation. In contrast, universal access is characterized by voluntary participation, where everyone has the opportunity to purchase insurance coverage. Subsidies are provided to make it more affordable. b. Correct. The concept of universal coverage applies to a program that provides universal insurance coverage to everyone; it is taxpayer financed and requires mandatory participation. In contrast, universal access is characterized by voluntary participation, where everyone has the opportunity to purchase insurance coverage. Subsidies are provided to make it more affordable.

c. Incorrect. The concept of universal coverage applies to a program that provides universal insurance coverage to everyone; it is taxpayer financed and requires mandatory participation. In contrast, universal access is characterized by voluntary participation, where everyone has the opportunity to purchase insurance coverage. Subsidies are provided to make it more affordable. d. Incorrect. The concept of universal coverage applies to a program that provides universal insurance coverage to everyone; it is taxpayer financed and requires mandatory participation. In contrast, universal access is characterized by voluntary participation, where everyone has the opportunity to purchase insurance coverage. Subsidies are provided to make it more affordable. e. Incorrect. The concept of universal coverage applies to a program that provides universal insurance coverage to everyone; it is taxpayer financed and requires mandatory participation. In contrast, universal access is characterized by voluntary participation, where everyone has the opportunity to purchase insurance coverage. Subsidies are provided to make it more affordable.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-2 - The Right to Medical Care DATE CREATED: 2/18/2022 2:12 AM DATE MODIFIED: 2/18/2022 2:14 AM 6. In four to six sentences, explain the difference between positive and negative rights.

ANSWER: Under natural law, negative rights are freedom-preserving rights. They are genuine and immutable rights, which are undeniable and not man-made. Conversely, positive rights are resource-extracting rights. They extract resources from other individuals and require their fellow citizens to act in a certain way. Positive rights are legitimate only when created through voluntary agreement, and they limit choice. When they are dictated, they are a threat to liberty.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 16-2 - The Right to Medical Care DATE CREATED: 2/18/2022 2:15 AM DATE MODIFIED: 2/28/2022 8:55 AM 7. A collectively financed medical care system that provides universal coverage to a basic benefits package for everyone, including the ability to purchase additional coverage with a supplemental insurance policy: a. Is unfair because it creates a two-tiered system. b. seldom works when actually applied in the real world. c. may not be equal but is welfare enhancing for everyone. d. will do harm to the more vulnerable segments of the population: poor, sick, and elderly.

ANSWER: c FEEDBACK: a. Incorrect. The universal provision of a basic benefits package with the option of purchasing supplemental insurance will allow those with higher incomes to purchase coverage that is more comprehensive. Their coverage would be superior. However, those who receive the basic coverage, including lowincome and vulnerable population groups, would be better off. b. Incorrect. The universal provision of a basic benefits package with the option of purchasing supplemental insurance will allow those with higher incomes to

purchase coverage that is more comprehensive. Their coverage would be superior. However, those who receive the basic coverage, including lowincome and vulnerable population groups, would be better off. c. Correct. The universal provision of a basic benefits package with the option of purchasing supplemental insurance will allow those with higher incomes to purchase coverage that is more comprehensive. Their coverage would be superior. However, those who receive the basic coverage, including lowincome and vulnerable population groups, would be better off. d. Incorrect. The universal provision of a basic benefits package with the option of purchasing supplemental insurance will allow those with higher incomes to purchase coverage that is more comprehensive. Their coverage would be superior. However, those who receive the basic coverage, including lowincome and vulnerable population groups, would be better off.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-3 - The Goals of Reform DATE CREATED: 2/18/2022 3:48 AM DATE MODIFIED: 2/18/2022 3:57 AM 8. Which of the following statements is most true regarding the experience of reforming medical care in the United States? a. Increased access to care will reduce spending. b. Investment in electronic health records will save money. c. Providing more people with insurance coverage expands the risk pools and lowers premiums. d. Moral hazard is a powerful force. e. Collective action improves efficiency.

ANSWER: d FEEDBACK: a. Incorrect. More people covered will lead to more spending, higher premiums, and increased inefficiencies. Moral hazard increases the likelihood that covered individuals will seek medical care and spend more money when they do. b. Incorrect. More people covered will lead to more spending, higher premiums, and increased inefficiencies. Moral hazard increases the likelihood that covered individuals will seek medical care and spend more money when they do. c. Incorrect. More people covered will lead to more spending, higher premiums, and increased inefficiencies. Moral hazard increases the likelihood that covered individuals will seek medical care and spend more money when they do. d. Correct. More people covered will lead to more spending, higher premiums, and increased inefficiencies. Moral hazard increases the likelihood that covered individuals will seek medical care and spend more money when they do. e. Incorrect. More people covered will lead to more spending, higher premiums, and increased inefficiencies. Moral hazard increases the likelihood that covered individuals will seek medical care and spend more money when they do.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-3 - The Goals of Reform DATE CREATED: 2/18/2022 3:58 AM DATE MODIFIED: 2/18/2022 4:01 AM 9. How do individuals spending their own money behave differently than those spending someone else’s money?

a. Individuals spending their own money look for the best value given the price. b. Individuals spending someone else’s money are concerned about getting the best deal so the money will go farther. c. Money is money. It does not matter whose it is, you spend it the same way. d. Individual behavior is unpredictable.

ANSWER: a FEEDBACK: a. Correct. Individuals are more careful when they spend their own money than when they spend someone else’s money. They look for lower prices and better values. Individuals are even more careful when they are spending their own money on items for themselves. b. Incorrect. Individuals are more careful when they spend their own money than when they spend someone else’s money. They look for lower prices and better values. Individuals are even more careful when they are spending their own money on items for themselves. c. Incorrect. Individuals are more careful when they spend their own money than when they spend someone else’s money. They look for lower prices and better values. Individuals are even more careful when they are spending their own money on items for themselves. d. Incorrect. Individuals are more careful when they spend their own money than when they spend someone else’s money. They look for lower prices and better values. Individuals are even more careful when they are spending their own money on items for themselves.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-3 - The Goals of Reform DATE CREATED: 2/18/2022 4:01 AM DATE MODIFIED: 2/18/2022 4:03 AM 10. In four to eight sentences, explain the challenges involved in government designing a benefits package and how it may best be set relative to private plans.

ANSWER: In the market, consumers determine the basket of services purchased. When government is responsible for designing a basic benefits package, they tend to replicate those offered by private insurance plans. By doing this, policymakers avoid the risk of being accused of rationing, especially for vulnerable groups. Defining the package also tends to be quite political, with pressure being asserted by different special interest groups. However, if the plan is collectively financed, it may be appropriate to consider a basic benefits package that is less generous than standard private insurance plans. Even though a multi-tiered medical care system may not be socially ideal, it is welfare enhancing. Eligible individuals are better off receiving the basic benefits package, and others have the option of extending their coverage through the purchase of complementary health insurance.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 16-3 - The Goals of Reform DATE CREATED: 2/18/2022 4:03 AM DATE MODIFIED: 2/28/2022 8:56 AM 11. Strictly followed, the single-payer model requires a ban on private insurance for all covered medical services. Which country follows this model most closely?

a. United Kingdom b. Germany c. France d. Canada e. Switzerland ANSWER: FEEDBACK:

d a. Incorrect. Of the countries listed, only Canada and the United Kingdom are single payer in nature. Private insurance for covered services is legal in the United Kingdom (about 12 percent purchase it) but illegal in Canada. b. Incorrect. Of the countries listed, only Canada and the United Kingdom are single payer in nature. Private insurance for covered services is legal in the United Kingdom (about 12 percent purchase it) but illegal in Canada. c. Incorrect. Of the countries listed, only Canada and the United Kingdom are single payer in nature. Private insurance for covered services is legal in the United Kingdom (about 12 percent purchase it) but illegal in Canada. d. Correct. Of the countries listed, only Canada and the United Kingdom are single payer in nature. Private insurance for covered services is legal in the United Kingdom (about 12 percent purchase it) but illegal in Canada. e. Incorrect. Of the countries listed, only Canada and the United Kingdom are single payer in nature. Private insurance for covered services is legal in the United Kingdom (about 12 percent purchase it) but illegal in Canada.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-4 - Single-Payer Option DATE CREATED: 2/18/2022 4:04 AM DATE MODIFIED: 2/18/2022 4:06 AM 12. Single-payer systems typically apply all of the following practices except which of the following? a. Establish global budgets, setting caps on spending. b. Provide a uniform fee schedule for all services. c. Require government ownership of the medical infrastructure of clinics and hospitals. d. Create a mechanism to ease pressure on the system when shortages develop, i.e., a safety valve.

