The University of North Carolina at Pembroke
MPM 574--Health Economics
Practice Questions--Chapter 8  Answers

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 1.  Summarize Vogel and Blair's studies as to whether there are economies of scale in providing health insurance.
They found evidence of mild economies of scale in both commercial and not-for-profit insurance organizations.  They used both direct cost estimates and survivor analysis.  p. 179-180

 2.  What advantages do the Blues have over other insurers in the market place?
Exemption from state tax on insurance premiums
Exemption from federal tax prior to 1986
Discounts from hospitals on charges.  p. 180-181

 3.  Since 1950, which type of insurer has been growing the fastest: commercial insurers, BCBS, or independent plans?
Independents  Table 8.1 (note that percentages exceed 100% because some patients are  in more than one type)

 4.  What is "shadow pricing" in the insurance markets?
Setting prices to match the competition's prices, rather than to reflect the cost of providing the service.  This is natural and should not be a surprise.  Still, some people expected that HMOs would use their cost saving advantages to lower their prices.  This did not happen (in part) because the HMOs used shadow pricing.  (They also offered a greater variety of services.)

 5.  What evidence do we have that the market for health insurance has become more competitive over the last four decades?
General increases in the benefit/premium ratios (Table 8.2)
Buchmueller and Feldstein's 1997 article on switching between health plans based on price, despite the costs of switching. p. 190
The decline of community-rated coverage due to competitive pressure.  This also shows that health consumers are price conscious.

 6.  What are the primary features of the Health Insurance Portability and Accountability (Kassenbaum-Kennedy) Act of 1996?
See p. 197

last updated April 2, 2002, by Jim Frederick
copyright 2002 Jim Frederick