PUBH 3130 Lecture Notes - Lecture 22: Risk Pool, Risk Aversion, Risk-Seeking

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4 Jan 2018

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People in general do not like risk. They are better off (or have higher level of utility) with insurance than without. When individuals are combined into large groups, everyone in the risk pool pays the same premium. Some risk pools are made up of people who have a similar risk of using health services. Other risk pools are made up of diverse individuals some high risk and some low risk. Insurance companies generally prefer large risk pools because they can collect premiums from everyone in the group, but only a small percentage of the individuals will need costly medical care. Consider a walk-in clinic in a marginal neighborhood, without a hospital near-by. Beancounters, inc. have evaluated the business pro forma, the potential clientele, and the current levels of payment for walk-in services. It will cost ,000,000 to open the walk-in clinic. Beancounters, inc. states that there is a 60% chance the clinic could make a profit of ,000.

Related Questions

10. People have a strong incentive to hide their true willingness-to-pay, or valuation, of a public good because taxing officials might use it to get them to pay more taxes. This is called the

a. basis for health insurance

b. free-rider problem

c. problem with externalities

d. result of congestion effects

11. All of the examples listed below, with one exception, are public goods that at times might lose some of their public good properties when they become congested. Which example is an exception?

a. A small nonprofit clinic for homeless people funded by a charitable organization

b. Discoveries made through medical research

c. Emergency departments of nonprofit hospitals

d. A large urban nonprofit hospital

12.The primary way that the U.S. government assures health care services for senior citizens through Medicare is through

a. Financing services provided by private sector firms

b. Producing services for consumers

c. Regulating the market for some services

d. Marketing services for private producers

indigoant35

Question 11 One potential remedy to the tragedy of the commons is to: never allow a single individual to consume more than one percent of the common resource. criminalize the usage of common resources. allow individuals to use a common resource as long as they receive some benefit from doing so. place a common resource under private ownership. 4 points Question 12 As a result of a positional externality: contestants have a tendency to invest in a series of mutually offsetting investments in performance enhancement. there is generally an underinvestment in performance enhancement. the market price of performance enhancement materials is too high. the quality of performance in competitive situations is lower than the socially optimal level. 4 points Question 13 Which of the following statements is true regarding health insurance? Economics shows that all health related procedures should be free to individuals because the health of an individual is priceless. Total economic surplus would be larger if individuals faced an incentive to only use services when the benefit exceeds their costs. Health maintenance organizations provide an incentive for doctors to prescribe expensive nonessential services. First dollar insurance coverage has likely had very little to do with rising healthcare expenditures since World War II. 4 points Question 14 A strategy that yields a higher payoff no matter what the other players in the game choose is known as a: prisoner's strategy. dominated strategy. dominant strategy. Nash strategy. 4 points Question 15 Based on the diagram below, if the costs of hospital care are constant at $200 per day, and the individual does not incur any cost for each day for hospital care, then: the individual will stay 7 days and there will be no loss in economic surplus. the individual will stay 3 days and there will be no loss in economic surplus. the individual will stay 7 days and there will be lost economic surplus. the individual will stay 3 days and there will be lost economic surplus. 4 points Question 16 Economic research by Manning and colleagues suggests that people with deductible health insurance policies: spend substantially less on health care and have substantially worse health outcomes compared to people with first-dollar insurance coverage. spend substantially more on health care and have substantially better health outcomes compared to people with first-dollar insurance coverage. spend basically the same amount on health care and have substantially worse health outcomes compared to people with first-dollar insurance coverage. spend substantially less on health care and have no measurable difference in health outcomes compared to people with first-dollar insurance coverage. 4 points Question 17 An efficient program for reducing pollution is one for which: all polluters incur the same total costs of abatement. all polluters pay the same amount in taxes to the government. all polluters have the same marginal costs of abatement. all polluters reduce their emissions by the same amount. 4 points Question 18 Given the information on pollution abatement costs of the two firms shown below, which of the following is an efficient combination of pollution reduction? Quantity of pollution abatement Firm A's MC of abatement Firm B's MC of abatement 1 $30 $25 2 $35 $30 3 $40 $35 4 $45 $40 Firm A reduces by 1 ton and Firm B reduces by 1 ton. Firm A reduces by 2 tons and Firm B reduces by 3 tons. Firm A reduces by 4 tons and Firm B reduces by 1 ton. Firm A reduces by 3 tons and Firm B reduces by 2 tons. 4 points Question 19 All of the following are characteristics of perfectly competitive markets except: there are a large number of firms. productive resources are mobile. all firms produce a differentiated product. buyers and sellers are well informed. 4 points Question 20 An advantage of the auction method to pollution abatement is that: it is very expensive to firms. regulators can achieve a desired abatement target without having detailed knowledge of the abatement technologies available to polluters. it requires all firms to reduce by exactly the same amount. it assures that eventually society will reach a level of zero pollution emissions. 4 points Question 21 There are 2 firms each emitting 200 tons of a pollutant. Firm A's abatement costs are constant at $20/ton, and Firm B's abatement costs are constant at $40/ton. The government's goal is to reduce pollution by half. If the government auctions 200 one ton permits to the highest bidder: Firm A will purchase all 200 permits. Firm B will purchase all 200 permits. each firm will buy 100 tons. there is no way to know who the highest bidder for any permit would equal. 4 points Question 22 As a result of economies of scale, as output expands: fixed costs are decreasing. average total costs are decreasing. marginal costs are increasing. total costs are decreasing. 4 points Question 23 Generally, when countries open their borders to free trade: both domestic producers and consumers of imported goods gain. both domestic producers and consumers of exported goods gain. domestic producers of imported goods and domestic consumers of exported goods gain. domestic producers of exported goods and domestic consumers of imported goods gain. 4 points Question 24 Which of the following is the best example of a tariff? South Korea bans imports of U.S. beef because of safety concerns. The U.S. requires toys imported from China to undergo testing for lead content. The U.S. imposes a tax on sugar imported from Brazil. The U.S. restricts the quantity of cars imported from Japan. 4 points Question 25 A means-tested program is a benefit program: in which benefits decline as a recipient's earned income increases. in which all individuals must undergo health screening to be eligible for benefits. in which all recipients exclusively receive benefits through in-kind transfers. that only affects the average income of a specific segment of the population. 4 points Save and Submit Click Save and Submit to save and submit. Click Save All Answers to save all answers.

