Test Bank for Test #1 s1

Economics 436 Study Questions for Midterm Exam Professor Thornton Health Economics Winter 2013

The midterm exam is scheduled for Thursday, March 14. It covers the lecture material and required reading for sections 1 through 4 on the syllabus.

Definitions

1. Medical care services 2. Rational decision-making 3. Economic incentive 4. Asymmetric information 5. Supplier-induced demand 6. Moral hazard 7. Validation services 8. WHO definition of health 9. Economic definition of health 10. Overtreatment 11. Undertreatment 12. Mistreatment 13. Network effect 14. Off label prescription 15. Electronic prescription 16. Evidence-based medicine 17. State health insurance exchange 18. Accountable care organization 19. Health production function 20. Health risk 21. Risk factor 22. P-value 23. Flat-of-the-curve medicine

These questions do not require complete sentence answers

1. List 3 of the 4 distinct features that make the market for medical care services different from the market for a typical good or service. 2. List 3 effects that moral hazard has on the market for medical care services. 3. List 3 examples of government intervention in the market for medical care services. 4. List 3 types of outputs produced by the medical care industry. 5. List 3 important social problems that are said to exist in the U.S. healthcare system. 6. List 3 alternative measures of medical care spending. 7. List 3 reasons why the U.S. over consumes medical care services. 8. List 3 of the 4 categories that most Americans without health insurance fall under. 9. List 3 reasons for the relatively low quality of medical care in the U.S. 10. List 3 reasons why many doctors don’t use evidence-based medicine. 11. List 3 ways greater use of information technology in healthcare would improve quality. 12. List 3 reasons why the medical care industry makes little use of information technology. 13. List 3 of the 4 mechanisms in the Affordable Care Act of 2010 designed to extend health insurance coverage to the uninsured. 14. List 3 health plan standards that insurance companies must satisfy under ObamaCare. 15. List 3 provisions in the Affordable Care Act of 2010 designed to improve the quality of medical care.

1 16. List 3 often used measures of health in health outcomes studies. 17. List 3 objectives of a health outcome study. 18. List 3 alternative measures of risk that can be used in a health outcomes study. 19. List 3 potential problems when doing a health outcomes study. 20. List 3 limitations of a randomized controlled experiment. 21. List 3 ways social status may affect health.

These questions can be answered in 3 to 6 sentences.

1. Health economics is the branch of economics that studies the social organization of medical care services. Explain what this means? 2. What is rational economic behavior? Given an example of a patient making a rational decision in the market for medical care services. 3. What is an economic incentive? Give an example of an economic incentive related to medical care and explain how it might affect the behavior of a patient or medical care provider? 4. Health economists argue that an important characteristic of medical markets is demand uncertainty. What is demand uncertainty and why does it give rise to health insurance? 5. Explain why patients experience treatment effectiveness uncertainty in the market for medical care services. 6. Explain how asymmetric information in the market for medical care can result in a principal-agent relationship between a patient and doctor. 7. What is a perfect agent doctor? Why might a doctor not act as a perfect agent? 8. Explain how the existence of third-party payers creates an economic incentive for moral hazard. 9. A doctor tells a diabetic patient with health insurance that her blood sugar can be controlled by either taking medication or making healthier lifestyle choices. The patient chooses to take medication. Explain the idea of moral hazard and why this patient’s choice may be the result of moral hazard. 10. Consider the following argument. “The only reason providing more medical care services to improve population health results in production benefits for the nation is that more people are employed in the health care sector of the economy.” Given what you know about production benefits to the nation from providing more medical care, do you agree or disagree with this argument? Justify your answer. 11. Explain how medical care services can affect the amount of goods and services produced in the U.S. economy. 12. Explain how health can be viewed as a type of “human capital.” 13. Many health care experts argue that rapidly rising medical care spending is an important social problem. Explain the nature of this social problem? 14. Do you believe nominal medical care spending or medical care spending as a percent of gross domestic product (GDP) is a better way to measure medical care spending in the U.S.? Justify your answer. 15. Why might an economist consider an elective surgery such as hip replacement surgery for a patient to be unnecessary while a doctor considers it to be necessary? 16. Explain why patients may have an economic incentive to over consume medical care? 17. You are a health policymaker whose objective is to maximize the economic welfare of society. How would you define unnecessary medical care? Justify your answer. 18. Explain how the Hippocratic oath might contribute to utilization of unnecessary medical care services. 19. Many economists argue that the U.S. as a nation over consumes medical care? From an economic point of view, explain how the U.S. can consume too much medical care. 20. An important social problem that is said to exist in the health care system in the U.S. involves medical care access. Explain the nature of this social problem. 21. Describe the characteristics of a “typical” person in the U.S. who does not have health insurance.

