Article Summary Administrative Overhead Costs Resulting from Insurance Companies Handling Reimbursement Claims

question 238

Multiple Choice

Article Summary
Administrative overhead costs resulting from insurance companies handling reimbursement claims is in large part the reason that health care in the United States is much more expensive than in other countries. An analysis on the administration costs of health care in the United States found that roughly 30 percent of the costs of health care are administrative and that more than 25 percent of health-sector employees work in administration. Health insurance companies are often paid a fixed percentage of the claims they administer, which gives them little to no impetus to increase efficiency and keep costs down.
Source: Jeffrey Pfeffer, "The Reason Health Care Is So Expensive: Insurance Companies," Bloomberg Businessweek, April 10, 2013.
-Refer to the Article Summary. Even if insurance companies were more efficient and brought administrative costs down, consumers would still pay less than the full cost of medical treatment. This would result in the market equilibrium price of medical services being ________ than the efficient equilibrium price, and the market equilibrium quantity of medical services being ________ than the efficient equilibrium quantity.

• A) greater; greater
• B) greater; less
• C) less; greater
• D) less; less

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Definitions:

Profit-Maximizing

A strategy where a firm determines the price and production level that generates the highest possible profit.

MRP

The additional revenue a firm gains from hiring an additional unit of input, such as labor, in the production of goods.

MRC

Marginal Revenue Cost, NO.

Pure Competition

A market structure in which a very large number of firms sells a standardized product, into which entry is very easy, in which the individual seller has no control over the product price, and in which there is no nonprice competition; a market characterized by a very large number of buyers and sellers.