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1. U.S. health expenditures are highest in the world in both absolute dollars and as a
percent of GDP.
2. U.S. infant and maternal death rates are higher (worse) than many other industrial
countries. They are approximately equal to others, but we spend significantly more
on health care than do these other countries.
3. Physician sovereignty is the doctors’ control of their own demand. It will increase
demand. Third-party payment is payment by anyone other than the patient or the
patient’s family. If the government or the insurance company pays for it, patients are
less conscious of costs and demand tends to increase. Defensive medicine is the
prescribing of unnecessary tests or treatments by doctors solely in order to avoid
malpractice suits. This increases demand. If patients feel they deserve the most
technologically advanced care available, if they do not take care of themselves and
expect the medical system to cure them of any resulting condition, it increases the
demand for health care.
4. Cost shifting involves spreading uncompensated costs of charity Medicaid, or
Medicare patients over patients who can pay for them. It increases costs for those
with generous health insurance. The costs that the insurance companies reimburse
the hospital are inflated.
5. Medicare is a type of national social insurance intended to benefit aged retirees and
disabled persons. It does not cover all medical expenses, and many retirees also carry
Medigap insurance to protect themselves. There is no means test for Medicare
eligibility. Medicaid is a federal and state program to provide medical care for poor
families. There is therefore a means test. Because the states administer and partially
fund Medicaid, eligibility and coverage vary widely throughout the U.S.
6. The most commonly discussed features are universality and comprehensiveness.
7. The incentives are to use the least expensive treatment and to stress preventive care.
8. Some Americans do, and some do not.
9. Conservatives strongly oppose national health insurance on the basis that it would
allow the government to control about 14 percent of the economy. Liberals favor
national health insurance on the basis that it would give us universal coverage, and
we are far from that now.
10. In the sense that we may value other products that could be produced with the
resources used for health care, we can over-allocate resources to health care.
Multiple-Choice Questions
1. Since 1960, health care costs in the U.S. have:
a. increased both absolutely and as a percentage of GDP.
b. increased absolutely, but decreased as a percentage of GDP.
c. decreased both absolutely and as a percentage of GDP.
d. decreased absolutely, but increased as a percentage of GDP.
2. Which of the following statements about the health insurance of U.S. citizens is true?
a. Uninsured people are usually eligible for either Medicare or Medicaid?
b. Minorities are more likely than are Whites to be uninsured.
c. Female headed families are just as likely to have health insurance from
employment as are families headed by men.
d. Medicaid is not considered health insurance when calculating how many
Americans are uninsured.
3. Medicaid and Medicare differ in that:
a. Medicare is means tested, but Medicaid is not.
b. Medicaid is funded by a 1.45 percent federal tax on wages, but Medicare
is funded by the general tax revenues of state and federal governments.
c. To be eligible for Medicaid families have to be poor, but there is no
means test for Medicare.
d. Medicaid is meant only for retirees, but Medicare is meant for people of
all ages.
4. What do physicians’ sovereignty and third-party payment have in common?
a. They both lead to greater efficiency in U.S. health care.
b. They both increase the supply of health care.
c. They both increase the demand for health care.
d. They both lead to the rationing of health care.
5. Among the problems associated with U.S. health care is that:
a. modern technology is often unavailable.
b. significant numbers of uninsured people lack financial access to the
healthcare system.
c. third-party payment leads to under-allocation of resources to health care.
d. doctors have too little control over their own demand.
6. What factor below encourages an over-allocation of resources to health care?
a. Physician sovereignty.
b. Third-party payment.
c. Rapidly changing technology.
d. All of the above.
7. Which of the following have been suggested as ways to decrease the rate of increase
in U.S. health care costs?
a. Having the government take over privately run hospitals so they won’t be so
obsessed with the bottom line.
b. Managed care plans instead of traditional fee-for-service insurance.
c. Providing comprehensive health insurance to people who are now uninsured.
d. Eliminating state caps on malpractice awards.
8. The major goal of Medicare is to:
a. provide health care to older, retired Americans.
b. cut the rate of increase in health care costs.
c. provide health care to low-income families.
d. make basic health care available to all Americans.
9. The major goal of Medicaid is to:
a. provide health care to older, retired Americans.
b. cut the rate of increase in health care costs.
c. provide health care to low-income families.
d. make basic health care available to all Americans.
10. About what percentage of U.S. health care costs are paid by private and public
a. 25.
b. 50.
c. 75.
d. 100
11. Defensive medicine:
a. increases the supply of health care.
b. is the same as preventive medicine.
c. increases the demand for health care.
d. all of the above.
