Question 1

_______ occurs when insurance companies structure plans that provide an incentive for healthier consumers to enroll while discouraging enrollment of higher-risk individuals.

Accepted Answer

A)   Moral Hazard
B)   Asymmetric Information
C)   Cherry-picking
D)   Guaranteed renewability
E)   Adverse Selection C

Question 2

_______ occurs when consumers have less incentive to avoid risky behaviors.

Accepted Answer

A)   Ex post moral hazard
B)   Ex ante moral hazard
C)   Adverse selection
D)   Asymmetric information
E)   none of the above B

Question 3

Individuals who have access to large-group coverage are _______ likely to fall victim of cherry-picking behavior because the total cost of health insurance is distributed among a _______ number of subscribers.

Accepted Answer

A)   less; larger
B)   more; larger
C)   less; smaller
D)   equally; similar
E)   equally; larger A

Question 4

Which of the following reasons might explain why managed care organizations might be able to lower healthcare costs with premiums similar to fee-for-service plans?

Accepted Answer

A)   The lower health care costs of managed care plans may be offset by higher administrative costs.
B)   Managed care organizations may set their premiums just below that of their competitors.
C)   Managed care organizations may compete with one another based on service offerings rather than price.
D)   Both a and c
E)   All of the above

Question 5

_______ exist when the average total cost of providing insurance coverage decreases as a firm provides coverage for larger groups of people.

Accepted Answer

A)   Moral Hazard
B)   Asymmetric Information
C)   Rationality
D)   Scale Economies
E)   Adverse Selection

Question 6

Which of the following reasons might explain why health insurance purchased as a group might be less costly than coverage purchased individually?

Accepted Answer

A)   Greater bargaining power
B)   Risk spreading over a larger number of people
C)   Lower marketing costs for the provider
D)   Both a and b
E)   All of the above

Question 7

To maximize profits, a dominant insurance provider will set the price for insurance such that the marginal revenue of providing coverage is _______ of providing coverage.

Accepted Answer

A)   greater than the marginal cost
B)   less than the average total cost
C)   equal to the marginal cost
D)   equal to the average total cost
E)   none of the above

Question 8

_______ occurs when high-risk individuals subscribe to an insured group of low-risk individuals.

Accepted Answer

A)   Moral Hazard
B)   Asymmetric Information
C)   Rationality
D)   Scale Economies
E)   Adverse Selection

Question 9

Scale economies may serve as a barrier to entry in the private health insurance market by mandating a tiered benefit system.

Accepted Answer

A) True 
 B)False

Question 10

People obtaining health insurance as part of a group are likely to pay higher premiums than those who acquire coverage individually.

Accepted Answer

A) True 
 B)False

Question 11

_______ is the situation where insured individuals alter their behavior because they are no longer financially responsible for the full cost of their behavior.

Accepted Answer

A)   Moral Hazard
B)   Asymmetric Information
C)   Rationality
D)   Scale Economies
E)   Adverse Selection

Question 12

Health insurance mandates may result in market inefficiencies if the marginal cost of additional coverage exceeds the marginal benefit received.

Accepted Answer

A) True 
 B)False

Question 13

Third-party payments provide incentives for the adoption of new technologies that may carry low benefits with high costs.

Accepted Answer

A) True 
 B)False

Question 14

_______ reasons that firm-size classes with expanding populations are more efficient than those with shrinking populations over time.

Accepted Answer

A)   Scale Economies
B)   Economies of Scope
C)   Survivor Theory
D)   Search Frictions
E)   none of the above

Question 15

An increased HMO presence in insurance markets will likely increase premiums for consumers.

Accepted Answer

A) True 
 B)False

Exam 11: The Private Health Insurance Industry

_______ occurs when insurance companies structure plans that provide an incentive for healthier consumers to enroll while discouraging enrollment of higher-risk individuals.

_______ occurs when consumers have less incentive to avoid risky behaviors.

Individuals who have access to large-group coverage are _ likely to fall victim of cherry-picking behavior because the total cost of health insurance is distributed among a _ number of subscribers.

Which of the following reasons might explain why managed care organizations might be able to lower healthcare costs with premiums similar to fee-for-service plans?

_______ exist when the average total cost of providing insurance coverage decreases as a firm provides coverage for larger groups of people.

Which of the following reasons might explain why health insurance purchased as a group might be less costly than coverage purchased individually?

To maximize profits, a dominant insurance provider will set the price for insurance such that the marginal revenue of providing coverage is _______ of providing coverage.

_______ occurs when high-risk individuals subscribe to an insured group of low-risk individuals.

Scale economies may serve as a barrier to entry in the private health insurance market by mandating a tiered benefit system.

People obtaining health insurance as part of a group are likely to pay higher premiums than those who acquire coverage individually.

_______ is the situation where insured individuals alter their behavior because they are no longer financially responsible for the full cost of their behavior.

Health insurance mandates may result in market inefficiencies if the marginal cost of additional coverage exceeds the marginal benefit received.

Third-party payments provide incentives for the adoption of new technologies that may carry low benefits with high costs.

_______ reasons that firm-size classes with expanding populations are more efficient than those with shrinking populations over time.

An increased HMO presence in insurance markets will likely increase premiums for consumers.