ANSWER: c FEEDBACK: a. Incorrect. Government ownership of the medical infrastructure is not essential for single payer to work. Canadian hospitals are privately owned. The United Kingdom has a vibrant private system of hospitals and clinics alongside those owned by the National Health Service. The United Kingdom currently has more privately owned hospitals than those owned by the National Health Service. b. Incorrect. Government ownership of the medical infrastructure is not essential for single payer to work. Canadian hospitals are privately owned. The United Kingdom has a vibrant private system of hospitals and clinics alongside those owned by the National Health Service. The United Kingdom currently has more privately owned hospitals than those owned by the National Health Service. c. Correct. Government ownership of the medical infrastructure is not essential for single payer to work. Canadian hospitals are privately owned. The United Kingdom has a vibrant private system of hospitals and clinics alongside those owned by the National Health Service. The United Kingdom currently has more privately owned hospitals than those owned by the National Health Service. d. Incorrect. Government ownership of the medical infrastructure is not essential for single payer to work. Canadian hospitals are privately owned. The United

Kingdom has a vibrant private system of hospitals and clinics alongside those owned by the National Health Service. The United Kingdom currently has more privately owned hospitals than those owned by the National Health Service.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-4 - Single-Payer Option DATE CREATED: 2/18/2022 4:07 AM DATE MODIFIED: 2/18/2022 4:17 AM 13. More than 90 percent of the privately insured, nonelderly population in the United States receives group coverage through the workplace. All of the following are true about employer-sponsored insurance (ESI) in the United States except which statement? a. Group coverage provides administrative savings. b. Employer-sponsored insurance receives favorable tax treatment when the employer pays the premium. c. The workplace is an ideal setting for risk pooling; workers are typically healthier than non-workers. d. Employees will not purchase insurance voluntarily. The employer must be involved.

ANSWER: d FEEDBACK: a. Incorrect. In 2016, over 18 million Americans purchased qualified health plans (QHP) in the individual market. Research by Frean, Gruber, and Sommers (2016) does not find any empirical evidence that the mandate played a significant role in the decision to purchase insurance. Fewer than 5 million people paid the mandate tax for not having a qualified health plan. The rest of the 22 million uninsured (about 18 million) received a waiver exempting them from the requirement. b. Incorrect. In 2016, over 18 million Americans purchased qualified health plans (QHPs) in the individual market. Research by Frean, Gruber, and Sommers (2016) does not find any empirical evidence that the mandate played a significant role in the decision to purchase insurance. Fewer than 5 million people paid the mandate tax for not having a qualified health plan. The rest of the 22 million uninsured (about 18 million) received a waiver exempting them from the requirement. c. Incorrect. In 2016, over 18 million Americans purchased qualified health plans (QHPs) in the individual market. Research by Frean, Gruber, and Sommers (2016) does not find any empirical evidence that the mandate played a significant role in the decision to purchase insurance. Fewer than 5 million people paid the mandate tax for not having a qualified health plan. The rest of the 22 million uninsured (about 18 million) received a waiver exempting them from the requirement. d. Correct. In 2016, over 18 million Americans purchased qualified health plans (QHPs) in the individual market. Research by Frean, Gruber, and Sommers (2016) does not find any empirical evidence that the mandate played a significant role in the decision to purchase insurance. Fewer than 5 million people paid the mandate tax for not having a qualified health plan. The rest of the 22 million uninsured (about 18 million) received a waiver exempting them from the requirement.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-5 - National Health Insurance Option DATE CREATED: 2/18/2022 4:17 AM DATE MODIFIED: 2/18/2022 4:19 AM

14. What is the name of the health care reform feature where employers can either provide health care coverage to their employees or pay a payroll tax to fund government-provided insurance? a. Universal coverage b. Play-or-pay c. Universal access d. Single-payer ANSWER: b FEEDBACK: a. Incorrect. In a play-or-pay environment, employers can choose to “play” by providing insurance to their employees or alternatively pay a payroll tax to fund government-provided insurance. b. Correct. In a play-or-pay environment, employers can choose to “play” by providing insurance to their employees or alternatively pay a payroll tax to fund government-provided insurance. c. Incorrect. In a play-or-pay environment, employers can choose to “play” by providing insurance to their employees or alternatively pay a payroll tax to fund government-provided insurance. d. Incorrect. In a play-or-pay environment, employers can choose to “play” by providing insurance to their employees or alternatively pay a payroll tax to fund government-provided insurance.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-6 - Consumer Choice Option DATE CREATED: 2/18/2022 4:20 AM DATE MODIFIED: 2/18/2022 4:22 AM 15. Which of the following countries placed highest on the healthcare access and quality (HAQ) index? a. Germany b. New Zealand c. United Kingdom d. Switzerland e. Netherlands ANSWER: d FEEDBACK: a. Incorrect. The Global Burden of Disease (GBD) 2015 Healthcare Access and Quality Collaborators (2017) offered a way to quantify health care access and quality in a given system. Using a summary measure of healthcare access and quality (HAQ), 195 countries and territories were ranked on a scale from 0 to 100. Of the countries listed, Switzerland, at 91.8, reported the highest healthcare access and quality score. b. Incorrect. The Global Burden of Disease (GBD) 2015 Healthcare Access and Quality Collaborators (2017) offered a way to quantify health care access and quality in a given system. Using a summary measure of healthcare access and quality (HAQ), 195 countries and territories were ranked on a scale from 0 to 100. Of the countries listed, Switzerland, at 91.8, reported the highest healthcare access and quality score. c. Incorrect. The Global Burden of Disease (GBD) 2015 Healthcare Access and Quality Collaborators (2017) offered a way to quantify health care access and quality in a given system. Using a summary measure of healthcare access and quality (HAQ), 195 countries and territories were ranked on a scale from 0 to 100. Of the countries listed, Switzerland, at 91.8, reported the highest

healthcare access and quality score.

d. Correct. The Global Burden of Disease (GBD) 2015 Healthcare Access and Quality Collaborators (2017) offered a way to quantify health care access and quality in a given system. Using a summary measure of healthcare access and quality (HAQ), 195 countries and territories were ranked on a scale from 0 to 100. Of the countries listed, Switzerland, at 91.8, reported the highest healthcare access and quality score. e. Incorrect. The Global Burden of Disease (GBD) 2015 Healthcare Access and Quality Collaborators (2017) offered a way to quantify health care access and quality in a given system. Using a summary measure of healthcare access and quality (HAQ), 195 countries and territories were ranked on a scale from 0 to 100. Of the countries listed, Switzerland, at 91.8, reported the highest healthcare access and quality score.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-7 - Comparing Systems: The HAQ Approach DATE CREATED: 2/18/2022 4:24 AM DATE MODIFIED: 2/18/2022 4:27 AM 16. If the healthcare access and quality (HAQ) index of the United States is 81.3 and its healthcare access and quality frontier is 91.5, what is the value of the healthcare access and quality gap? a. 10.2 b. -10.2 c. 0.89 d. 1.13 ANSWER: a FEEDBACK: a. Correct. The healthcare access and quality (HAQ) gap is calculated by subtracting the healthcare access and quality index from the healthcare access and quality frontier (91.5 – 81.3 = 10.2). b. Incorrect. The healthcare access and quality (HAQ) gap is calculated by subtracting the healthcare access and quality index from the healthcare access and quality frontier (91.5 – 81.3 = 10.2). c. Incorrect. The healthcare access and quality (HAQ) gap is calculated by subtracting the healthcare access and quality index from the healthcare access and quality frontier (91.5 – 81.3 = 10.2). d. Incorrect. The healthcare access and quality (HAQ) gap is calculated by subtracting the healthcare access and quality index from the healthcare access and quality frontier (91.5 – 81.3 = 10.2).

