Download TEST BANK FOR TEST #1

Economics 436
Health Economics
Midterm Exam
Professor Thornton
Fall 2013
Part 1: Multiple choice questions. On the answer sheet write the letter that corresponds to the best
answer. (56 points).
1. Suppose an individual has symptoms of the flu. If she is rational, she will choose to make an
appointment to see a doctor if:
a. her insurance pays the entire cost of the doctor visit.
b. the benefit she expects to receive from the doctor visit exceeds the cost she must pay out of
her own pocket.
c. the benefit she expects to receive from the doctor visit exceeds the cost to society measured by
the other goods and services the nation must forego.
d. the benefit she expects to receive is positive.
2. Which of the following makes it difficult for consumers to assess the quality of the product
they are purchasing in medical care markets?
a. Treatment effectiveness uncertainty
b. Moral hazard
c. Demand uncertainty.
d. Government intervention.
3. Which of the following is the best explanation of why a typical person demands health insurance?
a. The effectiveness of many treatments are uncertain, and therefore an individual wants
a health insurance company to evaluate the quality of the medical care they receive.
b. To consume low benefit, high cost medical care.
c. To eliminate the need to monitor their doctor and shop around for low cost medical care.
d. To reduce the financial risk of uncertain medical care expenses, because illness and disease
are difficult to predict.
4. Moral hazard occurs when:
a. individuals make choices that have a negative effect on their health.
b. physicians distort information they give to patients for financial gain.
c. individuals do not bear the full cost of their decisions, and therefore have a financial incentive
to make choices that increase their own welfare, but decrease the welfare of society.
d. firms produce goods that are health hazards.
5. Which of the following is not an effect of moral hazard in medical markets?
a. Patients demand too little advanced medical technology.
b. Patients over consume medical care.
c. Patients do not adequately monitor medical care providers such as physicians.
d. Patients don’t shop around for medical care providers that charge the lowest prices.
6. Which of the following best describes the contribution of medical care services to the economy?
a. Providing more medical care services creates more jobs for doctors and nurses.
b. Providing more medical care services improves population health, which decreases the federal
government budget deficit.
c. Providing more medical care services reduces the unemployment rate, which improves
population health, which increases economic well-being.
d. Providing more medical care services improves population health, which increases total
hours available to work and worker productivity, which increases the productive capacity of
the economy and the gross domestic product.
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7. A RAND Corporation study estimated that 33% of medical care spending in the U.S. (close to $1
trillion per year) is unnecessary under the medical definition of unnecessary. If the RAND
Corporation defined unnecessary medical care using the social economic welfare definition,
unnecessary medical care spending would be:
a. higher than 33%
b. lower than 33%
c. 33%
d. zero
8. A majority of Americans who don’t have health insurance are:
a. the working poor and employees of small businesses.
b. unemployed, poor people with incomes below the poverty level.
c. elderly people 65 years of age and older.
d. individuals with preexisting medical conditions who are uninsurable.
9. Suppose that extending health insurance to the uninsured would save 18,000 lives per year and
cost the nation $120 billion per year. From an economic perspective, to maximize social
economic welfare what should policymakers do?
a. Extend health insurance to the uninsured, because there are economic benefits from saving
18,000 lives.
b. Not extend health insurance to the uninsured, because the cost is too high.
c. Extend health insurance to the uninsured if the benefit the nation gets from saving 18,000
lives exceeds the opportunity cost of not using the $120 billion to finance other policy actions
that could save more lives, such as reducing fatal automobile accidents and cleaning up the
environment.
d. Ignore the potential benefits and costs when deciding whether to extend health insurance
because this decision involves human life.
10. Many healthcare experts argue that the quality of medical care in the U.S. health care system is
not as high as it should be. Which of the following has been given as a reason for this?
a. Lack of scientific evidence about the effectiveness of medical care.
b. Inadequate use of existing scientific evidence about the effectiveness of medical care.
c. Doctors have a financial incentive to treat illness rather than promote wellness.
d. All of the above.
