Sample Questions for Test 1
Chapter 1: U.S. Medical Care: Crisis or Conundrum
Thomas Sowell, a senior fellow at the Hoover Institution, has stated that we “have difficulty understanding the strange way words are used by politicians and the media.” We often think of a crisis in terms of an emergency, a situation of utmost urgency, maybe even life or death. According to Sowell, politicians use the term differently. They define crisis as any situation they want to change. How do you define the term crisis? Does the United States have a health care crisis?
Discuss the magnitude of the financing problem in medical care. What are the major reasons that medical spending is absorbing an increasing share of national output?
How important is cost containment in establishing a national health care policy? In addition to controlling costs, what are the alternative goals for a national medical care system?
Outside of government itself, the largest industry in the United States is the health care industry. Over the past several decades, costs in the health care industry have been increasing at a much faster rate than the rate of inflation in general. Why? Cite relevant empirical evidence to support your answer.
Chapter 2: Using Economics to Study Health Care Issues
What are the likely consequences of the following events on the U.S. market for tobacco products? Does the supply curve or the demand curve shift? In which direction? State whether the equilibrium price and quantity increase, decrease, or stay the same. Show the changes using a standard diagram with an upward-sloping supply curve and a downward-sloping demand curve.
The Food and Drug Administration classifies tobacco an “addictive substance.”
The Congress votes to raise the excise tax on all tobacco products.
Hurricane Fran dumps 15″ of rain on North Carolina and destroys 80% of that state’s tobacco crop.
Sixteen states sue the major tobacco companies for billions of dollars because of tobacco-related costs in their Medicaid programs.
Medical evidence that more than two cups of coffee a day (considered by many to be a substitute for smoking) greatly increases the risk of stomach cancer.
What are the likely consequences of the following events in the U.S market for cosmetic surgery? Does the supply curve or the demand curve shift? In which direction? State whether the equilibrium price and quantity increase, decrease, or stay the same. Show the changes using a standard diagram with an upward-sloping supply curve and a downward-sloping demand curve.
a. Health insurance coverage is expanded to cover all elective procedures, such as tummy tucks, nose jobs, and liposuction.
b. The FDA (Food and Drug Administration) takes all silicone-based implants off the market fearing a connection with certain connective-tissue diseases.
c. Personal finance companies starts a nationwide lending program for cosmetic procedures not covered by health insurance.
d. Medical malpractice insurance premiums increase for plastic surgeons.
e. Medical schools announce that residents in plastic surgery can be licensed after only five years instead of the current seven years.
Choices in health care delivery must be made at two levels: 1) the individual physician prescribing a course of treatment for an individual patient and 2) the policy maker determining the availability of medical care to an entire group of patients or a community. One way to choose among alternative treatment regimes and community programs is by using the criterion of economic efficiency. Briefly describe the three types of appraisal that enter into medical economics. Discuss the unique features of each and describe their basic strengths and weaknesses.
The public health director of a large city has a discretionary budget of $500,000 and wants to spend it to save as many lives as possible. Two of the approaches being considered seem most promising: high-blood pressure screening of the population and mobile cardiac arrest units. Medical studies indicate the following results for the two alternatives.
High-blood pressure screening
Mobile cardiac units
Total Lives Saved
Total Lives Saved
The public health director hires you to solve a dispute among members of her staff. A vocal segment of the staff argue that the entire budget be spent on mobile cardiac units (saving a total of 200 lives) rather than on high-blood pressure screening (saving only 80 lives). What do you recommend? What economic principle did you use?
What is the proper role of economics in the study of health and medical care? What does economics have to offer? What are its limitations?
What assumptions of the perfectly-competitive economic model are violated that may lead one to question its validity in studying medical markets?
“The laws of supply and demand are immutable. No one, including government, can affect a commodity’s demand curve or supply curve.” True or false. Comment.
What is the “free rider” problem?
The following table represents the costs and benefits of four alternative clinical programs designed to treat a single disease. Benefits are measured in terms of the number of lives saved.
Cost Effectiveness Ratio
a. Defining the cost-effectiveness ratio as the average cost per life saved, finish the table.
b. Which is the best program? In terms of number of total lives saved? In terms of cost per life saved?
c. Compare alternative pairs, A v. B, B v. C, and C v. D. What can you say given the information provided?
d. Which program would an economist favor? Provide sound cost-effectiveness reasoning.
e. Compare alternatives B and D. As an economist, how might you argue in favor of alternative D?
