As the Share of Healthcare Expenditures Paid for by Third

question 121

Multiple Choice

As the share of healthcare expenditures paid for by third parties has grown, both healthcare prices and total expenditures have increased rapidly. Is this surprising?

• A) Yes; third-party payments provide healthcare consumers with a strong incentive to economize, and therefore, the growth of expenditures is particularly surprising.
• B) No; third-party payments weaken the incentive of healthcare consumers to economize, and therefore, the rapid growth of expenditures is an expected result.
• C) Yes; the price increases are surprising because healthcare suppliers have a strong incentive to provide the services at a low price when they are paid for by a third party.
• D) No; the growth of third-party payments will reduce the demand for healthcare, which will lead to both higher prices and expenditure levels.

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Definitions:

Product Costs

Costs directly associated with the manufacturing of products, including direct materials, direct labor, and manufacturing overhead.

Period Costs

Expenses that are not directly tied to the production process and are expensed in the period they are incurred.

Indirect Materials

Supplies used in the production process that are not directly traceable to a finished product.

Factory Overhead

Factory overhead refers to the indirect costs associated with manufacturing, excluding direct materials and direct labor.