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-7 - Comparing Systems: The HAQ Approach DATE CREATED: 2/18/2022 4:30 AM DATE MODIFIED: 2/18/2022 4:32 AM 17. In four to six sentences, explain whether you believe the United States should move toward a single-payer system or a consumer-directed system. Cite a study to help defend your position.

ANSWER: The populist sentiment in the United States is to initiate the move toward a single-payer system. According to a study by Nolte and McKee (2012), approximately 25 percent of the 1 million annual deaths of Americans under 75 years of age, or 250,000, are due to

amenable causes. Closing the performance gap of the United States (11.1 percent) to that of Canada (4.4 percent) would save about 150,000 lives per year. However, if the United States closed their performance gap to that of Switzerland, which uses a consumer directed system, about 250,000 lives could be saved.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 16-7 - Comparing Systems: The HAQ Approach DATE CREATED: 2/18/2022 4:34 AM DATE MODIFIED: 2/28/2022 8:58 AM 18. Some policymakers would like us to believe several myths about employer-sponsored insurance. Which of the following statements is true? a. Under employer-sponsored insurance, employers pay the health insurance premium. b. Health benefits are a free employee benefit under employer-sponsored insurance. c. Employer mandates lead to the creation of more higher-paying jobs in the service sector of the economy. d. Like all business expenses, employers pass on the cost of employer-sponsored insurance to customers as higher prices and to workers as lower wages.

ANSWER: d FEEDBACK: a. Incorrect. Empirical research by Cutler and Zeckhauser (2000) clearly indicates that employers do not absorb the cost of employer-sponsored insurance. It is not a free benefit. In fact, its provision is paid almost entirely by passing the expense onto customers and employees in the form of higher prices and lower wages. b. Incorrect. Empirical research by Cutler and Zeckhauser (2000) clearly indicates that employers do not absorb the cost of employer-sponsored insurance. It is not a free benefit. In fact, its provision is paid almost entirely by passing the expense onto customers and employees in the form of higher prices and lower wages. c. Incorrect. Empirical research by Cutler and Zeckhauser (2000) clearly indicates that employers do not absorb the cost of employer-sponsored insurance. It is not a free benefit. In fact, its provision is paid almost entirely by passing the expense onto customers and employees in the form of higher prices and lower wages. d. Correct. Empirical research by Cutler and Zeckhauser (2000) clearly indicates that employers do not absorb the cost of employer-sponsored insurance. It is not a free benefit. In fact, its provision is paid almost entirely by passing the expense onto customers and employees in the form of higher prices and lower wages.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-8 - The Market-Oriented Approach DATE CREATED: 2/18/2022 4:35 AM DATE MODIFIED: 2/18/2022 4:37 AM 19. One of the best examples of managed competition in practice is: a. the Federal Employee Health Benefit Plan (FEHBP). b. a consumer-directed health plan (CDHP).

c. a preferred provider organization (PPO). d. a health maintenance organization (HMO). e. an accountable care organization (ACO).

ANSWER: a FEEDBACK: a. Correct. The Federal Employee Health Benefit Plan is the best example of managed competition. Each federal employee has a choice from multiple plans (at least 20) with different premiums, different provider networks, and different cost-sharing arrangements. Employees receive a subsidy and enroll in the plan of their choice. b. Incorrect. The Federal Employee Health Benefit Plan is the best example of managed competition. Each federal employee has a choice from multiple plans (at least 20) with different premiums, different provider networks, and different cost-sharing arrangements. Employees receive a subsidy and enroll in the plan of their choice. c. Incorrect. The Federal Employee Health Benefit Plan is the best example of managed competition. Each federal employee has a choice from multiple plans (at least 20) with different premiums, different provider networks, and different cost-sharing arrangements. Employees receive a subsidy and enroll in the plan of their choice. d. Incorrect. The Federal Employee Health Benefit Plan is the best example of managed competition. Each federal employee has a choice from multiple plans (at least 20) with different premiums, different provider networks, and different cost-sharing arrangements. Employees receive a subsidy and enroll in the plan of their choice. e. Incorrect. The Federal Employee Health Benefit Plan is the best example of managed competition. Each federal employee has a choice from multiple plans (at least 20) with different premiums, different provider networks, and different cost-sharing arrangements. Employees receive a subsidy and enroll in the plan of their choice.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16.9 - Managed Competition Option DATE CREATED: 2/18/2022 4:38 AM DATE MODIFIED: 2/18/2022 4:40 AM 20. In four to eight sentences, summarize the concept of Medicaid and the three-legged stool.

ANSWER: The Affordable Care Act (ACA) focuses on a combination of Medicaid expansion and mandatory insurance either provided by employers or subsidized and purchased through insurance exchanges, or marketplaces, along with generous subsidies to ensure affordability. Key provisions in the act included additional insurance market regulations, including guaranteed issue and guaranteed renewability with no benefit exclusions due to preexisting conditions. Gruber (2010), one of the key architects of the legislation, described the law as a “three-legged stool” intended to fix the broken small-group and individual insurance markets. The three legs—insurance reform, mandates, and subsidies—form the core of the legislation. Gruber believed that all three legs are required and changing any one risks making the stool unstable.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 16-10 - Medicaid and the Three-Legged Stool

DATE CREATED: DATE MODIFIED:

2/18/2022 4:40 AM 2/28/2022 8:59 AM

21. Which of the following provisions included in the Affordable Care Act (ACA) was responsible for the largest number of newly insured? a. Creation of the health insurance exchanges (later called marketplaces) b. Expansion of Medicaid c. Individual mandate d. Employer mandate e. Insurance regulation requiring coverage for individuals with preexisting conditions ANSWER: b FEEDBACK: a. Incorrect. Between 2013 and 2016, approximately 17 million previously uninsured Americans received insurance coverage. Almost 14 million of those (over 82 percent) were new Medicaid enrollees. The mandates had appreciably no effect on overall enrollment. b. Correct. Between 2013 and 2016, approximately 17 million previously uninsured Americans received insurance coverage. Almost 14 million of those (over 82 percent) were new Medicaid enrollees. The mandates had appreciably no effect on overall enrollment. c. Incorrect. Between 2013 and 2016, approximately 17 million previously uninsured Americans received insurance coverage. Almost 14 million of those (over 82 percent) were new Medicaid enrollees. The mandates had appreciably no effect on overall enrollment. d. Incorrect. Between 2013 and 2016, approximately 17 million previously uninsured Americans received insurance coverage. Almost 14 million of those (over 82 percent) were new Medicaid enrollees. The mandates had appreciably no effect on overall enrollment. e. Incorrect. Between 2013 and 2016, approximately 17 million previously uninsured Americans received insurance coverage. Almost 14 million of those (over 82 percent) were new Medicaid enrollees. The mandates had appreciably no effect on overall enrollment.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-11 - Accomplishments and Shortcomings DATE CREATED: 2/18/2022 4:41 AM DATE MODIFIED: 2/18/2022 4:44 AM 22. Which of the following statements is true about the Affordable Care Act (ACA)? a. The final version of the Affordable Care Act passed without a single Republican voting in favor of it. b. The final version of the bill that passed was closer to the House version than the Senate version. c. As proponents promised, only high-income taxpayers are paying the new taxes included in the legislation. d. The typical family is now paying less for their health insurance, thanks to the strict health insurance regulations included in the act.

