David M. Cutler Fall 2014 EMR20 FINAL EXAM Answer all questions on the exam. Put the answers to each part in a separate blue book. Good luck! Part I: Short Answer Questions (5 points for single question problems; 10 points for multi- part questions; 45 points total) 1. Evaluate the following statement, using evidence from the readings as appropriate: Increasing access to insurance lowers the total cost of care and improves health outcomes. Your answer should be no more than 4 sentences. 2. "Dual eligibles" are people who are eligible for both Medicare and Medicaid (poor elderly or poor disabled populations). For example, an 80-year old woman living in poverty or a 30- year-old homeless schizophrenic man could each be dually eligible. This group experiences far higher rates of “potentially preventable hospital admissions” than other Medicare and Medicaid beneficiaries, often due to poor quality of care at nursing homes. They also represent a disproportionate share of each program’s spending, making up only 13% of enrollees but accounting for nearly 40% of total spending. Thus, dual eligibles are a key focus of efforts to improve quality and slow growth in health care spending. a. In 2 sentences, describe one demand-side explanation for suboptimal quality/inefficient spending within the dual eligible population. Indicate why it would be relevant for this population. b. In 2 sentences, describe one supply-side explanation for suboptimal quality/inefficient spending within the dual eligible population. Indicate why it would be relevant for this population. c. Describe one feasible solution for each of the explanations you present above (2 sentences each). 3. Virtually all health care providers are covered by malpractice insurance. Typically, malpractice insurance does not require doctors to pay anything when a decision is reached against them, regardless of whether a claim is paid to a patient. Should doctors be required to pay something when a successful malpractice suit is brought against them? Discuss the tradeoffs in this decision. You answer should not exceed 4 sentences. 4. As described in “Social Sources of Racial Disparities in Health” (Williams & Jackson, 2005), racial disparities in health in the United States are dramatic, with blacks dying at significantly higher rates than whites of heart disease, cancer and homicide. Identify two systemic sources of racial disparities in health, and two corresponding system-level policies that could reduce these disparities, referring to readings as appropriate. Your answer should not exceed 4 sentences. 5. The three main actors in a medical system are patient, provider and insurer. Describe, in three sentences total, the three relationships among the actors, and how the U.S. differs from a typical “European” country on each. In three more sentences, identify what you view as the optimal arrangement for each relationship, stating your criteria (ignoring political feasibility) and justifying your answer using material from lectures and readings. 6. Consumers currently enrolled in health plans through the ACA exchanges will automatically be re-enrolled in their same plan for next year unless they select a different plan by December 15. Should the government encourage consumers to shop around for new plans? Why or why not? Your answer should not exceed 4 sentences. 7. A study in this week’s JAMA examines how much of the difference in Medicare spending across regions of the country might be due to where physicians did their residency training (the years of training just after medical school). The study categorized primary care physicians by whether their residency training was in a high spending area, a medium spending area, or a low spending area. Following the residency training, physicians disperse to practice across the country. The study related total spending for the patients that a physician sees in their subsequent practice to spending in the area they trained in. The results are as follows: Average spending for the physician’s Difference from 95% confidence patients once in low-spending interval for Residency training area independent practice training area difference Low spending area $7,208 --- --- Medium spending area $8,038 $830 ($386 to $1,274) High spending area $9,055 $1,847 ($1,436 to $2,258) Average $8,262 --- --- a) What do these results say about the difference in average spending based on residency training area? b) If you were going to construct a causal argument (i.e., residency training patterns are causality related to future practice patterns), what else would you need to do? Part II: Demand and Supply for Care (5 points per question; 40 points total) Inspector Jacques Clouseau of the French Sûreté is the brightest mind in the police world. Because of his adventurous life hunting criminals around the globe, Inspector Clouseau often ends up in the hospital requiring intensive care. Over the years, his primary care physician has