Part A-

Answer all questions in the space provided. (Point values are given in parentheses.)

1. In recent weeks there have been press reports that health care plans offered in the exchanges are likely to be dominated by managed care plans with narrow panels of providers. What advantage would a narrow panel managed care plan have in the health insurance market? Why? What disadvantages? Why?

2. Some have argued that concentration in the health insurance industry has led to lower provider prices. Others have argued that hospital and physician consolidation in the last decade has led to higher insurance premiums. Discuss the economic rationale underlying each view point. Briefly summarize the empirical evidence supporting or refuting each perspective.

3. You are a small employer with 120 full time employees. You currently offer health insurance to your employees. Under the Patient Protection and Affordable Care Act (PPACA) you, of course, are required to continue to offer coverage or pay a penalty of $2,000 per worker (after the first 30). Some have argued that a small employer like you will simply stop providing health insurance and pay the penalty. Does this make good economic sense? Provide an analysis.

4. Former head of the Council of Economic Advisors, Martin Feldstein, has proposed that the federal tax code be revised to cap the total amount of deductions and exemptions at, say, 2 percent of adjusted gross income. Employer-sponsored health insurance is included among the exemptions. If this proposal were to be implemented, what effect would it have on: (A) the amount of health insurance obtained through employers? (B) health care spending? (C) on money wages provided as compensation? In each instance indicate why such an outcome is expected.

5. Consumer directed health plans, i.e., high deductible health plans with a health savings accounts (HSAs), are supposed to reduce health care spending. What are the mechanisms whereby this occurs? How big are the estimates of savings?

Part B-

Answer all questions in the space provided. Point values in parentheses.

1. Earlier this month the Birmingham Business Journal reported that many small businesses in Alabama were converting to self-insurance in anticipation of the implementation of the Patient Protection and Affordable Care Act (PPACA). If a small employer wanted to continue to offer health insurance to his/her employees, what advantages does self insurance give them? Would such a shift be of concern to a small business (SHOP) exchange? Why? Aren't small employers too small to be self-insured?

2. Most states have chosen (or defaulted) into the "market facilitator" model of the individual health insurance exchange. What are the key functions of this model? What is the mechanism that is supposed to allow them to control the rate of increase in health insurance premiums?

3. In a report released this spring, the Society of Actuaries estimated that the implementation of the exchanges, as required by the PPACA, would lead to very different levels of premium increases in different states. Ohio and Wisconsin, for example, were predicted to have average premium increases in the neighborhood of 80 percent. In contrast, New York and Vermont were predicted to have average premium decreases of about 12 percent. Discuss two reasons why these states may see such wide differences in the average premiums in their non-group (i.e., individual) insurance markets.

4. 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.

5. Suppose the implementation of the exchanges in the PPACA had to be delayed for a year or two due to the complexity of establishing the exchanges. Instead, the Congress decided to continue the high risk pools that were intended to be a transition to the full PPACA. Summarize what we know about high risk pools. Who would be eligible for coverage? What sort of coverage would be available? What sort of premiums would be established? Would the premiums likely cover plan costs?