If an insurer incorrectly estimates an insured person'spremium

, then the insurer will suffer a financial loss.

can appeal to the state insurance commissioner for asubsidy.

will drop people whose medical expenses exceed theirpremium.

None of the above

Medicare Part B (physician and outpatient services) is financedby

a premium that is 75 percent subsidized by the government and 25percent subsidized by the aged.

a payroll tax on both the employee and the employer.

a premium that is 100 percent subsidized by the government.

both a subsidized premium and a payroll tax

The diagnosis-related group hospital payment system changedhospital incentives by making it more profitable to

employ physicians.

admit sicker Medicare patients.

reduce a patient's length of stay.

charge more for lab tests.

Medicare is difficult to reform because

		pharmaceutical manufacturers benefit from drug sales under PartD.
		senior congressional leaders do not want their Medicare benefitschanged.
		the Medicare population is opposed and have highvoting-participation rates.
		Medicare reform would likely increase the federal deficit.

Medicare is not considered to be a fair redistributive systembecause

Medicare beneficiaries receive large subsidies regardless of howhigh their income is.

low-income Medicare beneficiaries with high out-of-pocketexpenses must enroll in Medicaid.

low-income employees subsidize high-income Medicarebeneficiaries.

All of the above

Substituting an income-related voucher for the current Medicaidsystem would not achieve the following:

		An income-related voucher would eliminate the large differencesbetween states in the percentage of their populations eligible forMedicaid.
		An income-related voucher would reinforce the movement towardMedicaid managed care, with its emphasis on coordinated care andincentives to provide care in less costly settings.
		An income-related voucher would provide employees with anincentive to forego higher pay so that they qualify for the vouchersubsidy.
		An income-related voucher would provide those on Medicaid withan incentive to take higher-paying jobs because they would onlylose part of their voucher subsidy.

Most states have shifted their Medicaid beneficiaries intoprivate Medicaid managed care/HMO plans. What is the advantage tothe state for doing so?

		Medicaid patients are more likely to receive coordinated careand preventive services.
		By paying HMOs a fixed fee per person per month, states are ableto shift their risk for higher expenditures to a managed careplan.
		Medicaid patients are more likely to have access to a physicianwithin the HMO.
		The HMOs have entered the Medicaid market because they believethey can provide the care less expensively and earn a profit.

What are some legitimate ways to spend down one's assets toqualify for Medicaid?

Fixing up one's house, purchasing a new car, or setting up aspecial burial account

Providing financial gifts to one's children

Transferring property to one's children

Setting up special retirement accounts that can be passed on tochildren or relatives after seven years

How is Medicaid administered?

		By each state, but policy is shared with the federalgovernment
		By the federal government and coordinated with the states
		By a joint commission composed of federal and stateappointees
		None of the above

Why were hospitals and physicians willing to participate in anHMO's provider network?

Hospitals and physicians developed excess capacity and werewilling to discount their prices for more patients.

Hospitals and physicians believed that they could reduce medicalcosts by joining together to better manage patient care.

Some states provided hospitals and their employed physicians anincentive to join or start HMOs to serve their Medicaidpatients.

b and c

How did early managed care firms achieve their largestsavings?

		By limiting access to very expensive specialty prescriptiondrugs
		By reducing hospital utilization of its enrollees
		By making enrollees wait long periods to see their primary carephysician
		By limiting enrollees' access to the HMO's specialists

Managed care plans differ according to the restrictiveness oftheir provider network and access to specialists. Which types ofplans are likely to have the lowest premiums?

		Plans that have the largest ratio of primary care physicians tospecialists
		Plans that have the most experience and have been in existencethe longest
		Plans that have the most restrictive/narrow provider network
		Plans that have received the highest quality and outcomemeasures

QUESTION 20

As part of the Affordable Care Act, health insurance exchangeswere established. What have been the most importantcost-containment approaches used by health plans competing forinsurance exchange enrollees?

		Health plans have used very narrow/limited providernetworks.
		Health plans have dramatically reduced access to new medicaltechnology.
		Health plans have included large deductibles and out-of-pocketpayments.
		a and c

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PUBH 3130 Lecture Notes - Lecture 22: Risk Pool, Risk Aversion, Risk-Seeking

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