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:

IRR

Internal Rate of Return; a financial metric used to evaluate the profitability of investments, indicating the annualized effective compounded return rate.

NPV

Net Present Value, a calculation to determine the value of a projected investment by subtracting the present value of cash outflows from the present value of cash inflows.

Equivalent Annual Annuity

A financial concept used to evaluate the annual return of an investment over its lifespan, making it easier to compare different investments.

Cost of Capital

The rate of return a company must earn on its investments to maintain its market value and attract funds.