Some critics of using economics in medical decision making confuse resource allocation with resource rationing. What is the difference between the two concepts?
In 1989 the Chrysler Corporation released figures showing that its employee health care costs were $5,970 per employee and $700 per vehicle produced. According to the report, its foreign competitors fared much better. Health care costs for automobile companies averaged $375 in France, $337 in Germany, and $246 in Japan, placing Chrysler at a competitive disadvantage. Is there anything wrong with this conclusion? What are the micro and macro arguments as they relate to this issue?
Indicate whether the following statements are positive or normative.
a. Smokers should pay higher health insurance premiums than nonsmokers.
b. The United States should enact a comprehensive health care plan that provides universal coverage for all Americans regardless of their ability to pay.
c. The primary reason for the escalation in health care spending over the past 30 years is the rapid development of expensive medical technology.
d. The high cost of providing health care for their employees is a major reason that U.S. firms are not competitive with their foreign counterparts.
e. Individuals born with certain genetic defects that predispose them to higher medical care spending over their lifetime should be charged higher health insurance premiums than people without those defects.
How is the optimal rate of use determined in economics?
How does the difficulty in acquiring and understanding medical information affect the price and quality of medical care? How will the widespread access to the Internet affect medical care delivery in the future?
The relationship between health care spending (E) and per capita national income (Y) was estimated using cross-section data from 24 developed countries. The resulting equation E = 200 + 0.09 Y relates spending and income in U.S. dollars.
a. Interpret the coefficient on the national income variable.
b. Complete the table.
Health Care Spending
c. Graph the relationship.
Chapter 3:Analyzing Medical Care Markets
What is market failure? What are the major reasons that a free, unregulated market in medical care might not be optimal? Under what circumstances is government intervention justified?
Proponents of a government-run health care system argue that the market does not work well in the medical care industry. What evidence do they use to support this claim?
Chapter 4: The Demand for Health and Medical Care
According to studies undertaken by the U.S. Department of Agriculture, the price elasticity of demand for cigarettes is between -0.3 and -0.4 and the income elasticity is about +0.5.
Suppose the Congress, influenced by studies linking cigarette smoking to cancer, plans to raise the excise tax on cigarettes so the price rises by 10 percent. Estimate the effect the price increase will have on cigarette consumption and consumer spending on cigarettes (both in percentage terms).
Suppose a major brokerage firm advised its clients to buy cigarette stocks under the assumption that, if consumer incomes rise by 50 percent as expected over the next decade, cigarette sales will double. What is your reaction to this investment advice?
In what ways is medical care different from other commodities? In what ways is it the same?
If a wealthy person chooses to spend large sums of money to increase the probability of surviving an ordinarily fatal disease, should the rest of society object? Explain.
It is difficult to argue against the scientific merit of medical discoveries such as a treatments for cancer or AIDS. Is scientific merit alone sufficient to determine the rational allocation of medical funds in such high-cost cases? What other kinds of information are relevant?
What does it mean to be on the “flat-of-the-curve” in health care provision? Why do some argue that the United States is on the “flat-of-the-curve”? Why is this phenomenon not an issue in the typical developing country?
What factors would you use to estimate the level of demand for medical care for the typical individual? How would your choice of variables differ if you were estimating demand for an entire country?
“Estimating a model of health care demand by the individual patient is a futile exercise since physicians determine what their patients use.” Comment. Does the model of a utility-maximizing consumer have any application in medicine?
In what sense is health care a investment? In what sense is it pure consumption?
Some argue that the price elasticity of demand can be used to determine whether a good or services is a luxury or a necessity. In medical care a procedure with an elastic demand would be considered optional or elective and a procedure with an inelastic demand would be a medical necessity. Should planners use price elasticity of demand as a guide to defining services that are medically necessary? What are the advantages of such a classification scheme? What are the drawbacks?
What has been the role of public health measures in improving the health status of the population?
Policy makers often use infant mortality rates and life expectancy at birth when evaluating the efficacy of health care systems. In addition to living and dying, what other aspects of health status are important? How does the choice of measurement tool change our perspective when evaluating health care systems?
Chapter 5: The Market for Health Insurance
In what way is insuring for a medical loss different from insuring for any other loss?
Define the following concepts. How important are they in determining the efficient functioning of medical markets?
a. moral hazard
b. adverse selection
c. asymmetric information
d. third-party payer
e. cream skimming
What is the difference between “experience rating” and “community rating” in insurance underwriting? What makes the way health insurance policies are rated such an important issue in health care reform?
