Test Bank for Test #1

Economics 436 Midterm Exam Professor Thornton Health Economics Winter 2013

Part 1: Multiple choice questions. On the answer sheet write the letter that corresponds to the best answer. (50 points).

1. Which of the following is a reason for treatment effectiveness uncertainty in the market for medical care services? a. It is difficult for patients to understand the large amount of scientific evidence that exists about the effectiveness of medical care services. b. Medical care is an art not a science. c. Scientific evidence about medical care services applies to an average or typical patient, not each and every patient. d. Both a and b.

2. Which of the following is a distinctive feature of the market for medical care services that makes it different from the market for a typical good or service? a. A high degree of certainty about the quality of the medical care product that consumers are purchasing. b. Uncertainty about if and when consumers will demand the medical care product. c. Equally well informed consumers and producers. d. Little government intervention.

3. In the market for medical care services, consumers typically don’t shop around for the medical care provider that charges the lowest price for a given quality of service. This behavior is the result of: a. moral hazard. b. demand uncertainty. c. asymmetric information. d. supplier-induced demand.

4. Your doctor is a perfect agent when she : a. provides you high quality medical care at minimum cost. b. does not injure you when providing a treatment. c. makes the same diagnostic and treatment decisions for you as you would make for yourself if you were as well-informed about diagnosis and treatment as she is. d. All of the above.

5. The most important output produced by the medical care sector of the economy is: a. healthcare jobs. b. improvements in health. c. medical care services. d. healthcare insurance.

6. Each year about 300,000 arthroscopic knee surgeries are performed to treat osteoarthritis of the knee at a cost to the nation of $1.5 billion. A typical patient must only pay $500 out of pocket for this surgery with the rest paid by a third-party payer. Scientific studies find that this surgery has no positive effect on knee health for an average or typical patient. Under which of the following definitions would this medical care service be unnecessary? a. Social economic welfare definition of unnecessary. b. Rational choice definition of unnecessary. c. Medical definition of unnecessary. d. All of the above.

1 7. Which of the following measures of health status includes both duration of life and quality of life? a. Mortality b. Life expectancy c. Quality adjusted life years d. Mortality adjusted life expectancy.

8. Many economists believe that rapidly rising medical care spending is a social problem because: a. too many Americans don’t have health insurance. b. much of the increase in spending involves waste and inefficiency. c. physicians make too much money. d. medical care makes little or no contribution to the U.S. economy.

9. 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. Which of the following is a plausible explanation of this observation? a. A typical uninsured person consumes too little medical care. b. A typical insured person consumes too much medical care. c. Health insurance has no effect on the amount of medical care consumed. d. Both a and b.

10. From an economic point of view, the U.S. should extend health insurance coverage to the uninsured if providing these people health insurance: a. reduces medical care spending and costs. b. reduces the number of premature deaths for uninsured people. c. increases the productive capacity of the economy. d. results in social benefits that exceed social costs.

11. When a doctor uses evidence-based medicine: a. she uses evidence from her past experiences with patients to guide her medical decisions. b. she uses clinical evidence from other physicians experiences with patients to guide her medical decisions. c. she uses evidence from scientific studies to guide her medical decisions. d. Both a and b.

12. Which of the following is a possible reason for relatively poor health outcomes in the U.S. healthcare system? a. Overtreatment b. Undertreatment c. Mistreatment d. All of the above

13. From an economic point of view, many hospitals choose not to invest in information technology to improve the quality of care because: a. they don’t want to share information with other hospitals. b. they can’t bill patients for the use of information technology, and therefore can’t make any money on their investment. c. they don’t understand how it will improve patient health. d. they believe it will result in cookbook medicine.

14. Many experts believe that electronic prescriptions would increase the quality of care by: a. decreasing prescription errors. b. increasing the amount of drugs prescribed by doctors. c. decreasing the amount of time it takes doctors to prescribe drugs. d. All of the above. 2 15. Studies find that a person with back pain is 60% more likely to have back surgery if she moves from Tampa, Florida to Fort Meyers, Florida. This is an example of: a. the network effect. b. evidence-based medicine. c. regional variations in medical practice patterns. d. flat-of-the-curve medicine.

16. The Congressional Budget Office (CBO) estimates that ObamaCare will cost $1.2 trillion between 2010 and 2019. However, economists at McKinsey & Co. estimate the cost will be $2.4 trillion. Which of the following explains why the McKinsey & Co. estimate is twice as big as the CBO estimate? a. It accounts for the economic incentive employers have to stop providing health insurance to employees beginning in 2014. b. It accounts for the economic incentive individuals have not to purchase health insurance beginning in 2014. c. It accounts for the economic incentive states have not to expand their Medicaid programs beginning in 2014. d. It accounts for the economic incentive states have not to create a health insurance exchange beginning in 2014.

