Final answer:
A Health Maintenance Organization (HMO) contracts with healthcare providers to offer medical benefits to subscribers at a predetermined price, focusing on preventive care and efficient resource use to prevent moral hazard and adverse selection in the insurance market.
Step-by-step explanation:
The plan that contracts with doctors and hospitals to provide medical benefits to subscribers at a predetermined price is a Health Maintenance Organization (HMO). An HMO typically operates by receiving a fixed amount per person enrolled, regardless of how many services that individual utilizes. These organizations are focused on providing preventive healthcare to keep their patients healthy and minimize the need for expensive treatments.
Fee-for-service is a contrasting system where providers are reimbursed individually for each service they deliver, which can lead to higher costs as providers are incentivized to offer more services. HMOs, by providing a set payment to healthcare providers, aim to create an incentive for the efficient allocation of healthcare resources to reduce unnecessary services, thus eliminating some of the issues associated with moral hazard and adverse selection.