EC3353 - ma NATIONAL UNIVERSITY OF SINGAPORE EC3353 HEALTH...

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Unformatted text preview: ma NATIONAL UNIVERSITY OF SINGAPORE EC3353 HEALTH ECONOMICS I (SEMESTERI : AY2008-2009) Time Allowed : 2 Hours INSTRUCTIONS TO CANDIDATES 1. This examination paper contains 30 Multiple Choice questions, 3 Calculation Questions, and 3 Short Answer Questions. It comprises 11 printed pages. 2. Answer ALL 30 Multiple Choice questions, ALL THREE of the Calculation Questions, and ANY TWO of the three Short Answer Questions. Your answers to the Multiple Choice Questions are worth 50% of your examination mark, and your answers to the Calculation Questions and Short Answer Questions are worth 30% and 20% of the examination mark respectively. 3. Enter your answers to the Multiple Choice Questions on the Bubble Form and your answers to the Calculation and Short Answer Questions in the Exam Booklet provided. ' ' 4. This is a CLOSED BOOK examination. Part I: Multiple Choice Questions. Answer ALL questions and enter the-answers on the Bubble Form. 1. In countries such as the UK, Canada, and Japan that are classified as using the "single-payer" model of health care financing, the most important feature of the health financing system is that A) citizens cannot opt out of the basic government plan B) all hospitals are owned by the government C) patients pay nothing out of pocket for health services or drugs D) all of the above must be true in a single—payer system 2. In the health care financing system in Holland since 2006, or in the U.S. Medicare Advantage plan, it is true that A) every patient is fully covered by the plan no matter which doctor or hospital they go to B) private insurance plans can charge premiums that differ depending on the patient's risk of illness C) many patients are insured through private plans D) patients pay part of the bills for physician and hospital services with government—issued vouchers 3. In the Japanese health care system, A) all employees and self—employed persons pay the same premium to the government plan B) citizens pay nothing out of pocket for hospital and outpatient services C) there are many private hospitals D) all citizens must sign up with a General Practitioner paid via capitation 4. Which of the following payment methods is most directly designed to reduce the number of inpatient treatment episodes in a country's health care system? A) fundholding by GPs in the UK. B) paying hospitals via a DRG system in the US. C) payment of hospital doctors via fee for service D) paying primary care doctors via capitation 5. Comparing Singapore system of Medisave accounts with the US. find that pays most of the cost of that country‘s Medicare plan, the most important similarity is that A) both plans help to pay for workers' health care costs after they retire B) workers in both plans can use the balances in their accounts to pay for approved private health insurance plans before retirement C) workers in both plans can pay part of their hospital bills from their account balances D) all of the above features are important similarities between the plans 6. Using conventional microeconomic reasoning, which of the following is the least plausible argument for government intervention to reduce smoking? A) smokers may be people who discount the future too much B) smoking impOSes costs on taxpayers when health care costs are subsidized by the government C) second-hand smoke and other external effects impose significant costs on those who live and work close to smokers D) smokers may be inadequater informed about the future health risks of smoking The following information refers to guestions 7 and 8. In a population of 1000 individuals affected by a particular infectious disease, the following numbers were observed in two different months, where x is the number of people infected, y is the number of new cases during the month, and m is the amount of money (in millions of dollars) spent by individuals on prevention. Answer the following. 7. The hazard rates in month 1 and month 2 were A) 20%, 30% B) 4%, 2% C) 10%, 3.33% D) 6.67%, 5% 8. The prevalence elasticity of the demand for prevention was roughly A) —0.75 B) -1.33 C) -0.5 7 D) we do not have enough information to estimate the prevalence elasticity 9. In a govemment—funded health care system, it is efficient to have a higher degree of patient cost—sharing for health expenditures A) the higher the average income in the population B) the more risk averse consumers are C) the higher the excess burden of raising government revenue D) the lower the elasticity of demand for health services 10. Insurance through managed care plans is least effective as a method for reducing the extent of which problem with health care systems that rely on private insurance? A) adverse selection B) moral hazard C) supplier—induced demand D) rapid increases in health care costs 11. Staff model HMO insurance plans that were common some years ago in the US. A) usually paid for their enrollees' hospital services via the DRG method B) required their enrollees to go for treatment in hospitals the HMO owned C) paid their primary-care doctors via capitation D) all of the above 12. Point Of Service (POS) plans are different from Preferred Provider Organizations (PPOs) because they A) don’t control the fees of the doctors that treat their patients B) have primary—care doctors with a gate-keeping function C) don't maintain lists of providers that they recommend to their patients D) don’t cover inpatient services, only outpatient services 13. When hospitals are paid through a Diagnosis-Related Group (DRG) system, they have an incentive to A) admit as few patients as possible B) keep each patient in hospital for as long as possible C) Specialize in treatment of particularly severe cases in each diagnosis group D) treat a large number of patients 14. Prospective payment methods in health A) make it less attractive for providers to treat patients with particularly serious cases of different illness B) increase the incentive on patients to be cost-conscious when seeking treatment C) are effective as a method for reducing adverse selection problems in private insurance D) all of the above 15. Which of the following strategies are n_ot used by private insurance plans to raise their profitability when consumers differ in their expected health care costs (risk of illness)? A) cream skimming B) adverse selection C) dumping D) private insurers use all the above three strategies to raise their profitability 16. The principal reason why the most common form of private insurance in many countries is group insurance (rather than individual insurance) is that group insurance is more effective as a method for reducing the problems associated with A) adverse selection B) lack of emphasis on prevention in the provision of health care C) moral hazard D) supplier-induced demand 17. According to economic analysis, publicly funded health care for those with low income can be an effective method of income redistribution A) because transfers in kind are generally more effective than transfers in cash as a way of helping the poor B) because it may be difficult for the poor to buy decent health insurance even if they have more cash ' C) because it redistributes real income from those at low risk of illness to those at high risk D) B) and C) 18. The risk that a drug will have serious unforeseen side effects can be reduced by requiring longer periods of testing before pharmaceutical companies are allowed to market the drug. The rule that should be followed when deciding how long testing should be continued should be that A) continue testing if the annual cost of testing is less than the expected reduction in the future cost of unforeseen side effects B) allow marketing of the drug if the annual monopoly profit plus consumer surplus from sales of the drug is larger than the expected reduction in the future cost of unforeseen side effects C) continue testing until it is almost certain that the drug does not have any unforeseen side effects D) continue testing until the expected reduction in the fixture cost of unforeseen side effects is smaller than the annual consumer surplus when the drug is sold at the moncpoly price 19. The expression "Medical Arms Race" refers to A) the race among medical equipment suppliers to develop products based on more and more complex technology B) the race among the armed forces of major countries to have the best medical services for their soldiers C) the tendency for hospitals managers to invest in the most advanced medical equipment even in small hospitals _ D) the competition among major countries in the world to have the most advanced kinds of medical research The following information refers to Questions 20 and 21. Once it has been invented, a pharmaceutical can be produced at a constant cost of $10 per dose. The demand curve for the drug has the equation D=500 — 10 P where D is thousands of doses, and P is the price per dose. The cost and the demand curves will remain constant forever. In your calculations you can assume that the present value of $1 per year forever is $20, while the present value of $1 per year for 20 years is $12.5. Answer the following. 20. If the government compensates the inventor for deveIOping the drug as soon as it is ready for marketing and then makes the technology available for free to all firms in a perfectly competitive market, the equilibrium price of the drug will be ‘3 , the present discounted value of all profits from producing and selling the drug will. be 33 million, and the present discounted value of all buyers' consumers' surplus will be $3 million. A) 30, 50, 85 B) 30, 125, 40 C) 10,80, 160 D) 10,0, 160 21. If the government grants the inventor a 20—year patent instead (and makes the technology available to all firms in a perfectly competitive market after that), the equilibrium price of the drug during the first 20 years will be $ , the present discounted value of all firms' profits will be $ million, and the present discounted value of all buyers' consumers' surplus will be $ million. A) 30, 50, 85 B) 30, 125, 40 C) 10,80, 160 D) 10,0, 160 22. Suppose it has been established an average consumer's willingness to pay out of pocket for an incremental Quality—Adjusted Life Year is $50,000, and suppose also that consumers are insured so that they pay only 25% of the cost of their health care. A firm is deciding which one of