MHA710 Exam 3 Actual Exam Style V3 |
MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. Which of the following best defines the concept of ‘Moral Hazard’ in healthcare
economics?
A. The tendency for those with higher health risks to purchase insurance.
B. The legal obligation of providers to treat patients regardless of ability to pay.
C. The process of insurers selecting only healthy individuals for coverage.
D. A change in consumer behavior that occurs because they have insurance coverage.
Answer: D
Rationale: Moral hazard occurs when individuals consume more healthcare services
because their out-of-pocket costs are reduced by insurance. This behavior results in a
deadweight loss to society because the cost of the service exceeds the value to the
consumer. Common strategies to mitigate this include deductibles, copayments, and
coinsurance.
2. Adverse selection in health insurance markets is primarily caused by:
A. Uniform pricing for all participants regardless of health status.
B. High administrative costs within the insurance firm.
C. Asymmetric information between the insurer and the insured.
,D. Strict government regulations on provider networks.
Answer: C
Rationale: Adverse selection arises when potential insured individuals have more
information about their health status than the insurer does. High-risk individuals are more
likely to seek coverage, while low-risk individuals may opt out if premiums are too high.
This imbalance can lead to a market failure known as a ‘death spiral’ where premiums rise
continuously.
3. In the context of physician payment, what is the primary incentive under a ‘Fee-for-Service’
model?
A. To minimize the number of tests and procedures performed.
B. To focus exclusively on preventive care and long-term wellness.
C. To maximize the volume and intensity of services provided.
D. To coordinate care with other specialists to reduce total costs.
Answer: C
Rationale: The fee-for-service model pays providers for each specific service or procedure
rendered. This creates a financial incentive to increase the quantity of services to maximize
revenue. Critics argue this contributes significantly to the inflation of healthcare
expenditures.
4. What characterizes ‘Capitation’ as a provider reimbursement method?
A. Providers are paid a fixed amount per patient per period regardless of services used.
, B. Payments are based on the complexity of the diagnosis using DRGs.
C. Insurers negotiate a percentage discount on the provider’s standard charges.
D. Physicians receive a base salary plus bonuses for high patient satisfaction scores.
Answer: A
Rationale: Capitation shifts the financial risk from the insurer to the provider by paying a
set fee per member per month. This system encourages providers to focus on efficiency and
preventive care to stay within the fixed budget. It is a hallmark of many Managed Care
Organizations such as HMOs.
5. The ‘Target Income Hypothesis’ suggests that physicians:
A. Will stop working once they reach a specific annual salary goal.
B. Only accept patients who can pay the full market rate for services.
C. Induced demand for services to maintain a desired level of wealth.
D. Are motivated primarily by altruism and social welfare goals.
Answer: C
Rationale: This hypothesis posits that physicians have a certain income level they wish to
achieve. If market conditions decrease their income, they may use their information
advantage to recommend more services to patients. This is a form of supplier-induced
demand that complicates standard economic supply models.
MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. Which of the following best defines the concept of ‘Moral Hazard’ in healthcare
economics?
A. The tendency for those with higher health risks to purchase insurance.
B. The legal obligation of providers to treat patients regardless of ability to pay.
C. The process of insurers selecting only healthy individuals for coverage.
D. A change in consumer behavior that occurs because they have insurance coverage.
Answer: D
Rationale: Moral hazard occurs when individuals consume more healthcare services
because their out-of-pocket costs are reduced by insurance. This behavior results in a
deadweight loss to society because the cost of the service exceeds the value to the
consumer. Common strategies to mitigate this include deductibles, copayments, and
coinsurance.
2. Adverse selection in health insurance markets is primarily caused by:
A. Uniform pricing for all participants regardless of health status.
B. High administrative costs within the insurance firm.
C. Asymmetric information between the insurer and the insured.
,D. Strict government regulations on provider networks.
Answer: C
Rationale: Adverse selection arises when potential insured individuals have more
information about their health status than the insurer does. High-risk individuals are more
likely to seek coverage, while low-risk individuals may opt out if premiums are too high.
This imbalance can lead to a market failure known as a ‘death spiral’ where premiums rise
continuously.
3. In the context of physician payment, what is the primary incentive under a ‘Fee-for-Service’
model?
A. To minimize the number of tests and procedures performed.
B. To focus exclusively on preventive care and long-term wellness.
C. To maximize the volume and intensity of services provided.
D. To coordinate care with other specialists to reduce total costs.
Answer: C
Rationale: The fee-for-service model pays providers for each specific service or procedure
rendered. This creates a financial incentive to increase the quantity of services to maximize
revenue. Critics argue this contributes significantly to the inflation of healthcare
expenditures.
4. What characterizes ‘Capitation’ as a provider reimbursement method?
A. Providers are paid a fixed amount per patient per period regardless of services used.
, B. Payments are based on the complexity of the diagnosis using DRGs.
C. Insurers negotiate a percentage discount on the provider’s standard charges.
D. Physicians receive a base salary plus bonuses for high patient satisfaction scores.
Answer: A
Rationale: Capitation shifts the financial risk from the insurer to the provider by paying a
set fee per member per month. This system encourages providers to focus on efficiency and
preventive care to stay within the fixed budget. It is a hallmark of many Managed Care
Organizations such as HMOs.
5. The ‘Target Income Hypothesis’ suggests that physicians:
A. Will stop working once they reach a specific annual salary goal.
B. Only accept patients who can pay the full market rate for services.
C. Induced demand for services to maintain a desired level of wealth.
D. Are motivated primarily by altruism and social welfare goals.
Answer: C
Rationale: This hypothesis posits that physicians have a certain income level they wish to
achieve. If market conditions decrease their income, they may use their information
advantage to recommend more services to patients. This is a form of supplier-induced
demand that complicates standard economic supply models.
