2. Describe specifically how your economic thinking has been affected by this course and how you can best make use [apply] the central principles and theories which were studied. What is the main outcome(s) from the course for you? (~ 2 pages)
Michelle_Michy
204910597_CHAPTER_22_7089939845763266.docxHealth Care
Chapter 22 - Health Care
Chapter twenty-Two
health care
CHAPTER OVERVIEW
This chapter addresses one of the most prominent economic and political issues of our time. Providing health care is an economic issue, and the American public‘s concern ranges from the problem of rising health care costs, to gaps in health insurance coverage, to government insurance programs draining Federal and state budgets. The debate over the desirability of more government involvement in providing health insurance continues.
This chapter also examines the economic aspects of our health care problems, offers a demand and supply analysis to explain rapid increases in health care costs, as well as potential methods for containing costs and evaluates the Patient Protection and Affordable Care Act (PPACA).
WHAT’S NEW
This was chapter 21 in the 19e.
A fourth Quick Review has been added to the end of the chapter.
There are three new “Consider This” discussions in the chapter. The first is “Why do Hospitals Sometimes Charge $25 for an Aspirin?”. The second is “Electronic Medical Records.” The third is “PPACA Implementation Problems.”
The “Consider This” in the 19e, "Cancer Fight Goes Nuclear", has been eliminated.
There is a new learning objective for the chapter.
All of the data and tables have been updated.
INSTRUCTIONAL OBJECTIVES
After completing this chapter, students should be able to:
1. Describe what is meant by the health care industry and approximate its size with relevant data.
2. Identify the problem connected with rising health care costs.
3. Give the negative effects associated with rising health care costs.
4. Identify two consequences associated with employer provided health insurance in the U.S.
5. Explain what is meant by the overallocation of resources to the health care industry.
6. Describe the extent of the problem regarding a lack of health insurance coverage.
7. Identify four special characteristics of the health care market.
8. Give four factors that have contributed to the rise in the demand for health care.
9. Explain the role of physicians in increasing the demand for health care.
10. Explain the “moral hazard” problem arising from health insurance coverage.
11. Explain how the Federal income tax structure subsidizes health care demand.
12. Identify three supply factors that contribute to rising health care costs.
13. Describe how rationing health care services can reduce costs.
14. Explain how deductibles and copayments, health savings accounts (HSAs), managed care, Medicare and DRG, and limits on malpractice awards can decrease incentives to overconsume health care thereby reducing costs.
15. Present arguments for and against the PPACA.
16. Explain the major provisions of the Patient Protection and Affordable Care Act.
17. Define and identify terms and concepts listed at the end of the chapter.
COMMENTS AND TEACHING SUGGESTIONS
1. There is a wealth of information available on health care in the popular press. This topic provides an excellent opportunity for student debates, papers, and presentations. Because it is an issue that concerns so many of us, you can easily get students to relate their personal experiences to the economics of health care. Once you have their interest, you can relate their concerns to many of the theoretical and structural concepts raised in microeconomics. The material can also be used to help students better appreciate the macroeconomic tradeoffs, especially as they pertain to health care reform proposals.
2. The National Issues Forum has some excellent teaching materials that provide a focus for discussing some of the major issues. Related to this chapter are two of their topics, “The Health Care Cost Explosion: Why it’s so Serious, What Should Be Done," and “Health Care for the Elderly: Moral Dilemma, Mortal Choices.” This organization also has units that focus on “Coping with AIDS” and “The Drug Crisis,” which may be useful supplements in a more interdisciplinary course. For more information about their issue books, audiocassette tapes, and videocassettes, call 18004337834 or write to them at 100 Commons Road, Dayton, Ohio 454592777.
3. The Nebraska Council on Economic Education has an excellent set of activities, suitable for secondary or college-level classes, which revolve around the economics of health care and are available for about $10. They also have a video, “Code Blue,” of a teleconference panel highlighting some of the major issues. For more information call 4024722333 or FAX 4024729700.
4. The health care industry can be analyzed from the perspective of market structure, which reinforces what students have just learned about the different market models, from perfect competition to pure monopoly. How do the markets for various types of health care services fit the various market models? If the market being examined does not fit the competitive model, or if consumers pay indirectly through prepaid insurance plans, does it make sense to talk about market solutions? If market solutions are possible, should reforms be aimed at enhancing competition? The health care industry, or particular components of it, provides excellent opportunities for using the casestudy method to teach economic concepts.
