1. Social Security payments and tax revenues may be considered “on-budget”—i.e., as part of the U.S. general budget no different than defense spending supported by income and other taxes including Social Security taxes—or “off- budget” spending supported by dedicated taxes. Why would Social Security be considered off budget?
a. Paid for by dedicated tax.
b. Cannot pay out more than revenues generated by tax and interest income on Trust Fund government bonds.
c. SS spending does not affect rest of budget.
d. a and b.
e. All of the above.
2. Why would Social Security be considered “on-budget”?
a. Trust funds is not real savings because funds already used to fund current government budget.
b. Special trust fund bond is not public debt therefore not a real obligation.
c. Shortfall in SS taxes versus SS payments would be funded by general budget.
d. Social Security payment and tax can be changed at any time by Congress.
e. All of the above.
3. If the idea of insurance is to share the risks of bad outcomes, in what sense does insurance share the risks.?
a. Assuming randomness of bad outcomes in a group, the probability of bad outcomes can be calculated, and insurance premiums set to cover the group’s costs.
b. Insurance transfers the risks from those individuals willing to bear it to those who are unwilling to.
c. Insurance transfers the costs to the young and healthy from the old and sick.
d. All are true.
4. How does adverse selection affect the ability of insurance companies to provide the benefit of risk sharing?
a. Insurance companies know more than the insured about its outcomes.
b. The individual thinks healthcare is a free good because it is paid for by a third party.
c. The probability of bad outcomes in a group is likely to be higher and less likely to be random.
d. All the above.
5. What is the adverse selection “death spiral” that might lead to the collapse of the healthcare insurance market?
a. Insurance premiums will be set to high.
b. Premiums will be set too low.
c. It will cause healthy individuals to leave the group.
d. Both a and c.
e. Both b and c.