2 22. Consider the following argument. “The 50 million individuals who currently without health insurance do not have the ability to pay for health insurance or medical care.” Do you agree or disagree? Justify your answer. 23. Do you believe individuals without health insurance have access to medical care? Yes/no. Justify your answer. 24. A study by the Kaiser Family Foundation estimates that a typical uninsured person in the U.S. consumes only 38% as much medical care as a typical insured person. Do you believe this study provides definitive evidence that the uninsured do not have access to an adequate amount of medical care services? Yes/no. Justify your answer. 25. From an economic point of view, do you believe the U.S. should extend health insurance coverage to the 50 million uninsured Americans? Yes/no. Explain. Make sure you use economic logic to answer this question. 26. Explain why extending health insurance coverage to the uninsured may not solve the medical care access problem. 27. Suppose we extend health insurance coverage to the 50 million uninsured Americans. Using the logic of supply and demand analysis, explain what will happen to medical care spending in the U.S. 28. Explain how overtreatment can lower the quality of medical care in the U.S. 29. Explain how Undertreatment can lower the quality of medical care in the U.S. 30. Scientific studies of effectiveness have been done for less than 50%, and possibly as little as 20%, of medical care services used in the U.S. Explain why there are relatively few studies of medical effectiveness. 31. Before a new drug is sold on the market, there must be scientific evidence that it is safe and effective for the medical condition for which it is prescribed. Yet many critics argue there is no scientific evidence of effectiveness for many prescriptions that doctors write for patients. Explain this apparent contradiction? 32. Why don’t many doctors use evidence-based medicine when making medical decisions for patients? 33. Explain why hospitals have no economic incentive to invest in information technology. 34. Explain why many doctors do not want to use information technology when practicing medicine. 35. What is meant by regional variations in medical practice patterns? Give an example of this phenomenon. 36. A study found that 7% of children in Middlebury, Vermont have tonsillectomies, while 70% of children in Morrisville, Vermont have tonsillectomies. Given what you know about regional variations in medical practice patterns, provide an explanation for this difference. 37. Studies find regions of the U.S. that have more specialists and fewer primary-care physicians utilize more medical care per capita, but have worse health outcomes. Explain why this is. 38. Some economists argue that the Affordable Care Act of 2010 will give a larger segment of the population the ability to purchase medical care, but will not necessarily increase access to medical care. Explain this argument. 39. Explain one way that greater use of information technology can increase the quality of medical care in the U.S. 40. You are the CEO of a company that has 75 employees and currently provide health insurance as a fringe benefit. Explain why you may have an economic incentive not to provide your employees health insurance starting in 2014. 41. Explain two standards health plans must satisfy under the Affordable Care Act of 2010. 42. Explain the two major mechanisms contained in the Affordable Care Act of 2010 to contain rising medical care costs and spending. 43. The Congressional Budget Office estimates that ObamaCare will cost $1.2 trillion between 2010 and 2019. However, economists at the consulting firm McKinsey & Co. estimate the cost will be $2.4 trillion. Explain why the two estimates differ so much. 44. Explain how Quality Adjusted Life Years measures both duration of life and quality of life. 45. Explain how biomedical research affects the health of the U.S. population.