12. Cost shifting occurs when:
a. hospitals charge the wrong patient’s account for a test or treatment.
b. hospitals increase the charges to patients with good health insurance in
order to cover the uncompensated costs of uninsured, Medicare, or
Medicaid patients.
c. insurance companies increase the proportion of the hospital bill which must be
paid by the patient.
d. hospitals charge more than the patient’s actual costs to government insurance
13. In 1997, U.S. health care expenditures amounted to about ______ percent of national
a. 2
b. 5
c. 10
d. 14
14. The number of Americans currently without health insurance in 1999 was estimated
to be:
a. 65 million or 26 percent of the population.
b. 43 million or 16 percent of the population.
c. 12 million or 5 percent of the population.
d. 5 million of 2 percent of the population.
15. Unemployed people are likely to be uninsured because:
a. one must be working to qualify for Medicaid.
b. most are young and in good health so they do not purchase health insurance.
c. most Americans obtain insurance from employment.
d. many unemployed persons are also the heads of single-parent families.
16. The purpose of the SCHIPS program is to:
a. provide health insurance for the children of the working poor.
b. provide health insurance for disabled workers.
c. allow workers who lose their jobs to keep their health insurance by paying for
it themselves.
d. compensate hospitals for costs not covered by Medicaid or Medicare.
17. In comparing the infant and maternal mortality rates of whites and blacks in the U.S.,
we can say that:
a. they are approximately the same.
b. the black infant mortality rate is higher than the white infant mortality rate,
but the maternal mortality rates are the same.
c. the black infant mortality rate is higher, but the black maternal mortality rate
is lower than whites.
d. both rates are markedly higher for blacks than for whites.
18. In a 2000 study, the World Health Organization gave the U.S. relatively poor marks
for its health care system because:
a. although wealthy Americans receive exceptionally high quality health
care, poor people tend to receive inferior health care.
b. all Americans receive inferior health care.
c. the U.S. health care delivery system is wasteful.
d. our system uses needlessly high technology.
19. An advantage of a single-payer health care system over our market system is that:
a. health care would not have to be rationed.
b. the government would pay for everything, so families would not have to
worry about access to health care.
c. such a system would be much less expensive to administer.
d. it would amount to socialized medicine.
20. The two main types of “managed care” organizations are:
a. veterans hospitals and university teaching hospitals.
b. nonprofit hospitals and preferred provider organizations.
c. skilled nursing facilities and health maintenance organizations.
d. health maintenance organizations and preferred provider organizations.
True-and-False Questions
1. Since 1970, U.S. health care expenditures have increased in absolute dollars,
but not as a percentage of national output.
2. U.S. health care expenditures per capita are the highest in the world.
3. As more people have switched to managed care from fee-for-service insurance
plans, the rate of increase in U.S. health care expenditures has increased.
4. If Americans cannot afford private health insurance, they are automatically
covered by one of the government health plans.
5. Medicaid is subsidized health care for Social Security recipients.
6. Defensive medicine increases the resources allocated to health care.
7. Cost shifting occurs when hospitals charge patients with good insurance
higher prices to offset uncompensated costs of uninsured patients.
8. Canada has socialized medicine.
9. Canada has a single-payer national health care system.
10. The government of the U.S. pays a smaller percentage of national health
expenditures than the governments of most industrialized nations.
11. New technologies often increase the demand for, as well as the supply of,
health care.
12. Technological change in health care has reduced health care costs and
increased supply.
13. Since 1960, U.S. health care costs have increased absolutely, but remained
constant as a percent of national output.
14. About three-fourths of health care costs are paid out-of-pocket by patients and
their families.
15. It is impossible to over-allocate resources to health care.
16. Currently about 43 million Americans do not have health insurance.
17. Minorities are more likely to be uninsured than whites.
18. Black and white Americans have the same expected life at birth.
19. The U.S. has the world’s highest life expectancy at birth.
20. A recent study shows that health care costs are a factor in half the
bankruptcies in the United States.
Short-Answer Questions
1. Assume that the following graph shows the supply and demand for hospital beds.
Show the shift that would occur if insurance policies changed so that a procedure that
used to be done only on patients in the hospital is now only covered if done on an
outpatient basis. What would happen to price ______________ and quantity?
2. The following is the demand and supply of prescription drugs taken by elderly
persons. Show the shift that would occur if Medicare were to begin covering the cost
of prescription drugs for Social Security recipients. What would happen to price
_____________ and quantity? _____________________
3. Explain how each of the following affects resources allocated to health care:
a. third-party payment
b. defensive medicine
c. physician sovereignty