Final answer:
Health plans may act as both providers of care and insurers, exemplified by Health Maintenance Organizations (HMOs) that offer services for a fixed fee. Insurance companies often negotiate for lower healthcare rates, increasing the value for insured individuals and saving on payouts. Private insurance varies between employment-based and direct-purchase plans, with HMOs reimbursed based on patient numbers rather than services.
Step-by-step explanation:
In certain cases, health plans serve a dual role, acting both as a provider of care and as an insurer. This is often seen in the case of Health Maintenance Organizations (HMOs), which organize health care by providing services directly to patients for a fixed periodic fee. HMOs handle the allocation of resources between patients and have set network healthcare providers.
Insurance companies, by virtue of their large client base, can negotiate healthcare service rates which would be unavailable to individuals purchasing services on their own. This negotiation power benefits both consumers, who gain access to more affordable insurance, and the insurance company, which saves money when paying out claims due to the lower negotiated rates.
Two common forms of private insurance are employment-based insurance, often provided in whole or in part by an employer, and direct-purchase insurance, which is acquired directly from an insurance company. In contrast to a fee-for-service system, where providers are paid based on the cost of services they deliver, HMOs operate on a capitation basis, being reimbursed based on the number of patients they manage rather than on the individual services provided. Such models can introduce complexities like adverse selection, where insurance buyers with greater knowledge of their health risks might disproportionally affect the insurer's risk pool and pricing.