5. Price elasticity and income elasticity of demand both play an important role in the problems of the health care industry. Most health care services are a necessity with few substitutes, making the demand for them relatively priceinelastic. This fact means that rising costs of production that decrease supply will have more impact on the price of health care than on the quantity purchased. Health care is a normal good, meaning that as incomes rise the demand for health care will also increase. Employing this chapter as a demonstration when studying the theory of elasticity in Chapter 6 can be an effective combination.
6. The discussion of health care can lead easily to the discussion of how we value human life. A fun and illuminating exercise is to place students on “organ donation” boards, where they (in small groups) must decide which candidate receives a vital organ (the non-recipients die). Write profiles for four or five prospective recipients, assume that all have the same level of compatibility with the donor’s organ, and include information such as age, reason for organ need (genetics, unhealthy lifestyle, accident, etc.), annual income (or prospective annual income for students), and family situation (single, married, children, etc.). These are of course hypothetical, but for an added bit of fun write profiles of what would happen to each candidate if they received the organ (brilliant student flunks out, welfare recipient goes on to win Nobel Prize, and so on).
STUDENT STUMBLING BLOCKS
Do not assume that your younger students know anything about health insurance coverage, even at the personal level. Unless they have encountered some problem, it is probably one of those economic costs that they have ignored, since they are covered by their parents’ insurance or university health center. The students who have encountered some problem with coverage will help you “open other students’ eyes.”
LECTURE NOTES
I. Introduction
A. Learning objectives – After reading this chapter, students should be able to:
1. Convey important facts about rising health care costs in the United States.
2. Relate the economic implications of rising health care costs.
3. Discuss the problem of limited access to health care for those without insurance.
4. List the demand and supply factors explaining rising health care costs.
5. Describe the cost containment strategies that rely on altering the financial incentives facing either patients or health service providers.
6. Summarize the goals of the Patient Protection and Affordable Care Act and the major changes it institutes.
B. This chapter focuses on several issues.
1. The United States’ system of health care.
2. The economics of health care costs.
3. The PPACA and whether its policies will achieve its goals.
II. The Health Care Industry
A. Government’s definition of this far-reaching industry includes many aspects.
1. Services provided in hospitals, nursing homes, labs, physicians’ and dentists’ offices,
2. Prescription and nonprescription drugs, artificial limbs, and eyeglasses,
3. Services of many nontraditional practitioners, but not fitness club services, or health foods.
B. The size of the industry is immense.
1. 17 million are employed in the industry, including 850,000 physicians.
2. There are about 5,800 hospitals with almost 925,000 million beds.
3. Health care accounts for 17.3 percent of GDP.
III. U.S. Emphasis on Private Health Insurance
A. Private health insurance is uniquely American and began in World War II to attract workers in light of price ceilings that government had placed on wages.
B. Other countries like Canada, have a national health care system.
1. They use tax revenue to provide each person with free or low cost health care.
2. Very few individuals have to buy private health care.
C. In the U.S. Federal tax law makes it cheaper for employers to provide health insurance rather than the individual buying it.
D. Consequences of employer provided benefits:
1. Creates an incentive to overuse health care.
2. Leads to a focus on regulating a familiar health care system rather than creating a new one.
IV. Twin Problems: Cost and Access
A. Health care costs include the “price” of health care as well as the “quantity” of health care services provided.
B. Health care costs have been rising rapidly because of higher prices and an increase in the quantity of services provided. The price of medical care has been increasing far faster than the overall price level.
C. Efforts to reform health care have focused on controlling costs and increasing accessibility. A dual system of health care (one for those who can afford to pay and the other for those who cannot) may be evolving.
V. High and Rising Health Care Costs.
A. Health care spending in the U.S. is rising in absolute terms, as a percentage of domestic output and on a per capita basis.
B. Figure 22.1 shows major types of spending and major sources of funds for these expenditures.
1. 32 cents of each health care dollar is spent on hospitals; 20 cents goes to physicians; 21 cents goes to dental and vision care, and 26 cents pays for other health care services, including prescription drugs, home care, and program administration.
2. About 81 percent of expenditures are paid for by public and private insurance; the remaining amount is paid by the health-care consumer.
C. Health care absorbed 5.2 percent of GDP in 1960, and 17.9% in 2011. (Figure 22.2)
D. Global Perspective 22.1 shows that spending on health care as a percentage of GDP is higher in the U.S. than in any other major industrialized nation.
