127. What are fixed amounts that the insured must pay when receiving a medical service or filling a
prescription?
a. copayments d. coinsurance
b. deductibles e. premiums
c. negotiated fees
128. ________ are fixed amounts that the insured must pay before most of the policy’s benefits can be
applied.
a. Deductibles d. Copayments
b. Premiums e. Compensatory limits
c. Pay-in costs
129. Even after reaching an insurance policy’s deductible, some plans require the insured to pay a
percentage of costs up to the policy’s contribution limit. These are known as
a. coinsurance payments. d. supradeductibles.
b. copayments. e. insurance traps.
c. pay-in costs.
130. Which of the following statements is true about coinsurance, deductibles, and co-payments?
a. These work as a ration on health care consumption by forcing the insured to pay out-of-pocket
for a portion of his or her expenditures.
b. Since insurance companies already completely pay for an insured’s medical treatment, these
payments only add to the cost of health care without providing additional benefits.
c. Industry regulators consider these practices largely fraudulent, and numerous states are
attempting to ban their use in insurance policies.
d. Over a lifetime, they result in consumers paying more for their insurance than they would for
medical care.
e. They trivialize the need for healthcare intermediaries.
131. What is the main difference between HMOs and PPOs?
a. HMOs require substantially more out-of-pocket contributions.
b. PPOs require patients to provide significant collateral before scheduling a surgical procedure.
c. PPOs give patients relative freedom to choose doctors and hospitals, while HMOs assign a
primary care physician.
d. Only HMOs place a lifetime cap on the amount of payments made on behalf of a patient.
e. They are identical in practice. Like other monopolistic competitors, insurance companies seek
differentiation through product naming.
132. ________ is a specialized type of insurance that protects doctors from liability in cases of
negligent treatment.
a. Malpractice d. Distributive liability
b. Malfeasance e. Regressive liability
c. Intermedience
133. The U.S. market accounts for approximately ________ percent of global pharmaceutical sales.
a. 60 d. 30
b. 55 e. 50
c. 5
134. Before a drug can be sold in the United States, it must be reviewed and receive approval from
which government agency?
a. SEC d. FHA
b. FEC e. FDIC
c. FDA
135. The cost level of providing health care is due to the ________ of incentives that exist for
consumers, producers, and intermediaries.
a. harmony d. conflict
b. symbiosis e. division
c. asymmetry
136. Due to the structure of insurance copayment systems, the marginal cost of seeking medical
treatment is
a. high. d. decreasing.
b. low. e. at equilibrium.
c. increasing.
137. Low insurance copayments ________ consumer demand for health care, while fear of malpractice
suits can ________ the medical treatment prescribed by doctors.
a. increase; decrease d. decrease; increase
b. decrease; increase e. steady; offset
c. increase; increase
138. Which is an unintended consequence of government caps on Medicare and Medicaid
reimbursements?
a. Patients in these programs pay significantly more out-of-pocket than do insurance enrollees.
b. It forces physicians and medical centers to raise prices for other procedures that are not
covered by these programs.
c. The price ceiling on medical procedures spills over to patients who are not program
participants, enabling them to unconsciously reap the benefits of government price controls.
d. The supply of health care increases, lowering prices for most consumers in the market.
e. Since healthcare demand is very inelastic, the government price ceiling becomes nonbinding.
139. Harrison brings his car into a service center for its regular maintenance. After an inspection of the
vehicle, a mechanic informs him that the car is in need of extensive and costly repairs. Harrison
knows very little about cars, so he is not able to personally validate the mechanic’s claims. This is
an example of
a. moral hazard. d. demand-cost chasm.
b. misdirected incentives. e. ad hominem fallacy.
c. asymmetric information.
140. Service-rating sites like Angie’s List are an attempt to reduce the incidence of ________ for the
consumer.
a. moral hazard d. selective consequence
b. the principal-agent problem e. adverse selection
c. medical malpractice
141. Which is NOT an example of a principal-agent problem?
a. A union president makes a move to expand membership and strengthen his support, even
though it compromises representation of current members.
b. Gwendolyn is visiting an unfamiliar city and takes a taxi to travel between destinations. The
cab driver takes inefficient routes in order to increase her fare.
c. A U.S. representative gets legislation passed in order to fund a road project in her home
district, despite opposition from nearly half of her colleagues.
d. Employees at a restaurant loaf around when the manager leaves for a few hours to purchase
supplies.
e. An instructor carelessly grades an important exam in order to have more free time on the
weekend.
142. The chapter references a 2002 RAND Corporation study that determined −0.17 as the average
price elasticity coefficient for health care. What can generally be said about this figure?
a. As health care increases in price, it results in nearly a one-for-one reduction in consumption.
b. As health care increases in price, it results in only a very minor reduction in consumption.
c. As health care decreases in price, it results in nearly a one-for-one increase in consumption.
d. As health care decreases in price, it results in a large increase in consumption.
e. Since the coefficient is negative, it means there is no causal relationship between price and
consumption.
143. How can healthcare demand best be characterized in recent years?
a. It has stayed relatively constant.
b. It has grown.
c. It has reduced.
d. The Great Recession cooled demand slightly.
e. Worldwide pandemics have greatly increased demand.
