Ch.7 The Market for Health Insurance Exam Prep

Chapter 7: The Market for Health Insurance

Multiple Choice

1. Early in U.S. history health insurance was provided to cover

1. income loss due disability or disease.
2. hospital expenses.
3. routine physicians’ services.
4. the catastrophic cost of medical care including hospitalization and physicians’ services.
5. medical costs due to specific diseases such as tuberculosis and alcoholism.

2. A prepaid hospital plan created by Baylor Hospital for a group of Dallas public school teachers in 1929 is considered the forerunner of what was later called

1. managed care.
2. Blue Cross.
3. Blue Shield.
4. the health maintenance organization.
5. major medical insurance.

3. Mid-1960s amendments to the Social Security Act created

1. managed care.
2. Medicare and Medicaid.
3. major medical insurance.
4. Blue Cross and Blue Shield.
5. tax exemptions for health insurance as an employee benefit.

4. Indemnity insurance

1. reimburses for certain types of losses including fire and theft.
2. in the basis for most of the health insurance coverage in the U.S.
3. is often experience-rated with premiums based on expected losses.
4. is sometimes called “casualty insurance.”
5. all of the above.

5. Social insurance

1. is the basis for most government redistribution programs.
2. is usually community-rated with premiums based on ability to pay.
3. is the basis of the provision of medical care to the poor, elderly, and other vulnerable population groups in the U.S.
4. requires mandatory participation to be effective.
5. all of the above.

6. Premiums based on experience ratings

1. are uniform across age groups.
2. are based on the loss experience of the insured.
3. vary depending on the income of the insured.
4. are illegal in most states in the U.S.
5. are only used in property-casualty insurance underwriting.

7. People buy insurance

1. because they are risk averse.
2. to defer consumption.
3. because of externalities.
4. to maximize their welfare.
5. to ensure against poor health.

8. One result of asymmetric information in health insurance markets is

1. an optimal number of insurance policies sold.
2. adverse selection.
3. externalities in consumption.
4. a low marginal benefit of additional information for the buyer of insurance.
5. The principal-agent problem.

9. Moral hazard and adverse selection are both examples of

1. the principal-agent problem.
2. externalities in consumption.
3. efficiency in markets.
4. perfect information.
5. asymmetric information.

10. Insurers try to minimize moral hazard by

1. only selling policies to individuals with high ethical standards.
2. requiring advance payments of premiums.
3. charging higher premiums to individuals than to groups.
4. charging deductibles and coinsurance.
5. refusing to sell insurance to individuals with chronic illnesses.

11. The goal of health insurance is to

1. redistribute income from the sick to the healthy.
2. spread risk over a large group of people.
3. equally distribute the probability of loss over a large number of people.
4. collect sufficient premiums to cover all possible losses.
5. equalize the availability of medical care across population groups.

12. Insurance works best in situations where there is

1. a high probability of a small loss.
2. a low probability of a small loss.
3. a high probability of a large loss.
4. a low probability of a large loss.
5. the level of probability and the size of the loss are irrelevant.

13. Analysts cite figures on the number of uninsured in the U.S. as low as 10 million and as high as 60 million. Which of the following is a true statement?

1. The uninsured are all free riders.
2. Most of the uninsured have health problems and are not able to get private health insurance.
3. Most of the uninsured have some labor-force connection—either working or a dependent of someone who is working.
4. The lack of health insurance means that the individual has virtually no access to medical care.
5. Once you lose your health insurance it is extremely difficult to get reinsured.

14. The highest incidence of those without health insurance occurs in which age category?

1. Under 18 years of age.
2. 18-34 years of age.
3. 35-44 years of age.
4. 45-64 years of age.
5. Over 65 years of age.

15. Many individuals without health insurance receive “free” care. What are the sources of most of the care they receive?

1. Public hospitals and clinics.
2. Private, not-for-profit hospitals.
3. Private, for-profit hospitals.
4. Multi-specialty physicians’ practices.
5. Solo practitioners and their associates.

16. A major factor contributing to the growth in employee-based health insurance in the United States has been

1. greater than average economic growth leading to increased demand for labor.
2. the tax free treatment of health insurance as an employee benefit.
3. legislation requiring all firms to provide health insurance to all full-time workers.
4. the long standing tradition in the United States of providing a generous package of benefits to all workers.

17. A group of 100 people seek out an insurance company to underwrite health insurance for its members. If expected medical spending for the group is $150,000, what will the average premium be if the health insurance company estimates the premium adding net loading costs of 20 percent?

1. $1,200
2. $1,500
3. $1,800
4. $3,000

18. Continuing from the question above, an additional 10 people join the group who have expected medical spending of $5,000 per person on average. The new premium will be approximately

1. $1,500
2. $2,200
3. $2,500
4. $4,500

19. Firms self-insure to

1. save money on premiums.
2. avoid state level insurance regulation.
3. create uniform benefit packages for employees who live in different states.
4. all of the above.