Part A-

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

1. Discuss the four factors under which managed care firms were found to be able to negotiate lower prices with hospitals. Explain the concept of "reference pricing." Discuss how it can be thought of as a form of selective contracting. Finally, explain how selective contracting could be employed in contracting for "centers of excellence."

2. Many economists have argued that a key element in "bending the cost curve" in health care is to change the tax treatment of employer sponsored health insurance. Discuss how changes in this tax treatment are supposed to lead to lower health care costs. Some have argued that the "Cadillac Tax" on generous employer sponsored health insurance plans is one of the few cost control devices in the Affordable Care Act. Describe this tax and how it's supposed to control costs.

3. The advocates of consumer directed health plans (CDHPs) argue that they will reduce health care spending and make people more effective consumers of care. Describe the key elements of a CDHP and sketch the argument for how it results in lower spending. Summarize the evidence to date on the effectiveness of these plans.

4. 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 (ACA) 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.

Part B-

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

1. A key function of the health insurance exchanges is to provide risk mitigation across the plans in the exchange. Even though the premiums are not allowed to reflect health status, the payments that the plans get will take risk into consideration. Please describe each of the mechanisms that the ACA requires to be used: transitional reinsurance, the risk-corridor program, and the formal risk adjustment process.

2. In a report released this spring, the Society of Actuaries estimated that the implementation of the exchanges, as required by the ACA, 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 why these states may see such wide differences in the average premiums in their non-group (i.e., individual) insurance markets.

3. Your widowed grandmother is 65 years old and is now 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.)

4. There is good empirical evidence of "crowd-out" as it affects Medicaid and CHIP [Children's Health Insurance Plans]. Define crowd-out and discuss how it applies in states that have expanded their Medicaid programs as a result of the ACA. Do you think the ACA motivated effects for adults will be larger or smaller in magnitude than those seen for the earlier Medicaid and CHIP expansions for children? Why?