144. Generally, as the copayment amount for a doctor’s appointment ________, the number of office
visits ________.
a. increases; increases d. increases; stays constant
b. decreases; decreases e. decreases; stays constant
c. increases; decreases
145. How do malpractice lawsuits affect the supply curve for doctors?
a. They cause a shift to the left.
b. They cause a shift to the right.
c. Lawsuits result in a movement along the curve.
d. The supply curve experiences a change in slope.
e. Malpractice lawsuits have no effect on the supply curve.
146. The government covers the cost of providing most health care, and citizens pay their share through
taxes in a(n)
a. government-subsidized private insurance system.
b. single-payer system.
c. intermediary system.
d. voucher system.
e. risk-deferred scheme.
147. Canada’s healthcare system is an example of a/an ________, a market condition in which there is a
single buyer.
a. monopsony d. uniconsumptor
b. monopoly e. narrow demand
c. oligopoly
148. The legal supply of organs in the United States is ________, producing a ________ of those
available.
a. increasing; surplus
b. decreasing; shortage
c. fixed; surplus
d. fixed; shortage
e. upward-sloping; constant quantity
149. The ________ makes it illegal to sell organs in the United States.
a. Affordable Care Act
b. Donor Protection Act
c. Organ Theft Prevention Initiative
d. National Organ Transplant Act
e. Health Care Umbrella Act
150. Regardless of the mechanism, the shortage of human organs is addressed by
a. a lottery system. d. black markets.
b. rationing. e. legislation.
c. greatest need.
SHORT ANSWER
1. Winona would like to start her own country with the goal of having people live longer than any
other place in the world. What would be the argument against achieving this goal by simply
spending more money on medical care?
2. How can insurance companies offer a guarantee to pay for certain medical expenses? How do they
determine the appropriate premium to charge?
3. How do HMOs act as an intermediary in the healthcare market?
4. What would be the arguments for and against the following statement: “Insurance companies
should be abolished because they are the cause of high healthcare expenses”?
5. Douglas has decided to become an agent for a health insurance company, and he is told to charge
clients who seek healthcare coverage as individuals more than clients who get coverage through
their employer. What is the economic justification for this policy?
6. How does the principal agent problem emerge for a medical doctor with respect to the ordering of
medical tests?
7. The high cost of medical care in the United States can be explained with a demand and supply
analysis. What are the factors that complicate such an analysis when it comes to understanding
medical care compared to other goods and services?
8. As an employer, why might Vivian be reluctant to offer her employees a health insurance plan
with a very low annual deductible?
9. An entrepreneur has recently approached Jenna, an economics student, about opening a hospital in
a crowded metropolitan area. The only concern of the entrepreneur is that profits will be reduced
because of the existence of many hospitals in the city. Is there anything Jenna could say to
convince the entrepreneur that profits will not necessarily be low?
10. An entrepreneur has recently approached Dugan, an economics student, with a business plan to
open the only hospital in his community and claims that he will be able to earn unlimited profits. Is
this true?
11. Some states have taken steps to license occupations such as teeth-whitening technicians and
massage therapists. These steps have been taken after the legislators have received pressure from
licensed dentists and chiropractors. What would we expect to happen to the price of a
teeth-whitening procedure or massage if licensing were to be expanded? Provide a graph to justify
your answer.
12. Using facts to justify your point of view, discuss whether the U.S. government should be the
primary financier of healthcare expenses.
13. Fabian is Canadian. His grandfather recently required chemotherapy, but was frustrated by the
long delay in receiving care. Fabian recently found out that his cat will also require chemotherapy.
Would Fabian expect there to be a similar delay? Explain.
14. Why is the demand for health care very inelastic?
15. How do heroic end-of-life efforts represent a fundamental struggle in managing healthcare costs?
16. Would there be a benefit to a high-deductible, high copayment insurance plan?
17. How do deductibles and copayments lower the cost of health insurance?
18. A foundational assumption of economics is that agents are rational and wish to optimize. How
does a healthcare intermediary rankle this assumption?
19. In the United States, pharmaceutical companies are granted drug patents for 20 years, in part to
help them recover the incredible cost of researching and producing a new product, with some drugs
never making it to the market or achieving commercial success. If a larger portion of healthcare
spending was allocated toward investment and research, how might it impact the pharmaceutical
industry?
20. Individuals typically favor freedom of choice, so many people balk at the restrictive nature of
HMOs. How might they actually be a preferable option to a PPO, based on the concept of adverse
selection?
21. A controversial aspect of the Affordable Care Act was the provision that patients could not be
denied insurance coverage because of preexisting conditions. How might this provision
unintentionally create a moral hazard?
22. Many consider the profit motive of physicians and hospitals a moral hazard, and if patient care
isn’t valued over profit, the patient may receive poor-quality treatment. Is this a fair assumption?
23. In some countries, the dominant culture highly prizes work ethic, and frowns on taking extended
time off from work. How might this cultural norm play a role in increasing healthcare demand?
24. Based on the elasticity of the human organ supply curve, what effect does a decrease in price have
on the quantity supplied?
25. The production of artificial organs would seem to solve the organ shortage problem in the United
States. Would the supply curve adjust to this development? If so, what changes would occur?
