Economics 436 Study Questions for Midterm Exam Professor Thornton Health Economics Fall 2011

The midterm exam is scheduled for Thursday, October 27. It covers the lecture material and required reading for sections 1 through 4 on the syllabus.

Definitions

Health economics Medical care services Socialized medicine Supplier-induced demand Validation services WHO definition of health Medical care expenditures Over consumption of medical care Overtreatment Undertreatment Mistreatment Network effect Off label prescription Evidence-based medicine Healthcare information technology Electronic medical records Health risk Risk factor P-value

These questions do not require complete sentence answers

1. List 3 distinct features that make the market for medical care services different from the market for a typical good or service. 2. List 2 alternative mechanisms a nation can use to socially organize medical care services. 3. List 2 types of uncertainty that characterize the market for medical care services. 4. List 3 types of outputs produced by the medical care industry. 5. List 2 dimensions of health. 6. List 3 important social problems that are said to exist in the U.S. healthcare system. 7. List 4 alternative measures of medical care spending. 8. List 3 reasons why the U.S. over consumes medical care services. 9. List 3 ways greater use of information technology in healthcare would improve quality. 10. List the 2 main types of evidence-based medicine. 11. List 3 reasons why the medical care industry makes little use of information technology. 12. List the 4 mechanisms in the Affordable Care Act of 2010 designed to extend health insurance coverage to the uninsured. 13. List 3 health plan standards that insurance companies must satisfy under ObamaCare. 14. List 3 often used measures of health status in health outcomes studies. 15. List the 4 objectives of a health outcome study.

These questions can be answered in 3 to 6 sentences.

1 1. What do economists mean by the phrase “the social organization of medical care services.”? What social mechanism is used to organize medical care services in the U.S.? 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 how the existence of third-party payers creates an economic incentive for moral hazard. 6. 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. 7. What are production and consumption benefits of improvements in population health? 8. Explain how health can be viewed as a type of “human capital.” 9. Explain how making an investment in your health is similar to a firm making an investment in a piece of capital equipment. 10. Many health care experts argue that rapidly rising medical care spending is an important social problem. What is the nature of this social problem? 11. 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. 12. What is production inefficiency? Give an example of production inefficiency in healthcare. 13. What is allocation inefficiency? Give an example of allocation inefficiency in healthcare. 14. 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. 15. Explain how the Hippocratic oath might contribute to over consumption of medical care services. 16. 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. 17. 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. 18. How do the COBRA laws of 1985 affect medical care access for patients without health insurance? 19. 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. 20. 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. 21. 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. 22. Explain how overtreatment can lower the quality of medical care in the U.S. 23. 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. 24. 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? 25. Why don’t many doctors use evidence-based medicine when making medical decisions for patients?

2 26. An article that appeared in the New York Times Magazine argued that the practice of medicine is based more on folklore than by science. Do you agree or disagree? Explain. 27. What is meant by regional variations in medical practice patterns? Give an example of this phenomenon. 28. Studies find that 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. 29. 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. 30. You are a healthy, 30 year old, professional with an income of $100,000 per year who is employed by a small start-up company that does not offer health insurance. Explain why under ObamaCare you have an economic incentive not to purchase health insurance. 31. Explain the two major mechanisms contained in the Affordable Care Act of 2010 to contain rising medical care costs and spending. 32. Explain how Quality Adjusted Life Years measures both duration of life and quality of life. 33. Explain how biomedical research affects the health of the U.S. population. 34. What is a confounding factor? Give an example. 35. What is reverse causation? Give an example. 36. Why is it necessary to account for chance in a health outcomes study? 37. 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. 38. 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? 39. 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? 40. What is the major difference between a randomize controlled experiment and a cohort study? 41. A researcher collects data on milk consumption per capita and prevalence of heart disease for 50 countries in the world. She finds that countries with higher milk consumption tend to have less heart disease, and countries with lower milk consumption tend to have more heart disease. She concludes that milk consumption has a protective effect against heart disease. Do you agree with this conclusion? Yes/no. Explain. 42. What are the two major conclusions of the Rand Health Insurance Study done in the 1970s? 43. 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. 44. What does the “health-income gradient” tell you about the relationship between income and health? 45. 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. 46. What are the Whitehall studies and what information do they give us about factors that affect health. 47. More than 70,000 studies have been done to analyze the effect of cigarette consumption on health. The vast majority of these studies find evidence that cigarette consumption has an adverse effect on health. Yet some people who are aware of these studies still argue there is no “scientific evidence” that cigarette consumption has a negative effect on health. Explain this argument. Do you agree or disagree with it?

3 48. 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.

These questions have no suggested limit; however, try to be concise and substantive

1. 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. 2. Explain the relationship between rational decision-making and economic incentives. Discuss two examples of economic incentives that you believe would reduce waste and inefficiency in the market for medical care services. 3. Explain how asymmetric information between patients and physicians in medical markets might result in supplier (physician) induced demand. 4. Explain the two major types of uncertainty patients experience in the market for medical care services and how this might affect the way they behave. 5. Why is a doctor considered to be the agent for a patient? What does it mean for a doctor to be a perfect agent? Explain why a doctor has a financial incentive not to be a perfect agent? 6. 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. 7. Economists state that to a large degree people “choose their length of life.” Explain the economic argument for this statement. 8. 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. 9. It is argued that there is a significant amount of waste and inefficiency in the U.S. healthcare system in the U.S. Give an example of medical care waste and inefficiency. Is this an example of allocation or production inefficiency? Justify your answer. Discuss why this particular example of waste/inefficiency may exist. 10. About 50 million Americans do not have health insurance. What sorts of people tend not to have health insurance? Do you believe these people have access to medical care? Yes/no. Justify. 11. 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. 12. Do you believe doctors should use evidence-based medicine when making medical decisions? Yes/No. Support your answer. 13. Many argue that the quality of medical care in the U.S. is lower than it should be. Explain how information technology could be used to improve the quality of care, and why many doctors and hospitals don’t use information technology. 14. Explain how the payment system used to reimburse doctors and hospitals may result in lower quality medical care. How might the payment system be changed to improve the quality of care? 15. A person with back pain if 60% more likely to have back surgery if she moves from Tampa, Florida to Fort Meyers, Florida. Provide an explanation for this. 16. Studies find that geographic regions with more specialists and fewer primary-care physicians tend to utilize more medical care and have worse health outcomes than regions with fewer specialists and more primary-care physicians. Provide an explanation for this observation. 17. 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. 18. Explain why the Affordable Care Act of 2010 provides employers an economic incentive to stop providing health insurance to employees. If employers respond to this incentive, what effect would this have on the cost of ObamaCare? Explain.

4 19. 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. 20. 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? 21. 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. 22. Discuss the advantages and limitations of a randomized controlled experiment. 23. 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. 24. It is an empirical fact that rich people are healthier and live longer than poor people. Explain five possible reasons for this observed relationship. 25. It is an empirical fact that more educated people are healthier and live longer than less educated people. Explain five possible reasons for this observed relationship. 26. 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.

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