E. Quality of care: Are we healthier?
1. Medical care in the U.S. is probably the best in the world, but not our health.
2. As a result of medical research, the incidence of certain diseases has been declining and the quality of treatment has been improving in the U.S. But the U.S. has a lower life expectancy, higher maternal mortality and infant mortality rates, an AIDS epidemic that has claimed over 616,400 lives; and an increase in tuberculosis.
3. The U.S. Office of Technology Assessment has concluded that the U.S. ranks low internationally on may health indicators.
F. There are economic implications of rising costs.
1. The increase in health care costs is the main reason for rising health care spending.
2. Increased health care costs have other effects as well.
a. Fewer uninsured can afford health care; fewer employers can offer health insurance to workers.
b. Adverse effects on labor markets exist.
i. Wages grow more slowly because health care benefits are taking a larger share of the “compensation” package.
ii. Employers use more parttime and temporary workers to avoid the high cost of health insurance coverage for workers. Employer may contract-out the work of low-paid workers to avoid paying health care costs.
iii. Employers have shifted work to domestic or international suppliers (outsourcing and offshoring), reducing costs because these outside suppliers provide less medical benefits to their employees.
c. Large medical bills not covered by insurance may lead to personal bankruptcies as the patient or his or her family lacks the means to pay.
d. Government budgets at all levels have to deal with spiraling health care expenditures.
i. Medicare and Medicaid has been the fastest growing segment of the Federal budget.
ii. Higher taxes or reductions in other budget components (national defense, education, and environmental programs) must be used to cover the increases.
iii. States are finding it difficult to cover their share of Medicaid costs and must reduce other expenditures (infrastructure, education, and welfare).
iv. Local governments face similar strains.
G. Are we spending too much?
1. Most industries are happy to have increased spending. Why are we alarmed about more spending on health care? According to economist William Nordhaus, the economic value of increased longevity is roughly equal to the increased GDP over the last 100 years.
2. University of Chicago economists Kevin Murphy and Robert Topel has found that reduced mortality from heart disease benefits the U.S. economy $1.5 trillion each year.
3. Despite the successes, economists see health care expenditures as inefficiently large, a product of the unique features of the health care market.
4. Experts are concerned that at the margin, the consumption of health care is worth less than the alternative goods and services that could otherwise have been produced with those resources. In other words, there is an overallocation of resources to health care, which imposes a real economic cost on society.
VI. Limited Access: Many are uninsured.
A. In 2011 about 49 million Americans (16 percent of population) had no health insurance for the entire year. This number grows as health care costs rise.
B. Which groups have no insurance?
1. Fifty percent of the uninsured are families where the head works full time, the family income is too high to qualify for Medicaid, but the earned income is not enough to afford health insurance. Demographically, many are single-parent families, African American, or Hispanic.
2. Young people with excellent health choose not to buy health insurance.
3. The chronically ill find it impossible or too costly to obtain insurance because of the likelihood they will incur substantial costs in the future.
4. The unemployed lack insurance because most policies accompany employment.
5. Workers for small firms are unlikely to have insurance because high administrative costs make it costly for small business employers to offer this benefit.
6. Part-time and low-wage workers are also less likely to be insured.
C. The uninsured will sometimes pay directly, but often wait until their illness is so critical that the hospital emergency room is the only alternative, and this adds to hospitals’ uncompensated health care burdens, estimated at $36 billion per year. Hospitals are forced to shift these costs to other health-care customers.
VII. Why the rapid rise in costs?
A. Health care market is unique.
1. Ethical and equity considerations are intertwined. Society regards much of health care as a right and is reluctant to ration it solely on the basis of who can afford it.
2. Information is asymmetric: Physicians and other caregivers possess more information about the product than the consumer. Often the provider orders the service for the consumer or patient.
3. External benefits exist. Healthy individuals make the entire society more productive and contribute to general prosperity and well-being.
4. Third-party payment or payment by the insurance company means that the consumer has little or no direct out-of-pocket expenditure for health care services. Therefore, the consumer does not seek out the lowest cost alternative.
B. Demand for health care has been increasing.
1. Health care is a “normal” good, so when incomes rise, the demand for health care rises proportionately. Elasticity with respect to income is estimated about 1 and may be as high as 1.5 in the U.S.
2. Demand for most health care is believed to be price “inelastic;” the quantity demanded does not decline significantly with rising prices.
a. Most health care is a necessity.
b. There are few substitutes for most health care services.
c. Consumers do not “shop around” for doctors in most cases.
d. Patients with insurance do not care much about the price of each service received since they prepay for the total package.
