Final answer:
The primary difference between fee-for-service and HMOs is the reimbursement model, with the former paying per service and the latter paying a set fee per patient. Adverse selection affects insurance markets when there is an asymmetry in risk knowledge. A balanced healthcare system manages the trade-offs between quality care, equity, access, and costs.
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 for medical care providers. In a fee-for-service system, providers are reimbursed for each service they offer, incentivizing the provision of more care.
In contrast, HMOs pay providers a fixed fee per patient, regardless of the number of services provided, thereby encouraging resource allocation between patients, and potentially leading to less comprehensive individual patient care but better managed overall costs.
Adverse selection is another concern in healthcare systems, which occurs when insurance buyers have more knowledge about their health risks than the insurance company, leading to a disproportion of high-risk individuals purchasing insurance, thereby increasing the costs for the insurer.
Creating a balanced healthcare system involves addressing the tension between the quality of care provided, the approach to equity and access, and the control of costs, which varies significantly among different healthcare systems around the world.