Part A-

1. The PPACA requires that employer health insurance costs above $27,500 annually for family coverage and $10,200 for individual coverage be subject to a tax of 4%0 percent. This is the "Cadillac Tax." Some have argued that this is one of the few elements of the legislation that has the potential to "bend the cost curve." Explain the argument that leads from taxes on employer sponsored health insurance to lower health care costs. What evidence is there to support this?

2. A. Describe how the "backlash against managed care" may have resulted in higher health insurance premiums. B. Describe how "provider consolidation" may have resulted in higher health insurance premiums.

3. Dr. Bentley, Alabama's new governor, is a proponent of Consumer Directed Health Plans (CDHP) and has as yet undisclosed plans to encourage their use in the state. In anticipation of these plans, please do the following:

A. Briefly summarize how a CDHP operates.

B. Describe how such plans are supposed to achieve health care cost savings.

C. Summarize the extent of the evidence on how effective these plans have been in reducing health care spending.

D. Discuss the nature of the adverse or favorable selection that may arise in these types of plans.

4. It has been argued that larger out-of-pocket employee premium contributions are the result of more two-earner households in the labor market. Sketch out the economics argument that leads to this result.

Part B-

1. Answer all of the following:

A. How is the Medicare Hospital Insurance (HI) Trust Fund financed?

B. How is the Supplemental Medical Insurance (SMI) Trust Fund financed?

C. The Medicare program is often said to be in crisis by the year 2020 or so. How do the HI and SMI Trust Funds affect this crisis? How do they affect the broader issue of government spending on entitlements?

2. Your widowed grandmother is 70 years old and is currently covered by Medicare. Her health has been good but she worries about ending up in a nursing home. She asks you if she should buy long term care insurance. What do you advise her? (Be sure to explain your advice.)

3. Your aunt will become eligible for Medicare later this year. She is reasonably healthy. She understands Medicare Part A and knows she will have to pay a premium for Part B coverage. However, she is a bit unclear about Part D, Medicare Advantage and Medigap coverage. In a brief note to her, summarize these programs and offer her some advice on whether she should take any or all of these. She is a smart lady and will expect you to justify your recommendations.

4. Suppose the opticians in Alabama want the state to enact legislation requiring that all private health insurance plans in the state include coverage for eye exams, eyeglasses and contact lenses. You are the health policy analyst for the governor. Prepare a short memo discussing the extent to which such legislation will actually expand insurance coverage for these services and why.