MHA710 Healthcare Economics Exam 4 v3
Questions with Correct Answers and Expert
Explanation for Each Question
1. Which of the following best describes ‘Moral Hazard’ in the context of health
insurance?
A. The tendency of individuals to take more risks when they are insured.
B. The change in behavior when the cost of healthcare is reduced for the consumer.
C. The process where high-risk individuals are more likely to purchase insurance.
D. The difficulty insurance companies face in identifying the risk level of applicants.
Correct Answer: B
Expert Explanation: Moral hazard refers to the increase in healthcare utilization
that occurs when an individual is insured and does not face the full cost of services.
This behavior change happens because the marginal cost to the consumer is lower
than the actual market price of the service. It essentially leads to an over-
consumption of healthcare resources compared to what would be consumed in a
perfectly competitive market.
2. In healthcare economics, ‘Adverse Selection’ primarily occurs because of:
A. Equal access to health information for both insurers and consumers.
B. Low premiums that attract healthy individuals.
,C. Asymmetric information between the buyer and the seller.
D. Government mandates requiring all citizens to have insurance.
Correct Answer: C
Expert Explanation: Adverse selection is a market failure that happens when one
party has more information than the other. In health insurance, consumers often
know more about their health status than the insurance company does. This
imbalance leads to a situation where those with higher health risks are more likely
to buy insurance, potentially driving up premiums for everyone.
3. What is the primary goal of ‘Cost-Effectiveness Analysis’ (CEA) in healthcare?
A. To find the cheapest possible treatment regardless of the outcome.
B. To compare the relative costs and outcomes of different health interventions.
C. To maximize the profits of pharmaceutical companies.
D. To eliminate all government spending on public health programs.
Correct Answer: B
Expert Explanation: Cost-effectiveness analysis is a tool used to compare the costs
and health effects of different interventions to determine which provides the best
value. It typically measures outcomes in natural units, such as life years gained or
,infections prevented. This analysis helps policymakers allocate limited healthcare
resources in a way that maximizes health benefits for the population.
4. The ‘Beveridge Model’ of healthcare is characterized by which of the following?
A. A system based primarily on non-profit ‘Sickness Funds’ managed by the state.
B. Private insurance companies provide coverage through employer-based systems.
C. Patients pay for all services out-of-pocket at the time of delivery.
D. Healthcare is provided and financed by the government through tax payments.
Correct Answer: D
Expert Explanation: The Beveridge Model, named after William Beveridge, is a
system where the government acts as the single payer and provider of healthcare.
Most hospitals and clinics are owned by the government, and some doctors are
government employees. Examples of this system include the United Kingdom’s
National Health Service (NHS), where services are funded through general tax
revenue.
5. Which part of Medicare covers hospital insurance?
A. Medicare Part D
B. Medicare Part B
C. Medicare Part C
, D. Medicare Part A
Correct Answer: D
Expert Explanation: Medicare Part A is specifically designed to cover inpatient
hospital stays, care in a skilled nursing facility, hospice care, and some home health
care. Most people do not pay a premium for Part A because they or a spouse paid
Medicare taxes while working. It serves as the foundational layer of the federal
health insurance program for the elderly and disabled in the United States.
6. What does ‘Capitation’ mean in a managed care payment system?
A. A fixed amount is paid per enrollee per month regardless of the services used.
B. A fee is paid for every individual service or procedure performed.
C. The hospital is paid based on the diagnosis-related group of the patient.
D. The patient pays the entire bill and is later reimbursed by the insurer.
Correct Answer: A
Expert Explanation: Capitation is a payment arrangement where providers receive
a set amount of money for each patient assigned to them, regardless of whether the
patient seeks care. This system shifts the financial risk from the payer to the
provider, encouraging efficiency and preventive care. It is a core component of many
Health Maintenance Organization (HMO) models to control rising healthcare costs.
Questions with Correct Answers and Expert
Explanation for Each Question
1. Which of the following best describes ‘Moral Hazard’ in the context of health
insurance?
A. The tendency of individuals to take more risks when they are insured.
B. The change in behavior when the cost of healthcare is reduced for the consumer.
C. The process where high-risk individuals are more likely to purchase insurance.
D. The difficulty insurance companies face in identifying the risk level of applicants.
Correct Answer: B
Expert Explanation: Moral hazard refers to the increase in healthcare utilization
that occurs when an individual is insured and does not face the full cost of services.
This behavior change happens because the marginal cost to the consumer is lower
than the actual market price of the service. It essentially leads to an over-
consumption of healthcare resources compared to what would be consumed in a
perfectly competitive market.
2. In healthcare economics, ‘Adverse Selection’ primarily occurs because of:
A. Equal access to health information for both insurers and consumers.
B. Low premiums that attract healthy individuals.
,C. Asymmetric information between the buyer and the seller.
D. Government mandates requiring all citizens to have insurance.
Correct Answer: C
Expert Explanation: Adverse selection is a market failure that happens when one
party has more information than the other. In health insurance, consumers often
know more about their health status than the insurance company does. This
imbalance leads to a situation where those with higher health risks are more likely
to buy insurance, potentially driving up premiums for everyone.
3. What is the primary goal of ‘Cost-Effectiveness Analysis’ (CEA) in healthcare?
A. To find the cheapest possible treatment regardless of the outcome.
B. To compare the relative costs and outcomes of different health interventions.
C. To maximize the profits of pharmaceutical companies.
D. To eliminate all government spending on public health programs.
Correct Answer: B
Expert Explanation: Cost-effectiveness analysis is a tool used to compare the costs
and health effects of different interventions to determine which provides the best
value. It typically measures outcomes in natural units, such as life years gained or
,infections prevented. This analysis helps policymakers allocate limited healthcare
resources in a way that maximizes health benefits for the population.
4. The ‘Beveridge Model’ of healthcare is characterized by which of the following?
A. A system based primarily on non-profit ‘Sickness Funds’ managed by the state.
B. Private insurance companies provide coverage through employer-based systems.
C. Patients pay for all services out-of-pocket at the time of delivery.
D. Healthcare is provided and financed by the government through tax payments.
Correct Answer: D
Expert Explanation: The Beveridge Model, named after William Beveridge, is a
system where the government acts as the single payer and provider of healthcare.
Most hospitals and clinics are owned by the government, and some doctors are
government employees. Examples of this system include the United Kingdom’s
National Health Service (NHS), where services are funded through general tax
revenue.
5. Which part of Medicare covers hospital insurance?
A. Medicare Part D
B. Medicare Part B
C. Medicare Part C
, D. Medicare Part A
Correct Answer: D
Expert Explanation: Medicare Part A is specifically designed to cover inpatient
hospital stays, care in a skilled nursing facility, hospice care, and some home health
care. Most people do not pay a premium for Part A because they or a spouse paid
Medicare taxes while working. It serves as the foundational layer of the federal
health insurance program for the elderly and disabled in the United States.
6. What does ‘Capitation’ mean in a managed care payment system?
A. A fixed amount is paid per enrollee per month regardless of the services used.
B. A fee is paid for every individual service or procedure performed.
C. The hospital is paid based on the diagnosis-related group of the patient.
D. The patient pays the entire bill and is later reimbursed by the insurer.
Correct Answer: A
Expert Explanation: Capitation is a payment arrangement where providers receive
a set amount of money for each patient assigned to them, regardless of whether the
patient seeks care. This system shifts the financial risk from the payer to the
provider, encouraging efficiency and preventive care. It is a core component of many
Health Maintenance Organization (HMO) models to control rising healthcare costs.
