Exam 4: Health Insurance: Financing Medical Care

The ultimate solution for adverse selection is to include everyone in a social insurance system, similar to what the United States did for the elderly by creating Medicare.

Title XVII of the Social Security Act of 1965 dealt with the problem of adverse selection in health insurance markets for elderly people.

Bill's employer offers a new health insurance benefit which covers preventive and cosmetic dental services, including orthodontic care, for employees and their family members. If Bill knows his children need extensive orthodontic care, he will buy the policy. This is an example of moral hazard.

Explain the difference between coinsurance and copayment. Do they have the same effect on consumers' incentives to seek less expensive care (if at all)?

Increasing the ratio of part time instructors to full time professors reflects one of many ways that universities attempt to reduce costs of its workforce.

Catastrophic medical expenses are large, infrequent and unpredictable. Risk aversion explains why people buy insurance which covers such catastrophic events.

Which of the following is an example of adverse selection in the private health insurance market?

Medical bills may be paid by any of the following methods except

The U.S. government subsidizes the private provision of health insurance through employers. Benefits paid to employees are deductible as expenses by firms. Why then do most small employers in the US not offer health insurance benefits to their employees?

The U.S. is unusual in the developed world in that it uses a general tax to fund health insurance for the elderly.

Depending on assistance from family and friends to pay for one's unforeseen medical expenses is an example of an economic trade-off between consumption today and consumption tomorrow.

The Law of Large Numbers explains why it is unlikely that the actuarially fair premium for an insurance policy will be the same for a small start up firm as it will be for a large employer such as a university.

Bill is an aging snowboard instructor at a local ski resort. All winter, he takes over the counter pain medication to deal with his aching joints. Each summer, he moves home with his parents and takes a part time job making minimum wage. This summer, he got qualified for and enrolled into state government subsidized health insurance. Now he plans to undergo arthroscopic surgery by the end of the summer to repair his knee. Though this is an economically rational decision for Bill, it represents a welfare loss to society as a whole.

Use the concept of risk pooling to discuss the reasoning behind the provision in the Patient Protection and Affordable Care Act (PPACA) to create state-based health insurance exchanges, where anyone (individuals or groups) would be eligible to purchase affordable coverage. Why private insurers, often not willing to sell insurance contracts to small employer groups before the enactment of PPACA, may be more inclined to offer an "essential benefits package" at affordable rates through such exchanges in the near future?

Insurance coverage of which treatment would likely cause the most problems with moral hazard?

Trey's new insurance policy covers emergency allergy relief medication called an epi-pen. Without insurance, Trey was buying 2 pens per year at a cost of $80 per pen. With insurance, Trey now pays $5 per pen and buys 8 pens, keeping one in his glove compartment, one at his desk, one in his gym bag and so on. Is Trey better off under the new plan? Is there anyone who is worse off under the new plan?

What are the possible positive and negative aspects to funding medical services for autistic adults through private insurance? Through social insurance? Through family savings? Through charity?

Bill's health insurance covers preventive and cosmetic dental services, including orthodontic care, for employees and their family members. Bill is willing to pay $30 per month for over the counter teeth whitening strips at the local pharmacy. With his co-pay, he learns he can pay $25 per month and receive professional teeth whitening services at his dentist. He chooses to go to the dentist for the service, which costs the insurance company $75 per month. This is an example of adverse selection.

The primary funding source for the expenses of current Medicare beneficiaries is the fund current beneficiaries contributed to throughout their lifetime.

Offering insurance coverage through an optional rider would likely cause the most problems with adverse selection for which condition?