four technologies to develop and patent, where each technology either can produce additional QALYs or save money relative to existing technologies, as follows: Technology A: {+1000 QALYs, save $10 million}; technology B: {+1500 QALYs, save -$10 million}, technology C: {+2000 QALYs, save $105 million}. From these technologies, the most beneficial to society is technology with an annual net benefit of $ million, While the most commercially profitable technology is with annual net benefits to the patent-holder of $ million. A) A, 10; B, 65 B) B, 65; B, 290 C) B, 65; c, 295 D) c, 100; c, 295 23. In the model of non—profit hospitals as physicians' cooperatives, in contrast to the model in which hosPital managers can decide on the quality of the hospital's services, it is predicted that A) the hospital will be managed in such a way that the profits of the owners will be maximized B) the hospital will be managed in such a way that the average income of doctors on the medical staff will be maximized C) the average cost of care will be higher than necessary because doctors will make the hospital use too much advanced equipment and too few nurses and other non-physician staff D) the heapital will be managed in such a way that social welfare will maximized The following information refers to questions 24, 25 and 26 The demand curve for medical care by persons who are ill in a given population is given by M = 500 - 10 P, where M is the quantity of medical services used per year and P is the price per unit facing the consumer. In a given year, 15% of the population is ill (people who are not ill use no medical care). Medical services are assumed to be produced at a constant cost of 10 per unit, which is also the amount that providers charge per unit. 24. An insurance plan with a deductible of 3500 and a zero patient co-insurance rate beyond the deductible will have an actuarially fair premium of per year, and an efficiency loss associated with overutilization of health service equal to per ill person. A) 750, 500 B) 750, 1000 C) 225, 1125 D) 225, 500 25. If the plan instead had a deductible of 4600 and a zero co-insurance rate beyond the deductible, the actuarially fair premium would be and the efficiency loss would be per ill person. A) 750, 500 B) 60, 500 C) no one in this population would buy such a policy; there would he no efficiency loss D) 60, 320 26. Now suppose every citizen in this community is covered by a government plan that pays 50% of health care costs (with no deductible). The actuarially fair premium for this plan would be and the efficiency loss per ill person would be . If everyone were covered by a complementary private plan that paid the patient's share of the cost under the government plan, the actuarially fair premium for the government plan would be and the efficiency loss per ill person would be A) 675, 125; 375, 500 B) 337.5, 125; 337.5, 500 C) 337.5, 125; 375, 500 D) 375, 500; 375, 375 27. In health economics, the concept of information asymmetry between doctors and patients can be used to explain why A) health services utilization by patients treated by doctors that are paid via capitation tends to be lower than for those treated by doctors paid via fee for service B) patients who are treated by doctors that are paid via fee for service use more services than they probably would if they were fully informed C) supply—side incentives are more effective than demand—side incentives in controlling health care costs D) all of the above 28. In a scientific study it has been estimated that the marginal benefit of different quantities of care (denoted by M) for a particular disease is given by MB 2 50 - 0.10 M. The cost of each unit of care is 10. In a study of 1000 people being treated for this disease, however, it has been discovered that similar patients receive different amounts of M. Specifically, 20% of patients receive 350 units of M when they have this disease, 50% receive 400 units, and 30% receive 500 units. What is the average welfare loss per patient associated with inefficient amounts of treatment in this population? A) 168.75 B) 250 C) 312,5 D) 175 29. People in a given population live at most 4 periods. During the first period, 20% of those born at the beginning of the period die; during the second period, 10% of those alive at the beginning of the period die; for periods 3 and 4 the death rates are 20% and 50%. The QALY factors in periods 1 and 2 are 0.8, while in periods 3 and 4 they are 0.6. Assuming the average number of people alive in a given period is the midpoint between those alive at the beginning and the end of the period, the quality-adjusted life expectancy in this population can be estimated as periods (rounded to 4 significant digits): A) 1.918 B) 1.669 C) 1.976 D) 1.734 30. From the Rand Health Insurance Study, one can estimate that the elasticity of demand for outpatient physician services is less than 0.5 (in absolute value). Assuming that the physicians in the study were free to set their fees, this suggests that A) doctors were colluding to maintain high fees for their services B) the elasticity of demand for the services of an individual physician was larger (in absolute value) than the value estimated in the study C) each