ANSWER: a FEEDBACK: a. Correct. The final votes that resulted in the passage of the Affordable Care Act were 219–212 in the House of Representatives and 60–39 in the Senate.

Voting was strictly along party lines, with no Republican supporting the legislation. b. Incorrect. The final votes that resulted in the passage of the Affordable Care Act were 219–212 in the House of Representatives and 60–39 in the Senate.

Voting was strictly along party lines, with no Republican supporting the legislation. c. Incorrect. The final votes that resulted in the passage of the Affordable Care Act were 219–212 in the House of Representatives and 60–39 in the Senate.

Voting was strictly along party lines, with no Republican supporting the legislation. d. Incorrect. The final votes that resulted in the passage of the Affordable Care Act were 219–212 in the House of Representatives and 60–39 in the Senate.

Voting was strictly along party lines, with no Republican supporting the legislation.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-11 - Accomplishments and Shortcomings DATE CREATED: 2/18/2022 4:44 AM DATE MODIFIED: 2/18/2022 4:46 AM 23. In four to eight sentences, explain why expanded insurance coverage does not necessarily mean improved medical care access.

ANSWER: The Affordable Care Act (ACA) increased the number of individuals with insurance coverage but did not necessarily translate into improved medical care access. Shortages in certain specialties, including general practitioners and surgeons, combined with low reimbursement rates to physicians have made it difficult for the newly insured to find regular sources of care. Medicaid recipients are twice as likely to visit the emergency room as are the uninsured. With over 80 percent of the newly insured covered by Medicaid, the Affordable Care Act has the potential to increase emergency room visits considerably (Garcia, Bernstein, and Bush, 2010). The scheduled reductions in Medicare payments to hospitals also lead the chief actuary of the Centers for Medicare and Medicaid Services to conclude that 15 percent of Part A providers will run operating deficits within the first decade of the program, which translates into over 800 community hospitals nationwide (Foster, 2010).

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 16-11 - Accomplishments and Shortcomings DATE CREATED: 2/18/2022 4:47 AM DATE MODIFIED: 2/28/2022 9:00 AM 24. What is the best way to ensure that individuals with preexisting health conditions have access to affordable insurance coverage? a. Allow individuals with preexisting conditions to purchase insurance based on their own health status. b. Place everyone in the same risk pool and charge everyone, sick and healthy, the same community-rated premium. c. Place those with preexisting conditions into separate risk pools, charging them risk-rated premiums, and provide taxpayer financed subsidies to make the coverage affordable. d. Mandate that every provider accept individuals with preexisting conditions on a pro bono basis and subsidize the cost of their care by charging higher prices to those with insurance.

ANSWER: c FEEDBACK: a. Incorrect. The best, most efficient way to pool risk is to set up homogeneous

risk pools, dividing the various risk categories into separate pools. Following this approach, high-risk individuals would be placed in a separate risk pool and charged actuarially fair premiums based on their expected spending. Likewise, low-risk individuals would be pooled separately and charged a premium based on their lower expected spending. The high-risk pool would be heavily subsidized with taxpayer money. By not mixing risk categories, those with low risk, the young and healthy, would not be targeted to provide the subsidies for the high risk, the elderly and sick. b. Incorrect. The best, most efficient way to pool risk is to set up homogeneous risk pools, dividing the various risk categories into separate pools. Following this approach, high-risk individuals would be placed in a separate risk pool and charged actuarially fair premiums based on their expected spending. Likewise, low-risk individuals would be pooled separately and charged a premium based on their lower expected spending. The high-risk pool would be heavily subsidized with taxpayer money. By not mixing risk categories, those with low risk, the young and healthy, would not be targeted to provide the subsidies for the high risk, the elderly and sick. c. Correct. The best, most efficient way to pool risk is to set up homogeneous risk pools, dividing the various risk categories into separate pools. Following this approach, high-risk individuals would be placed in a separate risk pool and charged actuarially fair premiums based on their expected spending. Likewise, low-risk individuals would be pooled separately and charged a premium based on their lower expected spending. The high-risk pool would be heavily subsidized with taxpayer money. By not mixing risk categories, those with low risk, the young and healthy, would not be targeted to provide the subsidies for the high risk, the elderly and sick. d. Incorrect. The best, most efficient way to pool risk is to set up homogeneous risk pools, dividing the various risk categories into separate pools. Following this approach, high-risk individuals would be placed in a separate risk pool and charged actuarially fair premiums based on their expected spending. Likewise, low-risk individuals would be pooled separately and charged a premium based on their lower expected spending. The high-risk pool would be heavily subsidized with taxpayer money. By not mixing risk categories, those with low risk, the young and healthy, would not be targeted to provide the subsidies for the high risk, the elderly and sick.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 16-12 - Ways to Make the U.S. System Work More Effectively DATE CREATED: 2/18/2022 4:48 AM DATE MODIFIED: 2/18/2022 4:49 AM

Chapter 17: Lessons for Public Policy 1. Finding a method of resource allocation is essential to any medical care system. Which of the following statements supports this proposition? a. Resources are plentiful. There are always enough to produce everything that is desired. b. Because good health is our top priority, we have all the resources necessary to produce all the medical care that we want. c. Resources used in medical care have alternative uses that are also beneficial. d. Most people are willing to wait for access to care. Eventually, the resources will be available to provide that care.

ANSWER: c FEEDBACK: a. Incorrect. All resources are scarce. There is never enough to satisfy all the desires of all the people. Every resource has an alternative use, and someone must determine how to allocate the resource among competing uses. b. Incorrect. All resources are scarce. There is never enough to satisfy all the desires of all the people. Every resource has an alternative use, and someone must determine how to allocate the resource among competing uses. c. Correct. All resources are scarce. There is never enough to satisfy all the desires of all the people. Every resource has an alternative use, and someone must determine how to allocate the resource among competing uses. d. Incorrect. All resources are scarce. There is never enough to satisfy all the desires of all the people. Every resource has an alternative use, and someone must determine how to allocate the resource among competing uses.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 17-1 - Scarcity and Choice DATE CREATED: 2/18/2022 5:23 AM DATE MODIFIED: 2/18/2022 5:27 AM 2. Medical care decisions involve costs as well as benefits. Which of the following statements is true? a. The challenge in applying economics to medical care decisions is that there are no good substitutes for medical care. b. Medical practitioners must not let cost become an issue when recommending treatment options. c. Return on investment is important when considering any outlay. Often, a more relevant criterion in medical investment is the opportunity cost of the resources. d. There is no place for economic considerations in life-and-death situations.

ANSWER: c FEEDBACK: a. Incorrect. There is a substitute for everything. Some alternatives are more desirable than others are, but they are available nonetheless. In some rare cases, even death may be a welcome alternative. Otherwise, why would physician-assisted suicide be an option in some countries? b. Incorrect. There is a substitute for everything. Some alternatives are more desirable than others are, but they are available nonetheless. In some rare cases, even death may be a welcome alternative. Otherwise, why would physician-assisted suicide be an option in some countries? c. Correct. There is a substitute for everything. Some alternatives are more desirable than others are, but they are available nonetheless. In some rare cases, even death may be a welcome alternative. Otherwise, why would physician-assisted suicide be an option in some countries? d. Incorrect. There is a substitute for everything. Some alternatives are more

desirable than others are, but they are available nonetheless. In some rare cases, even death may be a welcome alternative. Otherwise, why would physician-assisted suicide be an option in some countries?

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 17-2 - Opportunity Cost DATE CREATED: 2/18/2022 5:28 AM DATE MODIFIED: 2/18/2022 5:30 AM 3. A hospital receives a large donation and wants to use the funds to buy a new computerized tomography (CT) scanner.