3. The population is aging. By 2000 the proportion of those over the age of 65 had risen to 12.4 percent from 9 percent thirty years earlier. Those over 65 consume 3 1/2 times more health care services as those between 19 and 64. Those over 84 consume nearly two and one-half times as much as those in the 65-69 age group. By 2030, 76 million members of the baby boomer generation will turn 65.
4. Unhealthy lifestyles, particularly substance abuse, are common. Although smoking is declining, obesity-related medical costs are about $147 billion per year, with taxpayers paying more than half the bill through Medicare and Medicaid.
5. The role of physicians may increase the demand for health care.
a. Supplier-induced demand. Asymmetric information exists, meaning that doctors possess more information about health care needs than do their patients (consumers) and doctors order the services for them. Also doctors are paid on a “fee-for-service” basis, which encourages them to order more services, and patients seldom have advance information on the cost or necessity of these services.
b. Defensive medicine is common in that doctors err on the side of being overly cautious to avoid any charges of malpractice. They often order many procedures that may not be necessary.
c. Medical ethics cause doctors to use the “best practice” to serve their patients and to try to sustain human life regardless of cost.
6. Insurance pays about 79 percent of health care costs. While this is positive in providing security against devastating losses, it creates a “moral hazard” problem.
a. Insured may seek more health care and engage in more damaging behavior than the uninsured.
b. Overconsumption occurs because people regard health care as “free,” since they have prepaid for their services.
c. Price provides a direct incentive to restrict use of a product, but insurance coverage, removes the consumer’s budget constraint when he or she decides to consume health care.
7. Consider This ... Why do Hospitals Sometimes Charge $25 for an Aspirin?
a. To save taxpayers money, Medicare and Medicaid set their payment rates for medical services above marginal cost, but below average total cost.
b. These programs do not pick up their share of fixed costs. Thus, patients with private insurance must cover this shortfall.
8. Employer-financed health insurance constitutes a “tax subsidy” because the health benefits are exempt from both federal income tax and payroll (social security) taxation.
9. Figure 22.3a gives graphic portrayal of a competitive health care market (on the demand side) that might exist if all consumers were uninsured. Allocative efficiency occurs only when we pay in full for a product. In Figure 22.3b we see the effect of health insurance paying half the price of health care, so the consumer’s bill for the service is the same as half price. Therefore, the quantity consumed will be Qi rather than Qu and there is more health care consumed than would be justified by the total cost of this amount of care to society. Figure 22.3b illustrates this “welfare loss” as the area abc.
10. The “equity-efficiency” tradeoff is illustrated here. The dilemma is that if we provide social insurance that is believed equitable, then overconsumption will occur, which is inefficient. Efficiency may be achieved when less insurance is provided, but this may be inequitable.
C. Rationing to Control Costs
1. Countries with national health insurance use mechanisms to restrict the quantity supplied of health care, decreasing money spent on health care.
2. Waiting helps to ration health care where patients might have to wait weeks, or months for specific medical appointments or procedures.
3. In the U.S. insurance is private so government regulators are focused on the benefits of insurance instead of the costs because the money is not the government’s money.
a. Over the years regulators have increased the conditions to be covered under insurance.
b. As a result, insurance companies increased premiums.
4. Other countries focus on denying coverage and decreasing costs while the U.S. expands health insurance coverage.
D. Supply factors also cause rising costs.
1. Some believe that the supply of physicians has been restricted artificially, but the evidence for this argument is not strong, since the number of physicians per 100,000 people has increased over the years. But the increase in the supply of physicians has not kept up with the increase in demand for services provided.
2. Physicians’ incomes are high in part because of the high costs incurred during their education. Although doctors have high rates of return on their educational expenses, these returns are below those for lawyers and business school graduates.
3. Productivity growth has been slow in health care because it is labor intensive and there is no strong incentive to raise productivity in a fee-for-service system.
4. Changes in medical technology have often caused rising costs, because private and public insurance pays for new technology regardless of costs. Some studies estimate that this accounts for as much as one-half of the growth of health care expenditures.
5. Consider This .. Electronic Medical Records
E. Relative importance.
1. Health care costs have escalated because of both demand and supply side factors as enumerated above; however some factors are more important than others.
2. Most experts attribute the relative rise in health care spending to the following:
a. Advances in medical technology.
b. The medical ethic of providing the best treatment available.
c. Private and public health insurance (the presence of third partypayers).
d. Fee-for-service physician payments.
