## HSPM J712Take-Home Exam due October 9, 2012

#### Instructions:

Each question is worth 4 points, except for question 0.

Points and Grades  45 to 48    A
39 to 44    B+
33 to 38    B

Do enough questions to get the grade you want. Please see the table to the right. ⇒

You may do extra questions, for insurance, in case you get partial credit for some answers.

Some answers may be short. Others may be as long as a weekly comment.

To get full credit for an answer, use course concepts. Refer to course articles, if the question asks for that. Citations of articles can be brief -- the author's last name and an abbreviated title is sufficient.

Submit your completed exam with Blackboard's feature.

#### The Questions:

0. (2 points) What was the best single item on the reading list for you? (You don't have to say why.)

1.

1. How much was spent in the U.S. on the health care system in 2010? How much is that per person (per capita)? What percentage the GDP went for the health care system in 2010?
2. For the period from 1993 to 2010, name a year in which health care as a percent of GDP changed a lot. (There may be are several. You only have to give one.) Name a year in which health care as a percent of GDP did not change much from the preceding year.
3. How much of total health care spending in 2010 was public and how much was private? (Say whether or not your numbers are adjusted for the tax subsidy for health care spending and for public employee health insurance being in the "private" category.)
4. What percentage of health care spending was out-of-pocket in 2010? What has been the general trend in this percentage over the decades? In other words, has the percentage risen or has it fallen?
5. What are the top three categories medical services and goods? By "top" I mean the categories that got the most money spent on them.

2. The following is an example of what concept from week 2?

Heidi Steffen and her husband used to treat themselves most weeks to steak at Sodak Shores, a restaurant overlooking a lake near their hometown of Milbank, S.D. Then they each got an iPhone, and the rib-eyes started making fewer appearances. "Every weekend, we'd do something," said Ms. Steffen, a registered nurse whose husband works at a tire shop. "Now maybe once every month or two, we get out." The Wall Street Journal, Sept. 26, 2012, p. B1.

3. What is the Law of Diminishing Returns? Give an example, from an assigned article, that illustrates this "law."

4. Tell me about an article that we read that uses the concept of marginal or incremental cost. How does it use the concept? To make what argument?

5. In Axnick's article about measles, the authors discount future costs and benefits (costs averted).

1. What future costs or costs averted were discounted?
2. Describe how you discount a future cost. Then, for a specific example, suppose that there is a cost of \$1000 that will be incurred two years from now. What is the present value of that if the interest rate is 2%?

6. Describe a way to put a dollar value on a saved life.

For 2 points extra credit, describe a second way to put a dollar value on a saved life.
Then discuss whether you think it is proper or useful to use such a value in making decisions about which public health, safety, or health care procedures to use. Show that you understand why some economists advocate doing this, even if you don't like the idea.

7. Each of the following is discussed in an article on the syllabus:

1. PAP tests, as analyzed in Eddy's "Screening for Cervical Cancer" article
2. Chicken pox (varicella) inoculations
3. The HPV vaccine
4. Prenatal care

Pick one. For that one, tell me whether doing it for everybody (of the relevant age and gender) reduces or increases total spending on health care. Explain your answer.

8. Why do Fries et al argue that doing more prevention would reduce health care costs in the US? What kind of evidence do they use to support their claim? What is Russell's counter-argument? What kind of evidence does she use to support her argument? Can prevention be a good idea, even if it doesn't save money?

9. What is an "external" cost or benefit?
Then consider these:

1. Suppose that an electric power company shuts down a coal-fired plant and opens a natural gas-fired plant. For the same amount of power, using natural gas means less carbon and heavy metals going into the air and water. Does this mean that there external benefits? Who are some of the external beneficiaries?
2. Does measles vaccination have an external benefit? Explain your answer briefly.
3. Does it make you happy to know that people with life-threatening illnesses or injuries can get immediate care, even if they can't pay? Would it make you sad if you heard that someone had died for the lack of medical care? If so, would it be fair to say that you get an external benefit from the medical care that hospitals and doctors give free or at discounted prices (Medicaid) to people who cannot pay?
4. For 2 points extra, do you think that even conservatives agree that there is this external benefit? For reference, here are an excerpt from The Daily Show, Sept. 24, 2012 and this from last year's Tea Party debate. (Notice, from 0:53 to the end, what Ron Paul says and what the Tea Party crowd says).

10. Is it true or false that risk averse people only take gambles that have a positive expected value for them? What does this have to do with why people buy insurance?

11. The diagram shows a supply curve and a demand curve. The current price is shown. It is well above the equilibrium price.

1. Fill in these blanks: At the current price, the quantity ____ed is greater than the quantity _____ed.
2. According to textbook economic theory, should the price tend to rise, fall, or stay the same in this circumstance?
3. Suppose now that the demand goes up. What will happen to the equilibrium price and quantity?

12. Explain briefly what elasticity is. Then answer this, showing your math: If a pack of cigarettes sells for \$5.00, and the government adds a new tax to raise the price by \$2.50, and if the elasticity of demand for cigarettes among teenagers is -0.5, by what percentage will teenagers' use of cigarettes fall? (You may make your calculation simpler by not using the arc elasticity idea. Instead, take the current \$5.00 price as the price level in the elasticity formula.)

13. What do economists mean when they say that the doctor is the patient's "agent"? Why do I need my doctor to act as my agent?

14. Malcolm Gladwell, in his New Yorker article, writes that it's a "myth" that moral hazard is a big reason why health care spending is so high in the U.S.

1. Tell me about a study that argues that copayments are good because they dissuade people from buying (with insurance money) health care services that aren't really worth very much to them. ("Tell me about" means tell me the authors' main conclusions and how they arrived at those conclusions.)
2. Tell me about Gladwell's article. Do you agree with him? Why or why not?
##### These questions added Oct. 2 and 3, to give you more choices.

15. What do economists mean by "efficient?" How does that differ from ordinary usage? Is it always better for everybody if we are more efficient, as economists use the term? Why or why not?

16. What is a "public good?" What is a "free rider"? For each, give a brief example. The example can be from the readings or from your knowledge and experience. Be careful that you are using these terms the way economists use them.

17. Let's go through the first part of Bodenheimer and Grumbach, "Paying for Health Care." There is a new link on Blackboard in the Content section that will take you directly to a PDF copy. One or two sentences should be enough for each of the following. Keep it simple and brief.

1. What is meant by "out of pocket" payment?
2. Why doesn't our (the U.S.) health care system rely on out of pocket payment today, the way it did a hundred years ago?
3. What is "individual private insurance?"
4. What is a problem with out of pocket payment that individual private insurance tries to solve?
5. Why doesn't our health care system rely on individual private insurance for its financing?
6. What is "Employment-Based Private Insurance"?
7. Why did employment-based private insurance become a big part of how we finance health care?
8. How did the spread of insurance affect the size of the health care system?
9. What was a problem with relying on individual and employer-based health insurance to finance health care?
10. Does government health insurance address that problem? How?
11. What problem did government health insurance make worse?

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