11. Each year about 300,000 arthroscopic knee surgeries are performed to treat osteoarthritis of the
knee. Yet scientific studies find that this surgery has no positive effect on knee health for an
average or typical patient. Which of the following is the best explanation of why many doctors
perform this surgery?
a. Many doctors do not practice evidence-based medicine because they believe medicine is an
art, and therefore they believe the findings for a typical patient may not apply to their patients.
b. Doctors believe they must do this surgery because they took the Hippocratic oath.
c. Doctors are typically unaware of the results of scientific studies unless patients give them this
information.
d. Many doctors enjoy doing surgeries more than prescribing drugs.
12. When a doctor uses evidence-based guidelines:
a. she is able to recommend unnecessary medical care for financial gain.
b. she regularly reads medical journals and uses the knowledge she acquires as a
guide to treat patients.
c. she asks fellow doctors for guidance in treating her patients.
d. she uses guidelines established by medical researchers to determine the proper treatment for
patients.
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13. Which of the following is a reason why the medical care industry makes little use of information
technology (IT)?
a. An IT network that links all doctors and hospitals together would increase hospital profits and
and physician income, must be paid for by taxpayers, which is unfair.
b. Hospitals and doctors have no financial incentive to invest in IT because they can’t bill
patients for it, and therefore can’t obtain the revenue to cover the cost of their investment.
c. Doctors want hospitals to invest in IT, but hospitals refuse to do so unless doctors pay for it.
d. Hospitals and doctors do not believe IT will improve the quality of care.
14. Studies find that regions of the country with more specialists and fewer primary-care physicians:
a. utilize more medical care and have better health outcomes than regions with fewer specialists
and more primary-care physicians.
b. utilize less medical care and worse better health outcomes than regions with fewer specialists
and more primary-care physicians.
c. utilize more medical care and have worse health outcomes than regions with fewer specialists
and more primary-care physicians.
b. utilize less medical care and have better health outcomes than regions with fewer specialists
and more primary-care physicians.
15. Which of the following best describes the phenomenon of regional variations in medical practice
patterns?
a. For a person with a particular medical condition, the type of treatment she receives and the
amount of medical care she utilizes depends largely upon the region of the country in which
she lives.
b. Health insurance companies pay doctors different prices for their services in different regions
of the country.
c. The size of group medical practices differs in different regions of the country.
d. Medical practices tend to seek out physicians from residency programs in different parts of the
country, because they want doctors with geographic diversity.
16. To increase medical care access, the Affordable Care Act:
a. extends health insurance to the uninsured.
b. provides federal money to build more hospitals and train more doctors.
c. creates accountable care organizations.
d. Both a and b.
17. To obtain money to pay for healthcare reform, the Affordable Care Act:
a. imposes a new tax on income earned by all individuals regardless of how much money they
make in wages and salaries.
b. imposes a new federal retail sales tax on consumers that will be collected in all 50 states.
c. reduces the amount of money the federal government gives to states to pay for their Medicaid
costs.
d. reduces spending on Medicare primarily by reducing payments to hospitals, nursing homes,
and, home health care providers for treating Medicare patients.
18. The Affordable Care Act requires health insurance companies that offer group health plans to
have a medical loss ratio of at least 85%. This means that the insurance company must:
a. not lose 85% of its enrollees.
b. reimburse medical care providers enough money so that at least 85% can remain in business.
c. not increase its annual premium by more than 85% regardless of their cost.
d. use at least 85% of the money it collects in premiums to pay the medical care cost of enrollees.
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19. Which of the following is a provision contained in the Affordable Care Act designed to contain
rising medical care spending?
a. The creation of a Patient Centered Outcomes Research Institute.
b. The creation of an Independent Payment Advisory Board.
c. Price controls on new prescription drugs.
d. The creation of a utilization management program for Medicare patients.
20. Under the Affordable Care Act, employers have an economic incentive to:
a. hire more full-time and part-time workers.
b. hire fewer full-time and part-time workers.
c. hire fewer full-time and more part-time workers.
d. hire more full-time and fewer part-time workers.
21. You are performing a health outcomes study to analyze a new drug. Which of the following
questions would you not attempt to answer when doing your study?
a. Does the drug have an effect on health?
b. Does the drug cost too much to produce?
c. What is the direction of the effect of the drug on health?
d. What is the size of the effect of the drug on health?