17. The major objective of the Affordable Care Act is to: a. contain rising medical care costs and expenditures. b. improve the quality of medical care. c. increase medical care access. d. increase employment in the medical care industry.

18. The Affordable Care Act: a. requires health plans to charge the same premiums to the young and elderly. b. allows health plans to charge higher premiums for smokers than non-smokers. c. requires health plans to have no deductible. d. allows health plans to charge higher premiums for individuals with chronic disease than healthy individuals.

Questions 19 and 20 refer to the following randomized controlled experiment. A researcher begins with a sample of 2,000 subjects with heart disease to do a study that analyzes the effect of a new drug on heart disease mortality. The researcher randomly assigns 1,000 subjects each to treatment and control groups. The treatment group is given a daily heart disease pill. The control group is given a daily placebo pill. The subjects are followed for 3 years. After 3 years 90 subjects in the treatment group and 100 subjects in the control group die of heart disease. The researcher reports a p-value of 0.04.

19. Given the above information, which of the following is a valid conclusion? a. The probability that the drug has a real effect on mortality in the population of all individuals with heart disease is 4%. . b. The probability that the drug has a real effect on mortality in the population of all individuals with heart disease is 96%. c. The probability that the observed effect of the drug in this sample is the result of chance, and therefore the drug has no effect on mortality in the population of all individuals with heart disease is 4%. d. Both b and c.

3 20. Given the above information, we can conclude that a typical individual with heart disease who takes this new drug daily can reduce his relative risk of mortality by ______and his absolute risk of mortality by _____. a. 90%, 10% b. 10%, 90% c. 10%, 1% d. 96%, 4%

21. Which of the following is not a health outcomes study? a. A study that analyzes the effect of cigarette smoking on medical care spending. b. A study that analyzes the effect of medical care utilization on mortality. c. A study that analyzes the effect of income on heart disease risk. d. A study that analyzes the effect of a drug on cancer risk.

22. A limitation of most randomized controlled experiments is: a. they don’t measure the long-term effects of a treatment. b. they don’t measure the average causal effect of a treatment. c. they don’t control for confounding variables. d. they don’t control for reverse causation.

23. Which of the following explains why biomedical research affects population health? a. Biomedical research increases income per capita, which improves health. b. Biomedical research results in advances in medical technology. c. Biomedical research provides information that enables people to make healthy lifestyle choices. d. Both b and c.

24. The Patient Protection and Affordable Care Act is expected to result in a substantial increase in aggregate medical care utilization in the U.S. The findings of health outcomes studies done by the Rand Corporation (1970s), Auster, Leveson, and Sarachek (1969), Hadely (1982), and Thornton (2002; 2011) suggest this large increase in medical care utilization will: a. have little or no effect on population health measured by mortality. b. result in a relatively large decrease in mortality, and therefore a big improvement in population health. c. result in a substantial increase in worker productivity in the U.S. d. Both b and c.

25. Which of the following is not a plausible reason why rich people are healthier and live longer than poor people? a. Rich people consume less medical care than poor people, and therefore are less likely to experience a medical error or injury. b. Rich people tend to be more educated than poor people, and education has a positive effect on health. c. Sick people are more likely to work less or not work at all, and therefore are likely to have smaller incomes than healthy people. d. Rich people tend to have less psychosocial stress than poor people, which has a positive effect on health.

4 Part 2. List questions. These questions do not require complete sentence answers. (9 points)

1. List 3 of the 4 categories that most Americans without health insurance fall under. 2. List 3 of the 4 mechanisms in the Affordable Care Act of 2010 designed to extend health insurance to the uninsured. 3. List 3 reasons why the medical care industry makes little use of information technology.

Part 3. Definitions. Define each of the following. Your definition should not exceed one or two sentences. (6 points).

1. Supplier-induced demand 2. Rational decision-making

Part 4. Short answer questions. These questions can be answered in 3 to 6 sentences. (24 points)

1. Explain how the existence of third-party payers creates an economic incentive for moral hazard. 2. 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. 3. 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? 4. 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.

Part 5. Essay question. This question has no suggested limit; however, try to be concise and substantive. (11 points).

1. The term “Healthcare Reform” means to change the healthcare system to make it better. Do you believe the Patient Protection and 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. (Your grade will be based on how well you justify and support your answer).