Final answer:
The HMO Act of 1973 mandated that employers provide an HMO alternative to traditional health insurance, fostering the growth of HMOs as a way to control healthcare costs and manage resource allocation.
Step-by-step explanation:
The HMO Act of 1973 required employers to offer an HMO alternative to conventional health insurance. This legislation aimed at increasing competition and reducing costs in the healthcare sector by encouraging the establishment and growth of Health Maintenance Organizations (HMOs). Unlike fee-for-service health financing systems, where providers are reimbursed based on the cost of services they provide, HMOs offer a fixed rate of reimbursement based on patient enrollment, which can help manage healthcare resource allocation and address issues like moral hazard and adverse selection. Adverse selection occurs when insurance buyers have more knowledge about their healthcare risks than insurers do, leading to imbalances in the insurance market, and mandatory insurance purchase requirements, like those in the ACA, attempt to mitigate this problem.