What is included in the opportunity cost of the new scanner? a. The cost of the same scanner last year. b. There is no opportunity cost because the money was a gift. c. The remaining depreciation expense on the scanner the hospital is replacing. d. The foregone benefits of a new scanner if the funds are diverted to its purchase.

ANSWER: d FEEDBACK: a. Incorrect. The opportunity cost of an investment is what you give up to secure the item. The opportunity cost of the computerized tomography (CT) scanner is the foregone benefit of other investment opportunities, such as an MRI machine. Any money spent in the past is a sunk cost and irrelevant to this situation. The source of the money does not matter, it still has an opportunity cost. b. Incorrect. The opportunity cost of an investment is what you give up to secure the item. The opportunity cost of the computerized tomography (CT) scanner is the foregone benefit of other investment opportunities, such as an MRI machine. Any money spent in the past is a sunk cost and irrelevant to this situation. The source of the money does not matter, it still has an opportunity cost. c. Incorrect. The opportunity cost of an investment is what you give up to secure the item. The opportunity cost of the computerized tomography (CT) scanner is the foregone benefit of other investment opportunities, such as an MRI machine. Any money spent in the past is a sunk cost and irrelevant to this situation. The source of the money does not matter, it still has an opportunity cost. d. Correct. The opportunity cost of an investment is what you give up to secure the item. The opportunity cost of the computerized tomography (CT) scanner is the foregone benefit of other investment opportunities, such as an MRI machine. Any money spent in the past is a sunk cost and irrelevant to this situation. The source of the money does not matter, it still has an opportunity cost.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 17-2 - Opportunity Cost DATE CREATED: 2/18/2022 5:30 AM DATE MODIFIED: 2/18/2022 5:31 AM 4. In four to six sentences, explain what is meant by the term opportunity cost and why it is an important concept for clinicians to understand.

ANSWER: There are alternatives for everything and everyone. Time and other resources can only be

used to satisfy one set of desires, but not another. The opportunity cost of any decision or action is measured in terms of the value placed on the foregone opportunity. In medical care decisions, there are costs and benefits, though many clinicians find the consideration of cost morally repugnant. However, it is essential for practitioners to have some knowledge of the concept of opportunity cost to better understand the issues affecting medical care delivery and policy.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 17-2 - Opportunity Cost DATE CREATED: 2/18/2022 5:33 AM DATE MODIFIED: 2/28/2022 9:02 AM 5. The principle of marginal decision making manifests itself in medical markets in many ways. Select all the true statements. a. Generous insurance coverage with low out-of-pocket costs leads to patients undervaluing resources used to provide their care—leading to overconsumption. b. It was unnecessary to mandate coverage of routine preventive screening with zero out-of-pocket cost because most people already received that benefit. c. Insurance coverage allows patients to ignore many of the trade-offs that usually go along with consuming scarce resources. d. Balancing incremental benefits with incremental costs is essential for optimal resource allocation.

ANSWER: a, c, d FEEDBACK: a. Correct. Marginal means incremental. If you lower the marginal cost of a service to zero, patient demand does not take into consideration the cost of the resources that go into producing the service. Prior to mandating the preventive screening benefit, few policies included it because the incremental cost of covering the services with insurance was greater than the out-of-pocket cost of paying for it directly. b. Incorrect. Marginal means incremental. If you lower the marginal cost of a service to zero, patient demand does not take into consideration the cost of the resources that go into producing the service. Prior to mandating the preventive screening benefit, few policies included it because the incremental cost of covering the services with insurance was greater than the out-of-pocket cost of paying for it directly. c. Correct. Marginal means incremental. If you lower the marginal cost of a service to zero, patient demand does not take into consideration the cost of the resources that go into producing the service. Prior to mandating the preventive screening benefit, few policies included it because the incremental cost of covering the services with insurance was greater than the out-of-pocket cost of paying for it directly. d. Correct. Marginal means incremental. If you lower the marginal cost of a service to zero, patient demand does not take into consideration the cost of the resources that go into producing the service. Prior to mandating the preventive screening benefit, few policies included it because the incremental cost of covering the services with insurance was greater than the out-of-pocket cost of paying for it directly.

POINTS: 1 QUESTION TYPE: Multiple Response HAS VARIABLES: False LEARNING OBJECTIVES: 17-3 - Marginal Analysis

DATE CREATED: DATE MODIFIED:

2/28/2022 9:03 AM 2/28/2022 9:04 AM

6. Altering the marginal cost of preventive screening by reducing the out-of-pocket cost to zero: a. has little effect on the consumption of medical services. b. is a wise use of resources and results in more efficient screening outcomes. c. results in those with this coverage taking advantage of the free care and receiving the screenings. d. results in over-investment on screening technology. Using the funds elsewhere could have improved overall welfare.

ANSWER: d FEEDBACK: a. Incorrect. Marginal changes in the out-of-pocket cost of preventive screenings will expand the demand and lead to providers investing in additional screening equipment. The money spent on screening had alternative uses that may have produced higher-valued health outcomes. Even when the out-of-pocket costs are zero, patients must consider the value of their time and the inconvenience of the screening techniques before deciding whether to get the free care. Free diagnostic colonoscopies are still not that popular. b. Incorrect. Marginal changes in the out-of-pocket cost of preventive screenings will expand the demand and lead to providers investing in additional screening equipment. The money spent on screening had alternative uses that may have produced higher-valued health outcomes. Even when the out-of-pocket costs are zero, patients must consider the value of their time and the inconvenience of the screening techniques before deciding whether to get the free care. Free diagnostic colonoscopies are still not that popular. c. Incorrect. Marginal changes in the out-of-pocket cost of preventive screenings will expand the demand and lead to providers investing in additional screening equipment. The money spent on screening had alternative uses that may have produced higher-valued health outcomes. Even when the out-of-pocket costs are zero, patients must consider the value of their time and the inconvenience of the screening techniques before deciding whether to get the free care. Free diagnostic colonoscopies are still not that popular. d. Correct. Marginal changes in the out-of-pocket cost of preventive screenings will expand the demand and lead to providers investing in additional screening equipment. The money spent on screening had alternative uses that may have produced higher-valued health outcomes. Even when the out-of-pocket costs are zero, patients must consider the value of their time and the inconvenience of the screening techniques before deciding whether to get the free care. Free diagnostic colonoscopies are still not that popular.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 17-3 - Marginal Analysis DATE CREATED: 2/18/2022 5:40 AM DATE MODIFIED: 2/18/2022 5:42 AM 7. In four to six sentences, explain how the availability of insurance increases medical care spending.

ANSWER: Individuals often engage in opportunistic behavior after they enter into an insurance contract because their behavior cannot be monitored. The possession of insurance coverage increases medical care spending because it increases the likelihood of purchasing medical services. Furthermore, it also induces higher spending in the event of an illness. In short, insurance lowers the cost of medical care to the individual and increases usage.

POINTS: 1

QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 17-3 - Marginal Analysis DATE CREATED: 2/18/2022 5:43 AM DATE MODIFIED: 2/28/2022 9:06 AM 8. People respond to incentives. The best way to get people to practice economizing behavior is to: a. make sure they will benefit from it. b. educate them on societal benefits. c. convince them that the behavior will promote the greater good. d. make sure they understand that everyone benefits from their economizing behavior. e. establish fixed budgets that limit their freedom to change.

ANSWER: a FEEDBACK: a. Correct. The pursuit of self-interest dominates decision making. It is more efficient if people can benefit personally from the choices they make. b. Incorrect. The pursuit of self-interest dominates decision making. It is more efficient if people can benefit personally from the choices they make. c. Incorrect. The pursuit of self-interest dominates decision making. It is more efficient if people can benefit personally from the choices they make. d. Incorrect. The pursuit of self-interest dominates decision making. It is more efficient if people can benefit personally from the choices they make. e. Incorrect. The pursuit of self-interest dominates decision making. It is more efficient if people can benefit personally from the choices they make.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 17-4 - Self-Interest DATE CREATED: 2/18/2022 5:44 AM DATE MODIFIED: 2/18/2022 5:48 AM 9. Which of the following situations will result in the most cost-conscious use of money? a. Individuals spending someone else’s money for a good someone else will consume. b. Individuals spending their own money for a good someone else will consume. c. Individuals spending someone else’s money for a good they will consume themselves. d. Individuals spending their own money for a good they will consume themselves.

