tax exempt fraction of health insurance premiums by HC121002235045


									                      Economics for Healthcare Homework 2

Please show the derivation process and limit your answers within 5 pages. If you don’t
know how to edit math notations, just explain the process.

Q1: Problem 1 (Chapter 6) on textbook pp. 172 (10%)
Suppose Joe and Leo both face the following individual loss distribution:

Probability of Loss           Amount of Loss
       0.7                                 $0
       0.2                                 $40
       0.1                                 $60

A. Determine the expected loss and standard deviation of the expected loss faced by Joe
and Leo on an individual basis.

B. Suppose that Joe and Leo enter into a pooling-of-losses arrangement. Just state what
happens to the expected loss and variability of the expected loss as a result of the pooling
arrangement (you don’t need to calculate).

Q2: Problem 5 (Chapter 6) on textbook pp. 173 (10%)
Explain the effect of the following changes on the quantity demanded of health insurance.

A. A reduction in the tax-exempt fraction of health insurance premiums

B. An increase in buyer income

C. An increase in per capita medical expenditures

D. New technologies that enable medical illnesses to be predicted more accurately.

E. A tendency among buyers to become less risk averse, on average.

Q3: Problem 7 (Chapter 6) on textbook pp. 173 (10%)
Explain the following terms related to health insurance:

H. Gatekeeper

I. Gag rules

J. Any willing provider law

K. Freedom of choice law

Q4: Problem 3 (Chapter 7) on textbook pp. 202 (10%)
Explain the difference between technical efficiency and economic efficiency.

Q5: Problem 7 (Chapter 7) on textbook pp. 203 (10%)
Suppose that with 400 patients per year, the SAFC, SATC and SMC of operating a
physician clinic are $10, $35, and $30 per patient, respectively. Furthermore, suppose the
physician decides to increase the annual patient load by one more patient. Using short-run

cost theory, explain the impact of this additional patient on the SAVC and SATC. Do they
increase or decrease? Why?

Q6: Problem 12 (Chapter 7) on textbook pp. 203 (10%)
You are responsible for hiring one of two hygienists for a dental office. The first dental
hygienist has 25 years of experience. Given her record, she is likely to satisfactorily
service 16 patients per day. Her hourly wage would be approximately $16 per hour. The
other hygienist is new to the industry. He is expected to satisfactorily service 10 patients
per day at an hourly wage of $8. Which dental hygienist would be the better hire? Why?

Q7: Problem 2 (Chapter 8) on textbook pp. 240-241 (15%)
In the country of Drazah Larom (moral hazard spelled backward), health insurance is
nonexistent and all medical markets are perfectly competitive. Use supply and demand
analysis to explain the impact of the following changes on the price and output of
physician services. (Unnecessary to show graph)

A. A decrease in the wage of clinic-based nurses.

B. The adoption of cost-enhancing medical technologies.

C. An aging population and correspondingly a more severe patient case-mix.

D. Declining consumer income.

E. A lower market price for physician services (be careful here!).

Q8: Problem 6 (Chapter 8) on textbook pp. 241 (15%)
Assume the sale of human organs is legalized and a free market develops. Furthermore,
assume the market is in equilibrium. Trace through the price and output effects of the
following: (unnecessary to show graph)

A. An increase in the incomes of potential buyers of human kidneys.

B. A decrease in the price of kidney dialysis.

C. The development of a new drug that leaves the immune system intact while preventing
transplant rejection (Waldholz, 1992).

D. A greater willingness by individuals to supply human kidneys.

Q9: Problem 18 (Chapter 8) on textbook pp. 242 (10%)
Suppose that the annual number of admissions can be used as a measure of output for a
group of hospitals operating in the same RGM. Categorize the type of market based on the
degree of structural competition as measured by the four-firm concentration ratio and the
Herfindahl-Hirschman Index. (Hint: calculate market share for each one first)

                      Hospital                       Number of Admissions
                                                     (in thousands)
                      Saving Grace Hospital                         4,000
                      Mercy Me Hospital                             3,000
                      Price Plus Hospital                           1,500

HealthMart Hospital           750
Health Depot Hospital       1,000
Health R Us Hospital        1,500


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