22. Suppose your absolute risk of developing diabetes is 20%. Health outcomes studies find that in
terms of relative risk a person who exercises is only 50% as likely to develop diabetes as a person
who does not exercise. By how much can you reduce your absolute risk of developing diabetes if
you exercise?
a. 8%
b. 10%
c. 30%
d. 50%
23. You are age 50. Your doctor recommends that you take the drug Taxall because studies show it
can reduce the risk of colon cancer by 50%. To determine how much this drug may benefit you,
which of the following questions would you ask your doctor?
a. Is this relative risk or absolute risk?
b. Is this objective risk or subjective risk?
c. Is this high or low quality risk?
d. Is this good risk or bad risk.
24. The National Institutes of Health recently funded a randomized controlled experiment to analyze
the effectiveness of a newly developed HIV vaccine. Sixteen thousand subjects were randomly
assigned to two groups: 1) treatment group that was given the vaccine, 2) control group that was
given a placebo. An article in the Wall Street Journal reported the relative risk of HIV for the
treatment group compared to the control group was 0.74 with a p-value of 0.16. Given these
results, which of the following is a valid conclusion?
a. Subjects who received the vaccine were 74% more likely to get HIV as those who did not,
and this difference was not the result of chance.
b. Subjects who received the vaccine were 26% as likely to get HIV as those who did
not, and this difference was not the result of chance.
c. Subjects who received the vaccine were 26% less likely to get HIV as those who did not,
but this difference is likely the result of chance.
d. Subjects who received the vaccine were 74% more likely to get HIV as those who did
not, but this difference is likely the result of chance.
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25. Suppose your objective is to analyze the effect of exercise on health. Cigarette consumption is a
confounding variable if:
a. sick people are less likely to smoke than healthy people.
b. sick people are more likely to smoke than healthy people.
c. smokers are less likely to exercise than nonsmokers, and smoking affects health.
d. smokers are less likely to exercise than nonsmokers, and smoking has no effect on
health.
26. The Rand Health Insurance Study conducted during the 1970s concluded that:
a. health insurance has little or no effect on medical care utilization.
b. medical care utilization has little or no marginal effect on health.
c. lifestyle factors have a large marginal effect on health.
d. Both a and b.
27. Flat-of-the-curve medicine exists when:
a. physicians refuse to treat patients without health insurance coverage.
b. hospitals shift costs from uninsured patients to insured patients.
c. new medical technologies have no effect on health.
d. increasing aggregate medical care utilization has no effect on population health.
28. Which of the following might explain the independent causal effect of income on health?
a. Rich people experience less psychosocial stress than poor people.
b. Healthy people work more hours and earn higher incomes than sick people.
c. Rich people are more educated than poor people.
d. Rich people have better access to medical care than poor people.
Part 2. List questions. These questions do not require complete sentence answers. (9 points)
1. List 3 types of outputs produced by the medical care industry.
2. List 3 important social problems that are said to exist in the U.S. healthcare system.
3. List 3 health plan standards that insurance companies must satisfy under the Affordable Care Act.
Part 3. Short answer questions. These questions can be answered in 3 to 6 sentences. (24 points)
1. Explain why a principal-agent relationship between a patient and doctor may result in supplier
induced demand.
2. Economists view health as a type of “human capital.” Explain this economic concept of health.
3. Many economists argue that the U.S. as a nation over consumes medical care? From an economic
point of view, explain how the U.S. can consume too much medical care and one possible reason for
this.
4. Many healthcare experts believe there will be adverse selection in state health insurance exchanges.
What is adverse selection and how might it affect the exchanges?
Part 4. Essay question. This question has no suggested limit; however, try to be concise and substantive.
(11 points).
1. The term “Healthcare Reform” means to change the healthcare system to make it better. Do you
believe the Patient Protection and Affordable Care Act of 2010 will result in healthcare reform; that
is, do you believe it will change the U.S. healthcare system for the better? Yes/no. Justify and support
your answer. (Your grade will be based on how well you justify and support your answer).
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