Final answer:
The chief distinction between fee-for-service healthcare and HMOs concerns the reimbursement model used for healthcare providers; fee-for-service charges for each service, while HMOs pay a set fee per patient. Fee-for-service is more susceptible to adverse selection.
Step-by-step explanation:
The key difference between a fee-for-service healthcare system and a system based on health maintenance organizations (HMOs) lies in the reimbursement model. In a fee-for-service system, healthcare providers get paid based on the individual services they provide to a patient. In contrast, HMOs pay providers a fixed amount per patient, incentivizing the efficient allocation of resources among patients as the provider handles the care for a set number of individuals regardless of the individual services provided.
Moreover, fee-for-service systems are subject to adverse selection, where insurance companies may end up insuring more high-risk individuals because low-risk parties may avoid overpriced insurance plans. This makes the fee-for-service model prone to issues around incentivizing all parties to be insured, as higher costs discourage those with lower risks from participating in the insurance pool.