VIII. Cost Containment: Altering Incentives
A. Deductibles and Copayments
1. Creates opportunity costs for consumers and a direct cost for health care.
2. Decreases the overuse of health care.
3. Decreases the administrative costs for health insurance companies.
B. Health Savings Accounts (HSAs)
1. For those who qualify, individuals can make tax-deductible contributions to their HSAs
2. They can then use the money in their HSAs to pay for qualified medical expenses and whatever is not used in the current year is still available for future use.
3. By using their own money, consumers will be more careful in evaluating their MC and MB of health services and compare prices.
4. They can use the money for non-medical reasons giving them greater reason to be frugal, but they will have to pay income tax on it.
C. Managed Care
1. There are two main types of managed care systems.
a. Preferred Provider Organizations (PPOs)
i. If the individual goes to a provider on the list of PPOs, the insurance will cover 80 – 100% of costs.
ii. If they go outside of the PPO, insurance only covers 60 – 70% of the costs.
iii. The dollar amount covered by health insurance for most services is less than the prices charged, decreasing premiums and expenditures.
b. Health Maintenance Organizations (HMOs)
i. Provides services for enrollees who pay an annual fee.
ii. With a fixed annual revenue, there is an incentive to avoid too much care and therefore reduce costs.
iii. There is also an incentive for more preventative care to keep costs low.
2. Physicians and hospitals are closely monitored, so physicians are more reluctant to perform unnecessary tests with a fixed budget and inspection of their behaviors.
3. The prices are lower than with traditional insurance.
4. Patients are restricted to physicians within the managed health care system and it has been argued that perhaps there is too much incentive to reduce costs.
D. Medicare and DRG
1. Federal government used to automatically pay all costs of a patient’s medical expenses.
2. In 1983 Federal government started making payments based on diagnosis-related-group (DRG) system.
a. Now, the hospital receives a fixed payment for a patient’s care based on detailed diagnostic categories that best characterize a patient’s conditions and needs.
b. DRG gives hospitals an incentive to lower their costs.
c. DRG has decreased the length of hospital stays.
d. It has been criticized that these changes are actually reflective of diminished quality of medical care.
E. Limits on Malpractice Awards
1. Supporters: capping malpractice awards reduces malpractice premiums, lowering health care costs.
2. Opponents: Large malpractice awards are the best tool for preventing medical malpractice and medical malpractice awards are a very small part of total health care costs.
IX. The Patient Protection and Affordable Care Act (PPACA)
A. PPACA was meant to extend and expand the existing health care system rather than creating a new national health care system. Its purpose is to have health insurance for nearly all Americans.
B. Many who did not have private insurance had costly medical conditions, so significant revenue sources had to be found through the personal mandate to buy insurance and a variety of new taxes.
C. Preexisting Conditions, Caps, and Drops
1. It is illegal to deny insurance for pre-existing medical conditions.
2. PPACA prevents insurance companies from imposing annual or lifetime caps.
3. Both of these changes result in a significant increase in costs for insurance companies.
D. Employer Mandate
1. Every firm with 50 or more full-time employees must buy health insurance for employees, or pay a $2,000 fine per employee.
2. Extends insurance to as many workers as possible without increasing the costs to government.
E. Personal Mandate
1. Individuals must buy insurance for themselves and their dependents if they are not already covered by insurance, or pay a fine of $695 per uninsured family member or 2.5% of income.
2. Health subsidies are in place to prevent financial devastation of the poor.
3. In essence, the wealthier, healthy individuals pay for health insurance to make insurance less costly for lower income groups.
F. Covering the Poor
1. The employer mandate means that larger employers must provide insurance for all employees which include the poor.
2. Medicaid system was expanded to cover anyone with income that is less than 133% of poverty level.
3. PPACA subsidizes the purchase price of health insurance for those who have to buy it on their own and these subsidies reach far into the middle class.
G. Insurance Exchanges
1. Individuals buying their own insurance will buy it in a government-regulated market called insurance exchange.
2. Regulators don’t set the prices, but they can withdraw approval of an insurer if the price increase is deemed by regulators to be too high relative to costs.
3. The hope is that the insurance exchange will create a competitive environment among health insurance companies.
H. Other Provisions
1. The act mandates that adult children can remain covered on their parents’ employer-provided insurance until they are 26.
2. PPACA makes it illegal for insurance companies to charge copayments or deductibles for annual check-ups or preventative care.
