Subject: Economics    / General Economics

1. True, False, Uncertain (15 pts)

State whether each of the following statements is true, false or uncertain. Explain and support your answer. There is not necessarily one right answer to these questions. All the credit is in the explanation (but you must state T, F, or U).

a. The Rand HIE found that people assigned to the free health plan had the same rate of hospitalization as people assigned to the cost-sharing plans.

b. In the Rand HIE, being assigned more generous insurance did not generally improve participants’ health status, except for certain subgroups.

c. Results from the Oregon Medicaid Experiment suggest that having health insurance has a positive effect on health outcomes.

d. People who drop out of high school are able to produce more health than college graduates because they have more free time to invest in health production.

e. In the Grossman model, optimal health status declines with age.

2. Definitions (10 pts)

Provide complete but concise definitions for the following terms, as they have been used in class.

a. Derived demand

b. Infant mortality rate

c. Guarantee issue

d. Natural experiment

e. Human capital

3. (12 pts)Suppose that a new miracle pill is discovered that increases both the marginal health effects of health investment (at any given level of health investment) and the maximum level of attainable health (from Hmaxto a higher Hmax).

a. Draw the old PPF before the discovery of the miracle pill.

b. On the same graph, draw a new PPF that corresponds to the description of the miracle pill.

c. How will the miracle pill affect H*? Explain.

d. How will the miracle pill affect the rate of health investment (e.g. jogging)? explain.

Directions: Use a ruler or straight edge to draw the axes of your graph. Be sure to label the axes, the two PPFs, and the key intersection points.

4. (15 pts)In the Grossman model, the individual maximizes U=U(H,Z), where H = H(TH, M) and Z = Z(TZ, J); subject to the constraints that:



a. What does H = H (TH, M) represent?

b. What does Z = Z (TZ, J) represent?

c. Identify and explain the first constraint.

d. Identify and explain the second constraint.

e. Suppose an individual is seriously injured and out of work for six months. His disability benefits replace only 2/3 of his pre-injury wage. How does the injury affect each constraint? What is the most likely effect on Z? Explain.

5. Population Health Statistics (16 pts)

Refer to a reliable source(s) for national health statistics (such as the websites listed on the syllabus) to complete the table below. In the first column, identify the particular statistic (e.g. mortality rate) you are reporting in each row. In the second column, report the value for the United States. In the 2nd and 3rd columns, report the value for two other countries of your choice. In the 4th column, identify the year for the statistics in each row (the data for each country must apply to the same year). In the last column, identify your source (e.g. CDC, KFF, etc.).

Health statistic US [country] [country] Year Source

Based on the results in your table, answer the following questions:

a. How do the population health statistics for the US compare to the statistics for other countries you have chosen?

b. What can we conclude from this data about the relative quality of the three countries’ health systems?

6. (12 pts)Table VII below reports some additional results from the Oregon Health Insurance Experiment. The Table shows the effects of gaining access to health insurance (lottery winners) on a family’s financial status. The first column reports the mean for the control group (lottery losers). The second column reports the difference for lottery winners. Standard errors are shown in parentheses. Use the results reported in the Table to answer the questions below.

Table VII

Financial Strain

a. Does gaining access to health insurance have any effect on a family’s overall finances (Panel A)? If so, what aspect(s) are affected, and how? Explain.

b. What is the impact of health insurance on a family’s medical debt? Explain.

c. What is the impact of health insurance on a family’s nonmedical debt? Explain.

d. What percentage of control families have some medical debt? What percentage of lottery winners? Are you surprised at the magnitude of these percentages? Why or why not?


7. (A) Matching (15 pts)

Listed below (A-F) are six key provisions of the Affordable Care Act that are designed to expand health insurance coverage in the U.S. Also below (1-8) are eight groups of potentially uninsured persons. Match each group to the provision of the ACA that is designed to ensure that group can (and will) obtain health insurance,by placing the correct letter on the line beside the statement. You will need to use some letters more than once. (In some cases there is more than one correct answer. You need only choose one of those answers.)

A. Individual mandate

B. Employer mandate

C. Health insurance exchanges

D. State Medicaid expansion

E. Insurance reforms

F. Extended dependent coverage

1. __________ the poor

2. __________ full-time workers

3. __________ part-time workers

4. __________ self-employed workers

5. __________ the young

6. __________ persons with pre-existing health conditions

7. __________ the unemployed

8. __________ the stubborn

(B) Last year, many large health insurers pulled out of the state health insurance exchanges because the companies were losing so much money. In some cities, like Tucson, there is now only one insurer offering policies through the exchange. At the same time, insurance premiums on the exchanges have increased dramatically – in some places more than doubling. Explain why the exchanges are collapsing, with specific reference to the provisions in the ACA that are causing insurers to lose money even as premiums are increasing.

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