Final answer:
HMOs are characterized by reimbursement based on the number of patients and resource allocation, while fee-for-service systems are based on the cost of services. HMOs control costs by limiting unnecessary care. Patients in HMOs must choose a primary care physician and obtain referrals for specialists.
Step-by-step explanation:
The distinguishing characteristics of an HMO (Health Maintenance Organization) include reimbursement based on the number of patients they handle and the allocation of resources between patients who receive different levels of healthcare services. In a fee-for-service system, medical care providers are reimbursed based on the cost of services they provide. However, in an HMO, providers receive a fixed amount per person enrolled in the plan, regardless of the number of services provided. This incentivizes the healthcare provider to control costs and limit unnecessary care to reduce the moral hazard problem. HMOs typically require patients to choose a primary care physician and obtain referrals to see specialists.