The diagram shows a supply and a demand curve. The current price is shown. It is well above the equilibrium price.
Do enough questions so that you can get 100 points, which will get you an A. It is OK to do extra questions as insurance, but there is no need to go overboard.
E-mail your completed exam to sam.baker@sc.edu , or put a paper copy in my mailbox. Fax (803-777-6986) is also OK.The target length for this exam is the equivalent of 10 double-spaced pages. You do not have to double-space your answers. 5-point answers should be as long as the equivalent of one-half (1/2) double-spaced page. 10-point answers should be as long as the equivalent of one double-spaced page. A double-space page has about 275 words.
Your answer will get full credit if you use the concept(s) correctly and cite readings or tutorials where appropriate. Mistakes or incomplete answers will get you partial credit.
When you take facts or ideas from a reading, cite the reading. In the citation, use the first author's last name and a title shortened to two or three words. For example, you might write: "Most people in the US get their health insurance through an employer. (Kuttner, Employer-Sponsored Health Coverage, p. 248.)." That is not a good style for a formal paper, but it is OK for this exam. If you got an idea from my notes about a reading, find the idea in the reading and then cite that.
1. (5 points) What portion of United States health care spending is by each of these groups? Which of these groups spends the most?
3. (10 points) Define opportunity cost. Then describe an example from your experience in which the dollar cost of something did not reflect its opportunity cost.
For example, years ago there was a scare over an outbreak of what was called Legionnaires' Disease. As some of you will recall, public health departments pulled nurses off of their regular assignments to do immunizations. The budgets of the agencies didn't change to reflect these temporary reassignments, so there was no direct outlay of money. Nevertheless, some tasks were not done so that the Legionnaires' Disease work could be done.For your answer, I would be especially interested in a case in which opportunity costs of this type were ignored at first. (I am not requiring your answer to this question to be a work experience, but I am most interested in work experiences.)
4. (5 points) What is the Law of Diminishing Returns? Give an example from the readings that illustrates this.
Questions 5 through 7 refer to the table below, which is adapted from Table 3 of Eddy, "Screening for Cervical Cancer," Annals of Internal Medicine 113 (1990), p. 218. I have added some rows to show intermediate steps in the calculations, and left some columns out to simplify the presentation. What is left is the costs and benefits of four different screening regimens for cervical cancer. The costs and benefits are calculated from the viewpoint of a 20-year-old woman deciding today how often she should have a Pap smear over the next 55 years. I changed the cost number with the * to make the calculated marginal cost per year of life saved come out as Eddy had it. The years of life saved equals the days of life saved divided by 365.25.
| Pap test every this many years: | 4 | 3 | 2 | 1 |
| Net cost over lifetime, discounted at 5% | $264 | $355 | $470* | $1,093 |
| Days of life gained, compared with no testing | 93.8 | 95.4 | 96.9 | 98.6 |
| Years of life gained, compared with no testing | 0.2568 |
0.2612 |
0.2653 |
0.2700 |
| Average cost per year of life saved | $1,028 | $1,359 | $1,772 | $4,049 |
| Marginal cost over lifetime, discounted at 5% | $264 | $91 | $113 | $116 |
| Marginal gain in expected days of life | 93.8 | 1.6 | 1.5 | 1.7 |
| Marginal gain in expected years of life | 0.2568 |
0.00438 |
0.00411 |
0.00465 |
| Marginal cost per year of life saved | $1,028 | $20,774 | $28,003 | $133,853 |
5. (5 points) The second line in the table shows net cost, over a lifetime, of having pap smears every four years, three years, two years, and every year. The second line numbers include "expected savings from finding lesions in earlier, usually preinvasive stages, in which treatment costs are low, and include expected savings from reduced costs for terminal care." (Eddy, p. 221) That is why he calls them "net cost," rather than just "cost." According to Eddy's figures, does cervical cancer testing pay for itself in future health care cost savings? Why or why not? Is prevention better than cure?
6. (5 points) Why did Eddy discount future costs to get, for example, the $1,093 figure in the second row, last column? As part of your explanation, answer this: Suppose a Pap smear one year from now will cost $62. How much is that today, discounted at 5%?
7. (5 points) To judge the cost-effectiveness of testing every year, we use the $133,853 marginal cost per year of life saved rather than the $4049 average cost per year of life saved. Why is this?
8. (10 points) Explain the difference between "cost-effective" and "cost-saving."
Listen to this
report (streaming audio using Real Player)
that was on NPR Morning Edition Wednesday Oct. 4, 2000. Did the reporters
use the ideas correctly, or did they sometimes get "cost-effective" and "cost
saving" mixed up? For example, at about time 0:15, Bob Edwards says vaccination
might be "too expensive." Is that what he should have said? Later, in a statement
starting at about time 1:59, Patricia Neighmont says that vaccination is
cost-effective for certain high-risk people, implying that it's not cost-effective
for others. Still later, after about 3:30 she uses the term "cost-effectiveness"
again. Is she correct, or has she confused cost-saving with cost-effectiveness?
Compare the recorded statements of the two academic people interviewed for
the report. Did they use the terms more correctly?
9. (10 points) Why do Fries et al argue that doing more prevention would reduce overall health care costs in the US? Describe one piece of evidence that they mention in support of their claim. What is Russell's counter-argument? Describe one piece of evidence that she cites in support of her argument.
10. (5 points) What is an "external" cost or benefit? Give a brief example. If you answered question 8: Do you hear an example of an external cost or benefit of vaccination in the report?
11. (10 points) The diagram shows a supply and a demand curve. The current price is shown. It is well above the equilibrium price.
12. (10 points) What do economists mean when they say that the doctor is the patient's "agent" Why is it important for my doctor act as my agent, but not so important that my dry cleaner act as my agent? Cite one example from the readings that indicates that doctors do not always act as patients' agents.
13. (5 points) True or false: Risk averse people only take gambles that have a positive expected value for them. Explain, and say what this has to do with why people buy insurance.
14. (10 points) Write a page introducing Medicare and Medicaid. Who is eligible for these programs? What do they pay for? In your answer, include at least two major differences between the two in how the programs work. (I'm looking for the big picture here. If you miss some minor eligibility groups or categories of covered services, that is OK.)
15. (10 points) What difference does it make for a person's health or health care whether or not he or she has health insurance? Cite at least two readings or on-line resources in your answer.
16. (5 points) In class, I said, "You can buy insurance against risks, but you can't buy insurance against being risky." Explain what that means. Cite a reading or on-line resource that shows the problem.
17. (5 points) What are the main antitrust laws of the United States, and what do they outlaw?
18. (5 points) Certificate of Public Advantage