3. It requires insurers to spend at least 80% of the money received from health premiums on health care or improving health care.
I. Taxes
1. .9% increase in Medicare payroll taxes for individuals earning more than $200,000/year and more than $250,000/year for married couples.
2. 3.8% increase in capital gains tax for individuals earning more than $200,000/year and more than $250,000/year for married couples.
3. A 40% tax is paid by employers for any employer-provided insurance with a premium greater than $10,200/year for an individual or $27,500/year for a family.
4. 2.9% excise tax for all goods sold by medical device manufacturers.
5. 10% tax on indoor tanning.
J. Objections and Alternatives
1. Objections
a. Not a single Republican in either chamber of Congress voted for PPACA.
b. There will be greater inefficiencies with government controlling pricing and the content of insurance policies.
c. Might be the first step towards a national health care system with nonprice rationing required to keep costs down.
d. Revenue sources are insufficient to meet the costs of PPACA.
e. Large subsidies that many families qualify for will result in significant increases in health care spending.
2. Alternatives
a. In Singapore and Indiana, wasteful spending was reduced by increasing the out-of-pocket expenditures of the consumers and forcing them to really evaluate their marginal benefits/costs and the opportunity costs.
K. Consider This ... PPACA Implementation Problems
X. Last Word: Singapore’s Efficient and Effective Health Care System
A. Based on the WTO’s evaluation of health care, Singapore is ranked number one, or at the top for overall health care, world’s lowest rate of infant mortality, world’s fourth highest life expectancy, and it spends less per capita on health care than any other developed nation.
B. While the U.S. spent 17.9% of its GDP on healthcare, Singapore only spent 4.0% of its GDP.
C. In Singapore:
1. Competition is created by requiring hospitals to post their prices for their services, and government posts the hospitals’ track record for each of the services forcing hospitals to compete based on prices and quality.
2. Increased out of pocket expenses for consumers to prevent overconsumption of health care and reduced prices.
3. To prevent individuals from going bankrupt to pay for medical services, citizens are required to save 6% of their incomes in MediSave accounts. However, government will subsidize the citizens if their accounts have been exhausted, or they weren’t able to accumulate much in their accounts in the first place.
QUIZ
1. The health care market is characterized by:
A. extensive negative externalities.
B. significant positive externalities.
C. perfect knowledge by both buyers and sellers.
D. a perfectly inelastic demand.
Answer: B
2. Defensive medicine refers to the idea that:
A. it is more cost-efficient to prevent illnesses than to cure them.
B. physicians may require unnecessary testing as a means of protecting themselves against malpractice suits.
C. doctors know much more about diagnosing and treating illnesses than do health care consumers.
D. physicians do not advertise their services or fees.
Answer: B
3. Insurance companies use deductibles and copayments to:
A. increase access to health care.
B. reduce health care costs by discouraging overuse of the health care system.
C. prevent small companies from self-insuring their workers.
D. keep government out of the health care insurance industry.
Answer: B
4. One of the economic effects of rising health care costs in the labor market is that:
A. Productivity in medical care decreases
B. The demand for medical workers is decreasing
C. Government is cutting health care coverage for workers
D. Employers are using more temporary and part-time workers
Answer: D
5. Most economists who have studied the health care industry have concluded that there is:
A. An underallocation of resources for health care in the United States
B. An overallocation of resources for health care in the United States
C. Insufficient technological progress in the medical industry
D. A need for government price controls for physicians' fees
Answer: B
6. Which term best characterizes the demand for health care?
A. Price elastic
B. Price inelastic
C. Income inelastic
D. Negative cross elasticity
Answer: B
7. A 2003 law that allows individuals without sufficient health insurance coverage to make tax-deductible contributions to cover health care is a primary feature of:
A. Health savings accounts
B. Medicare Part D reform
C. A patient's bill of rights
D. Prescription-drug coverage
Answer: A
8. Which of the following is not a supply factor in explaining increases in health care costs?
A. Supply of physicians.
B. Slow productivity growth.
C. Changes in medical technology.
D. Moral hazards.
Answer: D
9. It is argued that PPACA will increase health care costs by:
A. Imposing high subsidies leading to overconsumption.
B. Increasing taxes of taxpayers.
C. Implementing rationing controls.
D. All of the above.
Answer: A
10. Health insurance firms can reduce their costs by:
A. Lowering deductibles.
B. Increasing taxes.
C. More managed care systems.
D. Imposing a personal mandate.
Answer: C
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