ANSWER: d FEEDBACK: a. Incorrect. If you want people to practice economizing behavior, they must benefit individually from their own economizing. People spending other people’s money show little concern for how it is spent. People spending their own money tend to spend it more wisely. b. Incorrect. If you want people to practice economizing behavior, they must benefit individually from their own economizing. People spending other people’s money show little concern for how it is spent. People spending their own money tend to spend it more wisely. c. Incorrect. If you want people to practice economizing behavior, they must benefit individually from their own economizing. People spending other people’s money show little concern for how it is spent. People spending their own money tend to spend it more wisely.

d. Correct. If you want people to practice economizing behavior, they must benefit

individually from their own economizing. People spending other people’s money show little concern for how it is spent. People spending their own money tend to spend it more wisely.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 17-4 - Self-Interest DATE CREATED: 2/18/2022 5:48 AM DATE MODIFIED: 2/18/2022 5:50 AM 10. Markets allocate resources efficiently when Adam Smith’s “invisible hand” is allowed to work freely. Select all of the true statements. a. Mandatory controls that lower prices below equilibrium improve economic welfare by making the product cheaper and promote the efficient use of resources. b. Unrestrained, competitive markets can accomplish optimal resource allocation through the invisible hand—the competitive price system. c. Increased competition from medical travel, domestic or international, does harm to patients who do not have the ability to travel for care. d. Government regulation is essential for market outcomes to maximize consumer welfare. e. The “visible hand” of government planners provides transparency to markets and thus improves outcomes.

ANSWER: a FEEDBACK: a. Correct. Smith argues that the price mechanism is the most efficient way to ensure optimal outcomes in free, competitive markets. Price controls create shortages that actually raise the cost of acquiring goods (measured in terms of the value of the time while waiting). The result actually reduces consumer welfare. Additionally, medical travel improves the welfare of those who are able to travel without imposing costs on those who cannot. b. Incorrect. Smith argues that the price mechanism is the most efficient way to ensure optimal outcomes in free, competitive markets. Price controls create shortages that actually raise the cost of acquiring goods (measured in terms of the value of the time while waiting). The result actually reduces consumer welfare. Additionally, medical travel improves the welfare of those who are able to travel without imposing costs on those who cannot. c. Correct. Smith argues that the price mechanism is the most efficient way to ensure optimal outcomes in free, competitive markets. Price controls create shortages that actually raise the cost of acquiring goods (measured in terms of the value of the time while waiting). The result actually reduces consumer welfare. Additionally, medical travel improves the welfare of those who are able to travel without imposing costs on those who cannot. d. Correct. Smith argues that the price mechanism is the most efficient way to ensure optimal outcomes in free, competitive markets. Price controls create shortages that actually raise the cost of acquiring goods (measured in terms of the value of the time while waiting). The result actually reduces consumer welfare. Additionally, medical travel improves the welfare of those who are able to travel without imposing costs on those who cannot. e. Correct. Smith argues that the price mechanism is the most efficient way to ensure optimal outcomes in free, competitive markets. Price controls create shortages that actually raise the cost of acquiring goods (measured in terms of the value of the time while waiting). The result actually reduces consumer welfare. Additionally, medical travel improves the welfare of those who are able to travel without imposing costs on those who cannot.

POINTS:

1

QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 17-5 - Markets and Pricing DATE CREATED: 2/18/2022 5:51 AM DATE MODIFIED: 2/18/2022 5:53 AM 11. The efficient response to a policy that provides free or heavily subsidized care to a substantial number of people is to: a. initiate price controls to lower spending. b. ration care by using waiting lists. c. provide incentives to expand the availability of medical services. d. establish limited provider networks to redirect demand to preferred providers who follow published guidelines. e. shift the cost of free care to the fully insured population.

ANSWER: c FEEDBACK: a. Incorrect. Subsidized care results in increased demand due to moral hazard. In order to maintain access, it is essential that the quantity supplied increases by increasing the number of providers or at least making supply more sensitive to the upward pressure on prices that increased demand creates. Incentives may take the form of higher incomes or lower costs. b. Incorrect. Subsidized care results in increased demand due to moral hazard. In order to maintain access, it is essential that the quantity supplied increases by increasing the number of providers or at least making supply more sensitive to the upward pressure on prices that increased demand creates. Incentives may take the form of higher incomes or lower costs. c. Correct. Subsidized care results in increased demand due to moral hazard. In order to maintain access, it is essential that the quantity supplied increases by increasing the number of providers or at least making supply more sensitive to the upward pressure on prices that increased demand creates. Incentives may take the form of higher incomes or lower costs. d. Incorrect. Subsidized care results in increased demand due to moral hazard. In order to maintain access, it is essential that the quantity supplied increases by increasing the number of providers or at least making supply more sensitive to the upward pressure on prices that increased demand creates. Incentives may take the form of higher incomes or lower costs. e. Incorrect. Subsidized care results in increased demand due to moral hazard. In order to maintain access, it is essential that the quantity supplied increases by increasing the number of providers or at least making supply more sensitive to the upward pressure on prices that increased demand creates. Incentives may take the form of higher incomes or lower costs.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 17-5 - Markets and Pricing DATE CREATED: 2/18/2022 5:54 AM DATE MODIFIED: 2/18/2022 5:57 AM 12. In four to six concise sentences, summarize the consequences of expanding insurance coverage to provide free or heavily subsidized care.

ANSWER: Though there is widespread agreement over expanding insurance to cover vulnerable groups, such as pregnant women, children, and the indigent, there are significant consequences to doing so. It is relatively simple to expand coverage to those who will receive free or heavily subsidized care. However, policymakers must be ready to respond to the inevitable cost pressures that have the potential to undermine any early access.

Expanding insurance coverage beyond a delivery system’s ability to provide care results in shortages and a call to ration care.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 17-5 - Markets and Pricing DATE CREATED: 2/18/2022 5:59 AM DATE MODIFIED: 2/28/2022 9:10 AM 13. The most efficient method of allocating scarce resources is through: a. well-placed price controls on high-cost goods and services. b. favorable tax treatment on those items that policymakers want to control. c. utilization controls to ensure that demand does not exceed supply. d. competitive markets that allow supply and demand to interact freely to establish equilibrium prices. e. strictly followed budgets that keep spending under control.

ANSWER: d FEEDBACK: a. Incorrect. Allowing the market forces of supply and demand to determine equilibrium prices is the most efficient way to allocate scarce resources. If this allocation is determined to be undesirable or unfair, then government often steps in and imposes a different outcome. Government involvement, especially in that it makes the product available to vulnerable population groups that would otherwise suffer, may be preferable, but that does not mean it is more efficient. b. Incorrect. Allowing the market forces of supply and demand to determine equilibrium prices is the most efficient way to allocate scarce resources. If this allocation is determined to be undesirable or unfair, then government often steps in and imposes a different outcome. Government involvement, especially in that it makes the product available to vulnerable population groups that would otherwise suffer, may be preferable, but that does not mean it is more efficient. c. Incorrect. Allowing the market forces of supply and demand to determine equilibrium prices is the most efficient way to allocate scarce resources. If this allocation is determined to be undesirable or unfair, then government often steps in and imposes a different outcome. Government involvement, especially in that it makes the product available to vulnerable population groups that would otherwise suffer, may be preferable, but that does not mean it is more efficient. d. Correct. Allowing the market forces of supply and demand to determine equilibrium prices is the most efficient way to allocate scarce resources. If this allocation is determined to be undesirable or unfair, then government often steps in and imposes a different outcome. Government involvement, especially in that it makes the product available to vulnerable population groups that would otherwise suffer, may be preferable, but that does not mean it is more efficient. e. Incorrect. Allowing the market forces of supply and demand to determine equilibrium prices is the most efficient way to allocate scarce resources. If this allocation is determined to be undesirable or unfair, then government often steps in and imposes a different outcome. Government involvement, especially in that it makes the product available to vulnerable population groups that would otherwise suffer, may be preferable, but that does not mean it is more efficient.

