Final answer:
The key distinction between fee-for-service healthcare and HMO-based care lies in the payment model and incentives for care provision. Fee-for-service encourages more care delivery, whereas HMOs pay a fixed amount per patient, incentivizing cost control.
Step-by-step explanation:
The key difference between a fee-for-service healthcare system and one based on health maintenance organizations (HMOs) is the payment structure and the resulting incentives for healthcare providers. In a fee-for-service system, providers are compensated for each service they perform, which could encourage them to provide more services. Conversely, HMOs pay a fixed amount per patient, which may incentivize providers to limit services to control costs. This structure in HMOs can reduce the moral hazard problem by limiting unnecessary healthcare services, but it's essential to balance cost control with necessary patient care to avoid leading to worse health outcomes and higher costs down the line.