MHA710 Exam 2 Actual Exam Style V2
MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. According to the Grossman model, how does an increase in the depreciation rate of health
affect the demand for health capital?
A. It increases the optimal level of health capital.
B. It decreases the optimal level of health capital.
C. It has no effect on health capital demand.
D. It makes health capital a pure consumption good.
Answer: B
Rationale: In the Grossman model, the depreciation rate represents the natural decline of
health over time. An increase in this rate raises the cost of maintaining health capital,
leading individuals to hold a lower optimal stock. This relationship reflects the economic
principle that as the cost of an asset rises, the quantity demanded decreases.
2. Which finding was a primary result of the RAND Health Insurance Experiment regarding the
price elasticity of demand for healthcare?
A. Demand for healthcare is perfectly inelastic.
B. The demand for healthcare is modestly price sensitive with an elasticity of about -0.2.
C. Demand for healthcare is highly elastic with a coefficient of -1.5.
,D. Inpatient care is more price sensitive than outpatient care.
Answer: B
Rationale: The RAND Health Insurance Experiment is a landmark study that provided
empirical evidence on how insurance affects usage. It found that as cost-sharing increases,
patients consume less healthcare across various types of services. The estimated price
elasticity of -0.2 suggests that healthcare is a necessity but still sensitive to price changes.
3. What occurs in the healthcare market when moral hazard is present?
A. Individuals take fewer risks because they are insured.
B. Insurance companies refuse to cover high-risk individuals.
C. The quantity of healthcare consumed increases because the out-of-pocket price is lower.
D. Physicians reduce the number of tests ordered to save costs.
Answer: C
Rationale: Moral hazard refers to the change in behavior that occurs when individuals are
insulated from the full cost of a service. In healthcare, insurance reduces the marginal cost
to the patient, leading to increased utilization of services. This behavior often results in a
deadweight loss to society because the cost of the care exceeds the benefit to the consumer.
4. In the context of health insurance, what is adverse selection?
A. A situation where low-risk individuals are more likely to buy insurance.
B. The process of insurance companies selecting only healthy applicants.
, C. A situation where high-risk individuals are more likely to buy insurance than low-risk
individuals.
D. When patients choose the cheapest insurance plan regardless of quality.
Answer: C
Rationale: Adverse selection occurs when there is asymmetric information between the
buyer and the insurer. High-risk individuals possess private knowledge about their health
status and are more incentivized to purchase comprehensive coverage. This can lead to a
‘death spiral’ where premiums rise, causing healthy individuals to drop out of the risk pool.
5. Which of the following describes ‘ex-ante’ moral hazard?
A. A patient seeking more physical therapy sessions after an injury.
B. An insured person taking up smoking because they have health insurance.
C. A physician ordering extra tests to avoid a malpractice suit.
D. An insurance company raising premiums after a claim is filed.
Answer: B
Rationale: Ex-ante moral hazard occurs when insurance coverage changes an individual’s
behavior before a health event happens. By reducing the financial consequences of illness
or injury, insurance may reduce the incentive to engage in preventive behaviors. This
results in an increased probability of a loss occurring compared to an uninsured state.
MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. According to the Grossman model, how does an increase in the depreciation rate of health
affect the demand for health capital?
A. It increases the optimal level of health capital.
B. It decreases the optimal level of health capital.
C. It has no effect on health capital demand.
D. It makes health capital a pure consumption good.
Answer: B
Rationale: In the Grossman model, the depreciation rate represents the natural decline of
health over time. An increase in this rate raises the cost of maintaining health capital,
leading individuals to hold a lower optimal stock. This relationship reflects the economic
principle that as the cost of an asset rises, the quantity demanded decreases.
2. Which finding was a primary result of the RAND Health Insurance Experiment regarding the
price elasticity of demand for healthcare?
A. Demand for healthcare is perfectly inelastic.
B. The demand for healthcare is modestly price sensitive with an elasticity of about -0.2.
C. Demand for healthcare is highly elastic with a coefficient of -1.5.
,D. Inpatient care is more price sensitive than outpatient care.
Answer: B
Rationale: The RAND Health Insurance Experiment is a landmark study that provided
empirical evidence on how insurance affects usage. It found that as cost-sharing increases,
patients consume less healthcare across various types of services. The estimated price
elasticity of -0.2 suggests that healthcare is a necessity but still sensitive to price changes.
3. What occurs in the healthcare market when moral hazard is present?
A. Individuals take fewer risks because they are insured.
B. Insurance companies refuse to cover high-risk individuals.
C. The quantity of healthcare consumed increases because the out-of-pocket price is lower.
D. Physicians reduce the number of tests ordered to save costs.
Answer: C
Rationale: Moral hazard refers to the change in behavior that occurs when individuals are
insulated from the full cost of a service. In healthcare, insurance reduces the marginal cost
to the patient, leading to increased utilization of services. This behavior often results in a
deadweight loss to society because the cost of the care exceeds the benefit to the consumer.
4. In the context of health insurance, what is adverse selection?
A. A situation where low-risk individuals are more likely to buy insurance.
B. The process of insurance companies selecting only healthy applicants.
, C. A situation where high-risk individuals are more likely to buy insurance than low-risk
individuals.
D. When patients choose the cheapest insurance plan regardless of quality.
Answer: C
Rationale: Adverse selection occurs when there is asymmetric information between the
buyer and the insurer. High-risk individuals possess private knowledge about their health
status and are more incentivized to purchase comprehensive coverage. This can lead to a
‘death spiral’ where premiums rise, causing healthy individuals to drop out of the risk pool.
5. Which of the following describes ‘ex-ante’ moral hazard?
A. A patient seeking more physical therapy sessions after an injury.
B. An insured person taking up smoking because they have health insurance.
C. A physician ordering extra tests to avoid a malpractice suit.
D. An insurance company raising premiums after a claim is filed.
Answer: B
Rationale: Ex-ante moral hazard occurs when insurance coverage changes an individual’s
behavior before a health event happens. By reducing the financial consequences of illness
or injury, insurance may reduce the incentive to engage in preventive behaviors. This
results in an increased probability of a loss occurring compared to an uninsured state.
