Final answer:
A Health Maintenance Organization (HMO) is a health plan that contracts with a network of providers to offer services to members, often mitigating issues like adverse selection. HMOs are a type of private health insurance, which can also include employment-based and direct-purchase insurance, distinct from publicly funded healthcare.
Step-by-step explanation:
The student has asked about a type of health plan that contracts with a network of medical providers. This type of health plan is called a Health Maintenance Organization (HMO). An HMO provides a range of healthcare services through a network of providers who agree to supply services to members. Unlike a fee-for-service system, where providers are reimbursed for each service provided, an HMO compensates providers based on the number of patients they handle, allowing them to manage the allocation of resources based on patients' needs. Additionally, HMOs can help mitigate the issue of adverse selection by providing insurance to a large, diverse group of people where risks are pooled more effectively than in traditional insurance models where high-risk individuals may drive up costs.
Private healthcare insurance, such as HMOs, can have an employment-based or direct-purchase background. In contrast, public healthcare is typically funded or provided by the government. Knowing the type of health plan and its coverage is crucial since health insurance significantly affects potential costs, including deductibles, co-insurance, and co-payments.