MHA710 Exam 2 Actual Exam Style V1
MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. Which concept explains why individuals consume more healthcare when they have
insurance coverage compared to when they pay the full price?
A. Adverse Selection
B. The Agency Problem
C. Supplier-Induced Demand
D. Moral Hazard
Answer: D
Rationale: Moral hazard occurs because insurance lowers the marginal cost of healthcare
to the consumer. This reduction in price leads to an increase in the quantity of services
demanded. It represents a behavioral change where the insured individual is less likely to
avoid risks or more likely to utilize expensive treatments.
2. In the context of health insurance, what does ‘adverse selection’ specifically refer to?
A. Insurers choosing only healthy patients to cover.
B. High-risk individuals being more likely to purchase insurance.
C. Physicians selecting patients based on their ability to pay.
D. The government selecting which treatments to subsidize.
,Answer: B
Rationale: Adverse selection is driven by asymmetric information where the buyer knows
more about their health status than the insurer. This leads to a pool of insured individuals
that is riskier than the average population. If left unmanaged, this can lead to a death spiral
where premiums rise and healthy people exit the market.
3. What is the primary difference between community rating and experience rating?
A. Community rating charges everyone the same premium regardless of health, while
experience rating is based on historical health usage.
B. Community rating is based on the health status of an individual, while experience rating
is based on the group.
C. Experience rating is mandated by the ACA, whereas community rating is forbidden.
D. There is no difference between the two terms.
Answer: A
Rationale: Community rating distributes the risk across a broad population to ensure that
sick and healthy individuals pay the same rate. In contrast, experience rating calculates
premiums based on the specific health history and expected costs of a smaller group or
individual. This makes experience rating more affordable for the healthy but potentially
unaffordable for those with chronic conditions.
, 4. The ‘Agency Relationship’ in healthcare economics is primarily concerned with the
interaction between which two parties?
A. The Insurer and the Employer
B. The Government and the Hospital
C. The Pharmaceutical Company and the FDA
D. The Physician and the Patient
Answer: D
Rationale: In this relationship, the physician acts as an agent making decisions on behalf of
the patient, who is the principal. Because the physician has superior medical knowledge,
the patient relies on them to navigate complex medical choices. Conflicts can arise if the
physician’s financial incentives do not align with the patient’s best health interests.
5. Under a Prospective Payment System (PPS), how are hospitals generally reimbursed?
A. Through a fixed amount determined before the service is rendered, usually by DRG.
B. Based on the actual costs incurred during the patient’s stay.
C. By a percentage of the hospital’s total annual budget.
D. Directly by the patient through out-of-pocket payments.
Answer: A
Rationale: The Prospective Payment System was introduced to encourage hospitals to
operate more efficiently by setting fixed prices for specific diagnoses. If a hospital provides
MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. Which concept explains why individuals consume more healthcare when they have
insurance coverage compared to when they pay the full price?
A. Adverse Selection
B. The Agency Problem
C. Supplier-Induced Demand
D. Moral Hazard
Answer: D
Rationale: Moral hazard occurs because insurance lowers the marginal cost of healthcare
to the consumer. This reduction in price leads to an increase in the quantity of services
demanded. It represents a behavioral change where the insured individual is less likely to
avoid risks or more likely to utilize expensive treatments.
2. In the context of health insurance, what does ‘adverse selection’ specifically refer to?
A. Insurers choosing only healthy patients to cover.
B. High-risk individuals being more likely to purchase insurance.
C. Physicians selecting patients based on their ability to pay.
D. The government selecting which treatments to subsidize.
,Answer: B
Rationale: Adverse selection is driven by asymmetric information where the buyer knows
more about their health status than the insurer. This leads to a pool of insured individuals
that is riskier than the average population. If left unmanaged, this can lead to a death spiral
where premiums rise and healthy people exit the market.
3. What is the primary difference between community rating and experience rating?
A. Community rating charges everyone the same premium regardless of health, while
experience rating is based on historical health usage.
B. Community rating is based on the health status of an individual, while experience rating
is based on the group.
C. Experience rating is mandated by the ACA, whereas community rating is forbidden.
D. There is no difference between the two terms.
Answer: A
Rationale: Community rating distributes the risk across a broad population to ensure that
sick and healthy individuals pay the same rate. In contrast, experience rating calculates
premiums based on the specific health history and expected costs of a smaller group or
individual. This makes experience rating more affordable for the healthy but potentially
unaffordable for those with chronic conditions.
, 4. The ‘Agency Relationship’ in healthcare economics is primarily concerned with the
interaction between which two parties?
A. The Insurer and the Employer
B. The Government and the Hospital
C. The Pharmaceutical Company and the FDA
D. The Physician and the Patient
Answer: D
Rationale: In this relationship, the physician acts as an agent making decisions on behalf of
the patient, who is the principal. Because the physician has superior medical knowledge,
the patient relies on them to navigate complex medical choices. Conflicts can arise if the
physician’s financial incentives do not align with the patient’s best health interests.
5. Under a Prospective Payment System (PPS), how are hospitals generally reimbursed?
A. Through a fixed amount determined before the service is rendered, usually by DRG.
B. Based on the actual costs incurred during the patient’s stay.
C. By a percentage of the hospital’s total annual budget.
D. Directly by the patient through out-of-pocket payments.
Answer: A
Rationale: The Prospective Payment System was introduced to encourage hospitals to
operate more efficiently by setting fixed prices for specific diagnoses. If a hospital provides
