Chapter 1 – Multiple Choice



Chapter 22 Health Systems Reform

Key Ideas

• Health care systems vary across countries. Comparing them may provide insights into potential health care system improvements.

• Systems with national health insurance appear to reduce health spending. However, one must impute time costs and adjust for difference in quality of care in evaluating the full costs of alternative systems.

• Health insurance through the workplace comes at a cost. At the national level, a fundamentally inelastic labor supply suggests that most of the costs of health insurance fall upon workers in the form of lower wages.

• Firms with monopoly power may pass on some of the costs of employer-provided health insurance to consumers through higher prices.

• The imposition of universal health coverage also comes with an opportunity cost—resources that could be used for something else. Whether the cost is “worth it” often constitutes more of a political question than an economic one.

Teaching Tips

• Passage of the Affordable Care Act (ACA) has resulted in many items published daily in the popular press, e.g., Kaiser Health News () provides daily summaries of relevant items with links to the sources. Current news items provide opportunities to apply analyses found in Chapter 22 (and elsewhere) to “real world” policy.

• Estimates of ACA parameters change frequently. Instructors and students may wish to follow the analyses carefully to examine the underlying assumptions used.

• What do people in other countries say about their health systems? Canadian and U.K. newspaper websites often provide useful insights about their health care systems from their points of view.

• For class discussion, it is useful to consider whether different societies are different. Do students in the United States recognize differences between themselves and students elsewhere regarding attitudes toward government and preferences for health care? Do the students outside the United States who use the book recognize similar differences?

• The issue of “who pays” for coverage is a provocative one. Discuss the issue of two employers, one of which pays “all” of the health care costs, the other of which pays 80%. In which firm are workers better off? The response of course depends on the net wage (the money wage + monetary value of the benefits). Formulas that determine “who pays” are ultimately unimportant; what matters is the workers’ net wages.

Chapter 22 Multiple-Choice Questions

1. If we define the health expenditure share s of the GDP as:

s = PQ/Y,

where P is the price of health care, Q is the quantity, and Y is GDP, then if Y increases by 10% and Q increases by 12%, then:

a. share s will rise.*

b. share s will fall.

c. there will be no change in share s.

d. There is not enough information to determine the answer.

2. If we define the health expenditure share s of the GDP as:

s = PQ/Y,

where P is the price of health care, Q is the quantity, and Y is GDP, then if P increases by 8% and Q decreases by 4%, then:

a. share s will rise.*

b. share s will fall.

c. there will be no change in share s.

d. There is not enough information to determine the answer.

3. Consider Figure E22.1. Which of the following points constitute inefficient allocations of the economy’s resources?

a. A*

b. B(

c. D

d. E

4. In Figure E22.1, starting at point A, if health reform moves the economy to point ___ it _____ efficiency.

a. J; increases

b. B(; increases*

c. B; increases

d. D; decreases

5. In Figure E22.1, starting at point A, a move to point B((:

a. increases efficiency only if financed by taxes.

b. increases efficiency only if paid for by employers.

c. increases efficiency only if accompanied by technological change.

d. increases efficiency.*

Figure E22.1

[pic]

6. Many of the more industrialized countries have sought to reform their health care systems by introducing elements of:

a. market mechanisms.*

b. rationing.

c. price controls.

d. government service provision.

7. Individual insurance mandates require:

a. taxpayers to enroll in government-sponsored insurance.

b. taxpayers to buy insurance from private sellers.

c. all consumers to get insurance, whether from employers, the private market, or the government.*

d. employers to stop offering insurance.

8. Under individual insurance mandates:

a. residents must acquire insurance.

b. residents must acquire insurance from the state.

c. residents may acquire insurance through their employers.

d. Answers (a) and (c) are correct.*

9. Employer mandates require:

a. all employers to provide health insurance.*

b. all employers to increase workers’ pay so they can buy health insurance.

c. all employers to provide pharmaceutical coverage.

d. Answers (b) and (c) are correct.