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QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 17-6 - Supply and Demand DATE CREATED: 2/18/2022 6:00 AM DATE MODIFIED: 2/18/2022 6:03 AM 14. In four to six sentences, explain how the market allocates goods and services and the implications of government intervention.

ANSWER: When the market is allowed to allocate goods and services, the forces of supply and demand determine pricing and output decisions. Goods and services are allocated among competing uses by equating the consumers’ willingness to pay and the suppliers’ willingness to provide, which creates rationing via prices. However, when the government intervenes in the market, there are vastly different outcomes. The use of price controls to make goods and services more affordable leads to shortages. The attempt to provide “free” care to a well-organized constituency also creates shortages in the form of long wait times and the deterioration in the quality of specialty care.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 17-6 - Supply and Demand DATE CREATED: 2/18/2022 6:04 AM DATE MODIFIED: 2/28/2022 9:11 AM 15. A competitive environment penalizes the inefficient use of resources. Select all of the true statements. a. More firms competing in a market means more substitutes, so consumers have more options, and their demand is less elastic. b. Competition drives the price closer to the marginal cost of production. c. Competition forces firms to improve efficiency or lose profits. d. Consolidation leads to concentration of market power that allows providers to act like monopolists and price their products above marginal cost.

ANSWER: b, c, d FEEDBACK: a. Incorrect. More competition leads to more substitutes and demand that is more elastic. Consumers are more responsive to higher prices charged by individual providers. b. Correct. More competition leads to more substitutes and demand that is more elastic. Consumers are more responsive to higher prices charged by individual providers. c. Correct. More competition leads to more substitutes and demand that is more elastic. Consumers are more responsive to higher prices charged by individual providers. d. Correct. More competition leads to more substitutes and demand that is more elastic. Consumers are more responsive to higher prices charged by individual providers.

POINTS: 1 QUESTION TYPE: Multiple Response HAS VARIABLES: False LEARNING OBJECTIVES: 17-7 - Competition DATE CREATED: 2/28/2022 9:12 AM

DATE MODIFIED:

2/28/2022 9:15 AM

16. in four to six sentences, explain the nature of competition in a market dominated by nonprofit providers.

ANSWER: Competition forces resource owners to use their resources to promote the highest possible satisfaction of society. It rewards those resource owners who do this well and penalizes those who do not, which constantly promotes more efficient methods of production. However, the nature of competition in a market dominated by nonprofit providers does not promote cost efficiency, but instead promotes quality enhancement.

Providers have little incentive to increase productivity, consumers have no incentive to limit their demand, and providers have no incentive to limit their supply. These conditions all lead toward increased spending.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False STUDENT ENTRY MODE: Basic LEARNING OBJECTIVES: 17-7 - Competition DATE CREATED: 2/18/2022 6:08 AM DATE MODIFIED: 2/28/2022 9:16 AM 17. Even though the efficient use of resources enhances social welfare, it may not always be optimal from society’s perspective. Why is this statement true? a. Efficient outcomes sometimes waste resources. b. The ethical use of resources can be just as important as their efficient use. c. Efficiency leads to lower per-unit costs; thus, promoting any method of cost control increases efficiency. d. Markets always reward efficiency, even if there is only one firm in it. e. If market action does not result in an efficient outcome, government action can always improve the outcome.

ANSWER: b FEEDBACK: a. Incorrect. The standard measure of social welfare in a static world (considering current conditions and opportunities) is total surplus value. We live in a dynamic world, where future outcomes and opportunities are also important.

Strict adherence to standards of efficiency can result in entire categories of consumers shut out of the market. When this is the case in medical markets, outcomes may be efficient, but impossible to justify due to ethical and humanitarian concerns. b. Correct. The standard measure of social welfare in a static world (considering current conditions and opportunities) is total surplus value. We live in a dynamic world, where future outcomes and opportunities are also important.

Strict adherence to standards of efficiency can result in entire categories of consumers shut out of the market. When this is the case in medical markets, outcomes may be efficient, but impossible to justify due to ethical and humanitarian concerns. c. Incorrect. The standard measure of social welfare in a static world (considering current conditions and opportunities) is total surplus value. We live in a dynamic world, where future outcomes and opportunities are also important.

Strict adherence to standards of efficiency can result in entire categories of consumers shut out of the market. When this is the case in medical markets, outcomes may be efficient, but impossible to justify due to ethical and humanitarian concerns. d. Incorrect. The standard measure of social welfare in a static world (considering current conditions and opportunities) is total surplus value. We live in a dynamic world, where future outcomes and opportunities are also important.

Strict adherence to standards of efficiency can result in entire categories of consumers shut out of the market. When this is the case in medical markets,

outcomes may be efficient, but impossible to justify due to ethical and humanitarian concerns. e. Incorrect. The standard measure of social welfare in a static world (considering current conditions and opportunities) is total surplus value. We live in a dynamic world, where future outcomes and opportunities are also important.

Strict adherence to standards of efficiency can result in entire categories of consumers shut out of the market. When this is the case in medical markets, outcomes may be efficient, but impossible to justify due to ethical and humanitarian concerns.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 17-8 - Efficiency DATE CREATED: 2/18/2022 6:11 AM DATE MODIFIED: 2/18/2022 6:14 AM 18. When the market fails to promote the efficient use of resources by producing either more or less than the optimal output level, government involvement can improve outcomes when: a. firms have undue market power. b. there are externalities in production and/or consumption that are not captured by the parties involved in the transaction. c. asymmetric information characterizes the transaction. d. the market equilibrium does not result in the equal distribution of the output. e. there are barriers to entry that limit competition.

ANSWER: d FEEDBACK: a. Incorrect. Even when markets provide the efficient level of output, there is no guarantee that the outcome will satisfy the public’s perception of equity in distribution, much less equality. There is also no credible evidence that government action actually provides a remedy. b. Incorrect. Even when markets provide the efficient level of output, there is no guarantee that the outcome will satisfy the public’s perception of equity in distribution, much less equality. There is also no credible evidence that government action actually provides a remedy. c. Incorrect. Even when markets provide the efficient level of output, there is no guarantee that the outcome will satisfy the public’s perception of equity in distribution, much less equality. There is also no credible evidence that government action actually provides a remedy. d. Correct. Even when markets provide the efficient level of output, there is no guarantee that the outcome will satisfy the public’s perception of equity in distribution, much less equality. There is also no credible evidence that government action actually provides a remedy. e. Incorrect. Even when markets provide the efficient level of output, there is no guarantee that the outcome will satisfy the public’s perception of equity in distribution, much less equality. There is also no credible evidence that government action actually provides a remedy.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 17-9 - Market Failure DATE CREATED: 2/18/2022 6:15 AM DATE MODIFIED: 2/18/2022 6:17 AM

19. Policymakers often use taxes and subsidies to address market failure in medical care. A good example of this policy is the tax exemption to encourage employers to offer insurance to their workers. Select all true statements pertaining to this tax policy. a. The policy has had little effect on the expansion of employer-sponsored insurance. b. The policy has resulted in employees demanding more than the optimal level of insurance coverage. c. The policy encourages employees to purchase the amount of insurance they would choose to buy without the incentive. d. The policy has led to the market providing the optimal level of medical care. e. The policy provides conclusive evidence that government action improves market outcomes.

