MHA710 Exam 2 Actual Exam Style V3
MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. In the context of the Grossman Model, why does the demand for health capital typically
decrease as an individual ages?
A. The cost of medical care decreases as one enters retirement.
B. Older individuals value leisure time less than younger individuals.
C. The depreciation rate of health increases over time.
D. Health is no longer considered an investment good after retirement.
Answer: C
Rationale: According to the Grossman Model, the depreciation rate of health capital
increases as a person gets older. As health depreciates faster, the marginal cost of
maintaining a certain level of health stock rises. Consequently, the optimal level of health
capital an individual chooses to maintain decreases over the lifespan.
2. Which of the following best describes the ‘death spiral’ in a health insurance market?
A. A situation where a hospital goes bankrupt due to low Medicare reimbursement.
B. The process of a pharmaceutical company losing patent protection.
C. A cycle where rising premiums lead healthy individuals to drop out, further increasing
premiums.
,D. The economic decline of a community after a major employer closes its health plan.
Answer: C
Rationale: The death spiral is a consequence of adverse selection where only high-risk
individuals remain in an insurance pool. As premiums rise to cover the costs of the sick,
healthy members leave because the insurance is no longer actuarially favorable for them.
This leaves an even sicker pool, causing premiums to rise again until the market collapses.
3. Which finding from the RAND Health Insurance Experiment is most significant regarding
the demand for healthcare?
A. As the consumer’s share of the cost increases, the use of healthcare services decreases.
B. Healthcare demand is perfectly inelastic regardless of cost-sharing.
C. Free care led to significantly better health outcomes for the general population.
D. Consumers are better at distinguishing between high-value and low-value care when
they pay more.
Answer: A
Rationale: The RAND experiment demonstrated that the demand for healthcare is
downward sloping, meaning it is price sensitive. It found that individuals with higher cost-
sharing (higher coinsurance rates) used fewer medical services than those with free care.
This study provided empirical evidence that moral hazard exists in healthcare
consumption.
, 4. The concept of ‘Moral Hazard’ in health insurance refers to:
A. The tendency of sick people to buy more insurance than healthy people.
B. Insurance companies denying coverage to individuals with pre-existing conditions.
C. The change in behavior that occurs when an individual is insulated from the full cost of a
risk.
D. The unethical marketing practices used by pharmaceutical representatives.
Answer: C
Rationale: Moral hazard occurs when an insured person takes more risks or consumes
more services because they do not bear the full cost. In health economics, this often
manifests as increased consumption of medical services because insurance reduces the
out-of-pocket price. It is a fundamental reason for the inclusion of deductibles and
copayments in insurance design.
5. Under the ‘Target Income Hypothesis,’ how do physicians behave when their income falls
below a desired level?
A. They reduce the number of services provided to focus on quality.
B. They lobby the government for higher reimbursement rates exclusively.
C. They increase the volume of services provided to maintain their standard of living.
D. They exit the medical profession to seek higher-paying administrative roles.
Answer: C
MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. In the context of the Grossman Model, why does the demand for health capital typically
decrease as an individual ages?
A. The cost of medical care decreases as one enters retirement.
B. Older individuals value leisure time less than younger individuals.
C. The depreciation rate of health increases over time.
D. Health is no longer considered an investment good after retirement.
Answer: C
Rationale: According to the Grossman Model, the depreciation rate of health capital
increases as a person gets older. As health depreciates faster, the marginal cost of
maintaining a certain level of health stock rises. Consequently, the optimal level of health
capital an individual chooses to maintain decreases over the lifespan.
2. Which of the following best describes the ‘death spiral’ in a health insurance market?
A. A situation where a hospital goes bankrupt due to low Medicare reimbursement.
B. The process of a pharmaceutical company losing patent protection.
C. A cycle where rising premiums lead healthy individuals to drop out, further increasing
premiums.
,D. The economic decline of a community after a major employer closes its health plan.
Answer: C
Rationale: The death spiral is a consequence of adverse selection where only high-risk
individuals remain in an insurance pool. As premiums rise to cover the costs of the sick,
healthy members leave because the insurance is no longer actuarially favorable for them.
This leaves an even sicker pool, causing premiums to rise again until the market collapses.
3. Which finding from the RAND Health Insurance Experiment is most significant regarding
the demand for healthcare?
A. As the consumer’s share of the cost increases, the use of healthcare services decreases.
B. Healthcare demand is perfectly inelastic regardless of cost-sharing.
C. Free care led to significantly better health outcomes for the general population.
D. Consumers are better at distinguishing between high-value and low-value care when
they pay more.
Answer: A
Rationale: The RAND experiment demonstrated that the demand for healthcare is
downward sloping, meaning it is price sensitive. It found that individuals with higher cost-
sharing (higher coinsurance rates) used fewer medical services than those with free care.
This study provided empirical evidence that moral hazard exists in healthcare
consumption.
, 4. The concept of ‘Moral Hazard’ in health insurance refers to:
A. The tendency of sick people to buy more insurance than healthy people.
B. Insurance companies denying coverage to individuals with pre-existing conditions.
C. The change in behavior that occurs when an individual is insulated from the full cost of a
risk.
D. The unethical marketing practices used by pharmaceutical representatives.
Answer: C
Rationale: Moral hazard occurs when an insured person takes more risks or consumes
more services because they do not bear the full cost. In health economics, this often
manifests as increased consumption of medical services because insurance reduces the
out-of-pocket price. It is a fundamental reason for the inclusion of deductibles and
copayments in insurance design.
5. Under the ‘Target Income Hypothesis,’ how do physicians behave when their income falls
below a desired level?
A. They reduce the number of services provided to focus on quality.
B. They lobby the government for higher reimbursement rates exclusively.
C. They increase the volume of services provided to maintain their standard of living.
D. They exit the medical profession to seek higher-paying administrative roles.
Answer: C