individual physician would have been better off if he or she had charged higher fees; they were not maximizing their utility D) the assumption that physicians were free to set their own fees is incorrect; most physicians in the Rand study were employed by HMOs and were not allowed to set their own fees Part II: Calculation Problems. Answer ALL THREE Problems. Enter your answers in the exam booklet. Calculation Problem 1. Suppose a hospital manager is able to decide the quality of the services that are offered in her hospital. Let g be an index of service quality, and assume that q determines the average cost of production of each unit of hospital services, according to the equation AC = 6 4- 3g . The demand for the hospital’s services depends both on the price P per unit of service, and on the quality index q: Q = J; - (100 — 2P), where Q is the number of units demanded. Assume now that the hospital is managed as a non~profit firm, and that the manager’s utility U is given by U = q - Q . Answer the following. i) If the manager chooses q = 4 , fmd the quantity of services produced, the hospital manager’s utility, and the consumers’ surplus on the units of services produced. [Hint to compute the latter, start by finding the price at which Q = 0.] ii) Now consider two alternative values for the service quality index, namely q = 4 and q = 9. Of the possible q-values 4 and 9, which one will the manager choose? Which alternative will be the most efficient one from the viewpoint of society? Explain your answer. iii) Briefly discuss how you would find the manager’s optimal q and also the value that would be best from society’s point of view (you don’t have to actually find the optimal values, just explain how you would approach this problem). Calculation Problem 2. Consider a population of individuals in which each member is subject to the risk of a financial loss of 300, with probability 20%. If there is no loss, each person's wealth w is 400. Each person has a utility function given by U m 1—(1/1/w) . Answer the following. [Your calculations need only be accurate to three significant digits] i) Find the expected utility of a person who has no insurance. Then assume that the person is offered an actuarially fair insurance policy that fully compensates him or her in case there is a loss. Show that the person is better off with this insurance plan than if he/she were uninsured. Calculate the gain from insurance, defined as the maximum premium that the person would be willing to pay for filll insurance, minus the actuarially fair premium. ii) Calculate the gain from actuarially fair insurance in a population where the risk of loss is 10% instead of 20% (everything else remains the same). Find the gain from insurance as a fraction of the actuarially fair premium for this case and the previous case and comment on the difference. Calculation Problem 3. Consider a market in which there is monOpolistic competition among family doctors. Assume that all the doctors face the same demand conditions, and that if all doctors in the market charge the same price I; per patient, each one would attract the same number of patients a, given by a =6.5 — 0.1- 16 . Assume also that if all other doctors charge the same price f9 , a single doctor who charged a different'price p would attract a number of patients at given by x = a — (p — p) where a and In" were as previously defined. Also assume that each doctor has a constant marginal cost (MC) equal to 10 per patient. Answer the following. i) Suppose first that all doctors BUT charge E = 25 , and show that this is not an equilibrium by finding theprofit-maximizing price p that the remaining doctor would charge if everyone else charged 5 = 25. Find the average profit of doctors charging 25 and the profit at the best price p for the doctor who charges a different price. ii) Show that the price 13 = 15 is an equilibrium in this market by finding the profit—maximizing price that a single doctor would charge if everyone else charges 15. Compare the average doctor's profit at this common price with what the average profit would be if all doctors charged 20, and comment on the result. [Note: If a monopolist's demand curve is given by Q = A — BP , it's marginal revenue curve is MR = (A/B)—(2/B)Q.} 10 Part III: Short Answer Questions. Answer ANY TWO short answer questions. Enter your answers in the exam booklet. Short Answer Question 1. In point ferm, describe the meaning of the following concepts and explain how they are related: prospective payment managed care supply—side incentive information asymmetry Short Answer Question 2. Briefly describe the principles behind a health care financing model that ensures universal govemment-funded health insurance coverage but allows for competition among different private insurance plans. Cite examples of countries that are using, or are planning to use, this model. Short Answer Question 3. In point form, compare and contrast the Japanese and Singaporean health care systems, and discuss ways in which you think they could be improved. END OF PAPER 11 ...
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EC3353 - ma NATIONAL UNIVERSITY OF SINGAPORE EC3353 HEALTH...

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