10. Total expenditure for universal health insurance would ______ the true cost because ____.

a. overstate; the uninsured are already receiving uncompensated care*

b. understate; employers would lose money

c. precisely estimate; we have good estimates of health care costs

d. understate; insurers could not offer this coverage without a subsidy

11. Coughlin and colleagues estimated that that establishing a plan to provide full-year coverage to the uninsured would:

a. decrease expenditures on the uninsured by $46 billion.

b. increase expenditures on the uninsured by $27 billion.

c. increase expenditures on the uninsured by $89 billion.*

d. increase expenditures on the uninsured by $144 billion.

Figure E22.2

12. In Figure E22.2, suppose that a given industry has L0 workers, each of whom earns wage W0. Suppose that the workers negotiate a benefit package that costs $3 per worker, and is worth $3 per worker. The new labor market equilibrium will be at:

a. money wage W2; labor force, L0.*

b. money wage W1; labor force, L0.

c. money wage W0; labor force, L0.

d. money wage W1; labor force, L1.

13. In Figure E22.2, suppose that a given industry has L0 workers, each of whom earns wage W0. Suppose that the workers negotiate a benefit package that costs $2 per worker, and is worth $0 per worker. The new labor market equilibrium will be at:

a. money wage W2; labor force, L0.

b. money wage W1; labor force, L0.

c. money wage W0; labor force, L0.

d. money wage W1; labor force, L1.*

14. Referring to Figure E22.2, economists argue that universal employer mandates are unlikely to raise labor costs because:

a. within a country, labor supply is fundamentally inelastic, thus the burden falls largely on the worker.*

b. within a country, labor supply is fundamentally elastic, thus the burden falls largely on the consumer.

c. wage controls can be used to address labor cost inflation.

d. within a country, labor supply is fundamentally elastic, thus the burden falls largely on the worker.

15. Suppose a worker earns $15 per hour plus health benefits worth $2 per hour. If the employer withdraws the benefits and offers the worker $16 per hour:

a. the worker will be better off because $16 is more than $15.

b. the worker will be as well off because he or she is earning more than before.

c. the worker will be worse off because previously he or she was earning $17 including the benefit, but is now only earning $16.*

d. There is not enough information to answer this question.

16. Suppose a worker earns $14 per hour plus health benefits worth $2 per hour. If the employer withdraws the benefits and offers the worker $17 per hour:

a. the worker will be better off because $17 is more than the $16 he or she was earning in wages plus benefits.*

b. the worker will be as well off because he or she is earning more than before.

c. the worker will be worse off because he or she is no longer getting the benefits.

d. There is not enough information to answer this question.

17. In the United States, employer-provided health insurance distorts the choice between health care and other items because:

a. health insurance may lead to over-consumption of health care due to moral hazard.

b. employer contributions are tax exempt, thus reducing the price of insurance relative to other goods.*

c. workers believe that the health insurance is free.

d. Answers (a) and (b) are correct.

18. Advocates of “single payer” national health insurance believe that it is desirable because:

a. it reduces administrative costs by reducing multiple forms that hospitals, clinics, and nursing homes must fill out.*

b. it eliminates a wastefully competitive health insurance industry.

c. it provides less costly variety than would privately provided insurance.

d. It can achieve economies of scale in providing insurance.

Figure E22.3

19. In Figure E22.3, a monopolistic firm in the product market will initially optimize at point ___ and charge price ____.

a. E; P2*

b. B; P3

c. C; P1

d. E; P4

20. In Figure E22.3, if mandated insurance benefits increase marginal costs to MC2, the firm will:

a. pass all of the increased costs along to the consumers in the form of increased prices.

b. optimize at point C, passing on part of the cost increases to the consumers, by raising the price from P2 to P1.*

c. take advantage of economies of scale by reducing the price from P2 to P3.

d. optimize at point A where MC1 equals demand.