What are the major reasons that health insurance policies have deductibles and coinsurance features? Are they really necessary?
How do the provisions of the income tax code influence the health insurance decision-whether or not to insure, how much to buy, who pays?
What are the four types of medical insurance? Briefly describe the coverage available with each one.
“Health insurance policies that provide first-dollar coverage for medical expenses are not really health insurance policies at all. They are merely health plans providing pre-paid medical expenses.” Comment.
“Insuring a person with a pre-existing condition, such as cancer or AIDS, is like selling fire insurance to the owner of a burning building.” Do you agree or disagree? Should insurance companies be required to sell health insurance to someone with a pre-existing medical condition?
Should insurers be allowed to refuse health insurance policies to individuals who are genetically predisposed to certain diseases? To those whose lifestyles place them in high-risk categories for certain diseases? Support your answers.
One of the major issues driving the health care reform debate is the number of uninsured Americans and their limited access to medical care. Describe the typical person in the United States without insurance. Does lack of insurance mean the uninsured have no access to medical care?
What is asymmetric information? How does it present a problem to medical providers and health insurers?
Why do firms self insure?
When employers pay for health insurance as part of the total compensation package provided its employees, who really pays-employers, employees, taxpayers? Explain.
Over 75 percent of all Americans who have contracted HIV belong to one of two groups-gay and bisexual males or IV-drug users. Should sexual orientation or a history of drug use be a factor in determining whether a person can get health insurance coverage and the premium they pay? Explain.
Does the availability of free health care improve health status? Explain. (article)
What is the purpose of deductibles and coinsurance? To what problem are insurers responding?
Chapter 6: The Market for Health Care Professionals
If surgeons really have the ability to increase the demand for operations, which kinds of operations will be most affected? Can you think of a way to determine which operations are unnecessary? Provide several examples from your own readings or experience.
It has been argued that medical practitioners have the ability to generate demand for their own services. What is the theory behind this hypothesis? What assumption of the perfectly competitive model must be violated? What is the empirical evidence used to support the theory of physician-induced demand?
If the theory of supplier-induced demand is valid, what are the implications for public policy?
How does the dual nature of the physician’s role-adviser and provider-support the demand-inducement hypothesis? What institutional mechanisms support the possibility of demand inducement? How is this effect reinforced by health insurance? What are the natural limits to the alleged problem?
Why is the supply of physicians a major cause of concern? In theory, how would you expect the supply of physicians to affect the price and quantity of medical services provided and physicians’ incomes? What is the actual evidence?
You have recently been hired as a staff analyst for the American Medical Association (AMA). Your first assignment is to conduct a study of the state of medical education in the United States. As part of this assignment, you are to provide a brief history of medical education, an assessment of the current system, and prospects for the future. In discussing the current system comment on its efficiency (number of physicians trained, specialty mix, etc.) and equity (geographic distribution, racial and gender demographics). What options for the reform of medical education do you recommend that the AMA support? Why?
Many states prohibit the practice of lay midwifery, an unlicensed health care provider assisting in childbirth. What are the arguments in favor of such a prohibition? The arguments against? How is this lay midwifery any different from weight-loss counseling, ear piercing, and other activities provided by both licensed physicians and unlicensed lay practitioners?
The American Medical Association (AMA) has been actively involved in shaping the regulation of nursing and other health care practitioners. What are the arguments for and against the AMA determining the scope of legitimate activities for other health care practitioners?
Unions have improved wages and working conditions in many different employment settings. The decision to strike raises certain moral and ethical issues in medical care. The American Nurses’ Association once considered the use of strikes unprofessional, but in 1968 rescinded that position and now views the strike threat as a necessary part of collective bargaining. The moral and ethical issues aside, what is the economic impact of union activity in nursing? Use both the perfectly competitive and monopsony models to address this issue.
“High salaries are essential if we are to have the most capable students pursuing medical careers.” Comment.
Chapter 7: The Market for Hospital Services
What are the major criticisms of the for-profit hospital?
In theory, describe the different operating characteristics of the for-profit and the not-for-profit hospital.
The critical issue in the debate over the merits of the for-profit hospital structure is whether the profit motive has a negative impact on quality of care and access for the poor and uninsured. Is there a significant difference in quality and access between for-profit and not-for-profit hospitals? What is the empirical evidence? (Clearly distinguish between private not-for-profit hospitals and public hospitals.)
Does the not-for-profit structure in a hospital eliminate “for-profit behavior”? Explain.