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
|
Age cohort | Cost
| Total Lives Saved |
| Units | Cost
| Total Lives Saved |
Over 65 | $100,000
| 30 | | 1
| $100,000 | 100
|
55-64 | 200,000
| 50 | | 2
| 200,000 | 150
|
45-54 | 300,000
| 65 | | 3
| 300,000 | 175
|
35-44 | 400,000
| 75 | | 4
| 400,000 | 190
|
25-34 | 500,000
| 80 | | 5
| 500,000 | 200
|
The public health director hires you to solve a dispute among
members of her staff. A vocal segment of the staff argue that
the entire budget be spent on mobile cardiac units (saving a total
of 200 lives) rather than on high-blood pressure screening (saving
only 80 lives). What do you recommend? What economic principle
did you use?
- What is the proper role of economics in the study of health
and medical care? What does economics have to offer? What are
its limitations?
- What assumptions of the perfectly-competitive economic model
are violated that may lead one to question its validity in studying
medical markets?
- "The laws of supply and demand are immutable. No one,
including government, can affect a commodity's demand curve or
supply curve." True or false. Comment.
- What is the "free rider" problem?
- The following table represents the costs and benefits of four
alternative clinical programs designed to treat a single disease.
Benefits are measured in terms of the number of lives saved.
|
Program
|
Cost
($)
|
Lives Saved
| Cost Effectiveness Ratio
|
| A | 100,000
| 10 | |
| B | 100,000
| 12 | |
| C | 200,000
| 12 | |
| D | 200,000
| 15 | |
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.
|
Income
| Health Care Spending
|
| $ 5,000 | |
| 10,000 | |
| 15,000 | |
| 20,000 | |
| 25,000 | |
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.