figured out exactly what injuries Inspector Clouseau is likely to suffer and has compiled a helpful table of yearly risks and expenditures. Assume for simplicity that the Inspector can experience at most one adverse event in any given year. Injury Risk Expenditure Fall down a flight of stairs 20% $500 Drive his car into a lake 10% $2,500 Make his apartment explode 1% $200,500 a. What is Inspector Clouseau’s expected health care cost? Luckily for him, the Inspector lives in France, which has universal health care. However, because of his fame, he is often invited abroad to give lectures at universities and police academies. This time, he is going on a year-long tour of the United States and he needs health insurance. Pink Panther Insurance (PPI) is an insurance company that specializes in providing insurance to European detectives visiting the United States. PPI offers a single plan: the Pink Panther Diamond plan. Pink Panther Diamond Premium (monthly) $300 Deductible $500 Coinsurance 10% b. Suppose that the Inspector drives his car into a lake. How much would the insurance company pay in that case? c. What is PPI’s expected yearly expenditure if they cover the Inspector? Is the policy offered actuarially fair? If not, what would be the actuarially fair (monthly) premium? d. Regardless of your answer to part c, suppose that the policy is not actuarially fair. Would the Inspector still consider purchasing the policy? Why or why not? Former Chief Inspector Dreyfus is joining Inspector Clouseau on tour. Despite his sedentary lifestyle he is actually much more prone to self-inflicted injury than Clouseau: Injury Risk Expenditure Toothache 50% $2,500 Cut his thumb with a cigar-cutter 10% $20,500 Stab himself with a letter opener 1% $500,500 e. Suppose that both inspectors purchase insurance. What is PPI’s expected yearly revenue (i.e., gross income)? What is the yearly expected expenditure? Does the company make any profits? f. In response to events in (e) and other market trends, PPI decides to raise its premium. As a health economist, what do you predict happens next? g. The government would like everyone to be insured. Propose two solutions that would achieve this goal. Compare them and explain which one you think is the best policy. h. Suppose that the government refuses to intervene in this market. What can PPI do to avoid losing money while at the same time providing insurance for both inspectors? Part III: The Health System in China (10 points per question; 50 points total) From the early 1950s to the early 1980s, the Chinese health care system made enormous improvements in health and health care. Life expectancy increased from about 45 to 68 years. Unfortunately, China was not able to continue this extraordinary trajectory after embarking on economic reforms in 1978. The following questions cover the major events and key data related to the Chinese health system in recent decades. a. In the 1980s, in an effort to ensure sufficient revenue for health care providers, the Chinese government set certain prices above costs, including those for new and high-tech diagnostic services. What impact would you expect this policy to have, and why? b. A large-scale study of urban health centers and stations between 2007 and 2009 found that prescriptions of antibiotics, administration of intravenous medications, and prescriptions of steroid hormones far exceeded the World Health Organization’s reference standards. Excessive exposure to steroid hormones can harm patients, and patients can suffer from side effects of antibiotics as well as toxicity resulting from the use of multiple drugs. What payment system changes would you suggest to address these concerns, and what obstacles might be faced in implementing them? c. In 2003, China launched the New Cooperative Medical Scheme (NCMS), an insurance program for 700,000 rural residents. Premiums are largely subsidized by the government (similar to Medicaid in the U.S.). Initially, the NCMS covered mainly intensive hospital care, requiring its beneficiaries to pay for routine outpatient visits out-of-pocket. (i) In general, optimal insurance theory balances which two considerations? (ii) Based on your answer above, why might the government have focused on insuring hospital care over routine care? (iii) What is a potential drawback to this design? d. Recent data show that urban areas in China have 2.2 times as many physicians and 3.4 times as many nurses per capita compared to rural areas. In addition, the physicians who would be considered reasonably qualified by Western standards, with training comparable to five or more years of college-level medical education, practice mostly in cities. Why might this be? How would you suggest addressing the geographic discrepancy in the supply of key medical personnel? e. A serious challenge confronting China is its patients’ loss of respect for and trust in health professionals, who commonly receive bonuses, bribes, and kickbacks.