3 46. What is a confounding factor? Give an example. 47. A researcher is conducting a health outcomes study to determine if coffee consumption causes heart disease. Explain why cigarette consumption is a potential confounding variable and why the researcher must control for cigarette consumption if she wants to draw a valid conclusion of the effect of coffee consumption on heart disease. 48. What is reverse causation? Give an example. 49. Why is it necessary to account for chance in a health outcomes study? 50. You are age 50. Your doctor recommends that you take the drug Cprev because studies show it can reduce the risk of colon cancer by 50%. Given what you know about risk, explain why this is incomplete information about the benefit you can expect from taking the drug? 51. Suppose that 200 subjects are randomly assigned to treatment and control groups, with 100 subjects in each group. The treatment group receives a cardiovascular drug, while the control group receives a placebo. Over a 5 year period, 4 subjects in the treatment group and 10 subjects in the control group die from heart disease. Calculate the relative risk of heart disease mortality for subjects who take the drug compared to those who don’t take the drug. Show your work. Interpret this risk measure. Exactly what information does relative risk give you? 52. To study the effect of a new drug on heart disease, a researcher randomly assigns 20 individuals to a treatment group of 10 individuals who get the drug, and a control group of 10 individuals who get a placebo. What is the major limitation of this study? 53. What is the major difference between an experimental study and an observational study? 54. A researcher collects data on coffee consumption per capita and prevalence of heart disease for 50 countries in the world. She finds that countries with higher coffee consumption tend to have more heart disease, and countries with lower coffee consumption tend to have less heart disease. She concludes that coffee consumption causes heart disease. Do you agree with this conclusion? Yes/no. Explain. 55. What are the two major conclusions of the Rand Health Insurance Study done in the 1970s? 56. Many healthcare experts believe the U.S. is experiencing flat-of-the-curve medicine. What is meant by the term flat-of-the-curve medicine? Cite evidence from one study that supports its existence. 57. A U-shaped relationship exists between mortality and body weight measured by body mass index (BMI). Some people argue that this provides convincing evidence that being too skinny causes poor health. Explain the possible flaw in this argument. 58. What does the “health-income gradient” tell you about the relationship between income and health? 59. Health outcomes studies find evidence that income has an independent causal effect on health. Provide an explanation of how having a higher income may cause better health, and having a lower income may cause worse health. 60. What are the Whitehall studies and what information do they give us about factors that affect health. 61. Thousands of studies have concluded that cigarette consumption is hazardous to health. Yet some people claim there is “no scientific evidence” that smoking has a negative effect on health. Why is this?

These questions have no suggested limit.

62. Explain why the market for medical care services is different from the market for a typical good or service such as cell phones or furniture. 63. Joe Smith is a college student without health insurance. After Joe graduates from college he gets a job with a company who provides him with health insurance as a fringe benefit. Explain how obtaining health insurance may affect Joe’s behavior in the market for medical care services. 64. Three important social problems are said to exist in the healthcare system in the U.S. Which problem do you believe is the most important problem that should get top priority when reforming the healthcare system? Carefully explain.

4 65. In the book Overtreatment, the author argues that medicine is driven more by money than by science. Do you agree or disagree? Justify your answer. 66. Do you believe doctors should use evidence-based medicine when making medical decisions? Yes/No. Support your answer. 67. What is the major objective of the Affordable Care Act of 2010? Explain the provisions and mechanisms contained in the Affordable Care Act to achieve this objective. 68. Discuss the major advantages and disadvantages of the Affordable Care Act of 2010. Do you believe the advantages outweigh the disadvantages? Justify. 69. The term “Healthcare Reform” means to change the healthcare system to make it better. Do you believe the Affordable Care Act of 2010 will result in healthcare reform; that is, do you believe it will change the U.S. healthcare system for the better? Yes/no. Justify and support your answer. 70. Explain the difference between absolute risk, relative risk, and marginal risk as they apply to health outcomes. Which measure of risk is the most important to a patient when deciding whether to have a particular medical treatment? 71. You have received a sizable grant from a pharmaceutical company to do a randomized controlled experiment to analyze the relationship between lycopene and heart disease. Lycopene is a chemical found in tomatoes. The pharmaceutical company has found a way to extract lycopene from tomatoes so it can be taken in pill form. What are the objectives of your study? Explain how you would do a randomized controlled experiment and use the information obtained to answer the questions that define your objectives. 72. You are the Secretary of Health and Human Services. You have been given a budget of $100 billion per year to improve the health status of the population. You can use this budget either to provide more hospital and physician services or to fund biomedical research. What choice would you make? Support your answers with evidence from health outcomes studies. 73. It is an empirical fact that rich people are healthier and live longer than poor people. Explain five possible reasons for this observed relationship. 74. Some health care analysts argue that health care reform has little to do with the health status of the population. Do you agree or disagree with this argument? Support your answer.