ANSWER: a, c, d, e FEEDBACK: a. Correct. The tax policy has expanded the availability of insurance and its use to consume medical care. The evidence indicates that insurance is more generous because of the tax exemption. If employees received the equivalent income and purchased insurance individually, many would choose less generous plans. The current policy leads to overconsumption of medical care, wasted resources, and loss of social welfare. Arguably, government policy, even though well motivated, may actually have made outcomes worse. b. Incorrect. The tax policy has expanded the availability of insurance and its use to consume medical care. The evidence indicates that insurance is more generous because of the tax exemption. If employees received the equivalent income and purchased insurance individually, many would choose less generous plans. The current policy leads to overconsumption of medical care, wasted resources, and loss of social welfare. Arguably, government policy, even though well motivated, may actually have made outcomes worse. c. Correct. The tax policy has expanded the availability of insurance and its use to consume medical care. The evidence indicates that insurance is more generous because of the tax exemption. If employees received the equivalent income and purchased insurance individually, many would choose less generous plans. The current policy leads to overconsumption of medical care, wasted resources, and loss of social welfare. Arguably, government policy, even though well motivated, may actually have made outcomes worse. d. Correct. The tax policy has expanded the availability of insurance and its use to consume medical care. The evidence indicates that insurance is more generous because of the tax exemption. If employees received the equivalent income and purchased insurance individually, many would choose less generous plans. The current policy leads to overconsumption of medical care, wasted resources, and loss of social welfare. Arguably, government policy, even though well motivated, may actually have made outcomes worse. e. Correct. The tax policy has expanded the availability of insurance and its use to consume medical care. The evidence indicates that insurance is more generous because of the tax exemption. If employees received the equivalent income and purchased insurance individually, many would choose less generous plans. The current policy leads to overconsumption of medical care, wasted resources, and loss of social welfare. Arguably, government policy, even though well motivated, may actually have made outcomes worse.

POINTS: 1 QUESTION TYPE: Multiple Response HAS VARIABLES: False LEARNING OBJECTIVES: 17-9 - Market Failure DATE CREATED: 2/28/2022 9:17 AM DATE MODIFIED: 2/28/2022 9:19 AM 20. Which of the following statements is the most important reason that medical care markets do not fit the competitive

model very well? a. There are so many not-for-profit providers in the market. b. Consumers have a difficult time determining prices before the transaction is completed. c. There are too many low-income consumers who want to purchase medical care. d. Providers find it easy to transfer their resources to other uses. e. Consumers have a difficult time evaluating the quality of care.

ANSWER: b FEEDBACK: a. Incorrect. Some policymakers use these arguments to oppose allowing market forces to allocate medical care services. There is a thread of truth running through all of them, but lack of price transparency is the biggest impediment in medical care markets. Private not-for-profit providers act like profit maximizers.

It is clear that without a positive profit margin, the providers are not able to pursue their mission. The difficulty in reassigning resources to alternative uses merely slows the adjustment process. In markets where consumers demand better quality information, it is provided. b. Correct. Some policymakers use these arguments to oppose allowing market forces to allocate medical care services. There is a thread of truth running through all of them, but lack of price transparency is the biggest impediment in medical care markets. Private not-for-profit providers act like profit maximizers.

It is clear that without a positive profit margin, the providers are not able to pursue their mission. The difficulty in reassigning resources to alternative uses merely slows the adjustment process. In markets where consumers demand better quality information, it is provided. c. Incorrect. Some policymakers use these arguments to oppose allowing market forces to allocate medical care services. There is a thread of truth running through all of them, but lack of price transparency is the biggest impediment in medical care markets. Private not-for-profit providers act like profit maximizers.

It is clear that without a positive profit margin, the providers are not able to pursue their mission. The difficulty in reassigning resources to alternative uses merely slows the adjustment process. In markets where consumers demand better quality information, it is provided. d. Incorrect. Some policymakers use these arguments to oppose allowing market forces to allocate medical care services. There is a thread of truth running through all of them, but lack of price transparency is the biggest impediment in medical care markets. Private not-for-profit providers act like profit maximizers.

It is clear that without a positive profit margin, the providers are not able to pursue their mission. The difficulty in reassigning resources to alternative uses merely slows the adjustment process. In markets where consumers demand better quality information, it is provided. e. Incorrect. Some policymakers use these arguments to oppose allowing market forces to allocate medical care services. There is a thread of truth running through all of them, but lack of price transparency is the biggest impediment in medical care markets. Private not-for-profit providers act like profit maximizers.

It is clear that without a positive profit margin, the providers are not able to pursue their mission. The difficulty in reassigning resources to alternative uses merely slows the adjustment process. In markets where consumers demand better quality information, it is provided.

POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: 17-9 - Market Failure DATE CREATED: 2/18/2022 6:31 AM DATE MODIFIED: 2/18/2022 6:33 AM

21. In order for consumers to make cost-conscious decisions, all of the conditions are essential except for one. Select all of the true statements. a. They must have money to spend. b. They must have knowledge of the product they are considering—its quality and price. c. They must have the ability to measure and compare the relative value of their options. d. They must be able to eliminate the uncertainty of their decision and choose the best outcome. e. They must be able to capture the benefit of making a cost-conscious decision.

ANSWER: a, b, c, e FEEDBACK: a. Correct. Arguably, the most important reason of the options provided is lack of price transparency. Consumers must have knowledge of prices to value options and make informed decisions. Individuals make every consumption decision with incomplete information. There is absolutely no way to know everything about a product before purchasing it. Will I like it? Could I have found it for a lower price elsewhere? Will it perform the way I thought it would? Will there be any unintended consequences? These considerations are true for every purchase, so consumers, suffering from dissonance, continue to gather information about their recent decision. This information becomes useful in future decision making. b. Correct. Arguably, the most important reason of the options provided is lack of price transparency. Consumers must have knowledge of prices to value options and make informed decisions. Individuals make every consumption decision with incomplete information. There is absolutely no way to know everything about a product before purchasing it. Will I like it? Could I have found it for a lower price elsewhere? Will it perform the way I thought it would? Will there be any unintended consequences? These considerations are true for every purchase, so consumers, suffering from dissonance, continue to gather information about their recent decision. This information becomes useful in future decision making. c. Correct. Arguably, the most important reason of the options provided is lack of price transparency. Consumers must have knowledge of prices to value options and make informed decisions. Individuals make every consumption decision with incomplete information. There is absolutely no way to know everything about a product before purchasing it. Will I like it? Could I have found it for a lower price elsewhere? Will it perform the way I thought it would? Will there be any unintended consequences? These considerations are true for every purchase, so consumers, suffering from dissonance, continue to gather information about their recent decision. This information becomes useful in future decision making. d. Incorrect. Arguably, the most important reason of the options provided is lack of price transparency. Consumers must have knowledge of prices to value options and make informed decisions. Individuals make every consumption decision with incomplete information. There is absolutely no way to know everything about a product before purchasing it. Will I like it? Could I have found it for a lower price elsewhere? Will it perform the way I thought it would? Will there be any unintended consequences? These considerations are true for every purchase, so consumers, suffering from dissonance, continue to gather information about their recent decision. This information becomes useful in future decision making. e. Correct. Arguably, the most important reason of the options provided is lack of price transparency. Consumers must have knowledge of prices to value options and make informed decisions. Individuals make every consumption decision with incomplete information. There is absolutely no way to know everything about a product before purchasing it. Will I like it? Could I have found it for a lower price elsewhere? Will it perform the way I thought it would? Will there be any unintended consequences? These considerations are true for every purchase, so consumers, suffering from dissonance, continue to gather information about their recent decision. This information becomes useful in

future decision making.

POINTS: 1 QUESTION TYPE: Multiple Response HAS VARIABLES: False LEARNING OBJECTIVES: 17-10 - Comparative Advantage DATE CREATED: 2/28/2022 9:21 AM DATE MODIFIED: 2/28/2022 9:23 AM