21. When U.S. employers argue that health insurance expenditures make them uncompetitive with international competitors, they are:

a. correct, because these expenditures raise their costs.

b. incorrect, because the health benefits are part of the labor compensation package.

c. incorrect, because the burden of the benefits usually falls on the workers.

d. Answers (b) and (c) are correct.*

22. In Figure E22.3, the more elastic the underlying demand for the good in the product market:

a. the larger the proportion of a mandated health benefit will be paid by producers.

b. the smaller the proportion of a mandated health benefit will be paid by consumers.

c. the burden of the mandate will be equally shared.

d. Answers (a) and (b) are correct.*

23. Medical savings accounts would reduce some of the current tax subsidy for health insurance by:

a. providing a fixed credit for health insurance irrespective of income.

b. inducing some of the uninsured to buy insurance.

c. refusing to subsidize larger, more comprehensive policies.

d. Answers (a) and (c) are correct.*

24. Consumer-directed health plans typically:

a. have low insurance deductibles.

b. have high insurance deductibles.

c. allow consumers to shop among alternatives and, in some cases, to recover some of the funds that they do not spend.

d. Answers (b) and (c) are correct.*

25. With consumer-directed health plans:

a. all insured will be better off.

b. if the healthier people leave other plans, those remaining in the other plans may have to pay increased premiums.*

c. the uninsured will get better health care.

d. the uninsured will get better insurance.

Figure E22.4

26. In Figure E22.4, loosening regulations that limit the abilities of suppliers to enter the market could move an equilibrium from point ___ to point ____.

a. B; A

b. C; E

c. E; C*

d. Answers (a) and (c) are correct.

27. In Figure E22.4, loosening regulations that limit the abilities of suppliers to enter the market, and managing demand could move an equilibrium from point ____ to point ____.

a. E; B*

b. C; A

c. A; B

d. A; B

28. In Figure E22.4, loosening regulations that limit the abilities of suppliers to enter the market would reduce expenditures if:

a. the consumer demand elasticity is infinitely elastic.

b. the consumer demand elasticity is between 0 and -1.*

c. the supply elasticity is infinite.

d. the government controls prices.

29. Pay for performance (P4P) plans:

a. have proven successful in reducing health expenditures.

b. require detailed performance measures to be successful.*

c. have improved the Canadian health care system.

d. will always increase health care quality.

30. The Affordable Care Act (ACA) is characterized as a “three-legged stool” which includes:

a. prohibition of refusal by insurers to cover clients with pre-existing conditions.*

b. requirements that all individuals acquire insurance through their employers.

c. requirements that all individuals use Health Benefit Exchanges.

d. Answers (a) and (b) are correct.

31. The Affordable Care Act (ACA) features the following:

a. an individual mandate for consumers to purchase health insurance. *

b. a “Cadillac tax” on low-cost employer-provided health insurance.

c. a single payer for all medical expenses.

d. Answers (a) and (b) are correct.

32. Under the Affordable Care Act (ACA):

a. all U.S. residents will receive health insurance by 2018.

b. all U.S. citizens will receive health insurance by 2018.

c. approximately 32 million of the 50 million uninsured in 2010–2011 will receive health insurance by 2018.*

d. the U.S. government will provide health care to all citizens by 2020.

33. Under the Affordable Care Act (ACA):

a. the rate of uninsured population has risen by from 18.8 percent to 21.5 percent.

b. the rate of uninsured population has remained stable.

c. the rate of uninsured population has fallen from 18.8 percent to 17.5 percent.

d. the rate of uninsured population has fallen from 18.8 percent to 14.4 percent.*

34. Kolstad and Kowalski (2016) analyzed employment impacts of the 2006 Massachusetts health care reform, which contained many of the same features as the ACA. They found that:

a. about half of the Massachusetts employers stopped offering coverage.

b. those who gained employer-supplied insurance were willing to accept lower wages.

c. employer-supplied coverage increased.

d. Answers (b) and (c) are correct.*

35. Evaluating the ACA in terms of meeting health reform goals, the ACA has:

a. increased coverage for a large portion of the population. *

b. made considerable strides in containing costs.

c. proven easy to administer.

d. reduced consumer choice.

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