Final answer:
The individual member chooses a primary care physician in an HMO from within the network to manage their health care needs, serving as the main contact and gateway to additional services, which helps mitigate moral hazard and adverse selection issues in health insurance.
Step-by-step explanation:
When dealing with a health maintenance organization (HMO), the choice of a primary care physician rests in the hands of the individual member. It is not chosen by the insurer, a referral physician, nor is it a situation where HMO subscribers do not have a primary care physician at all. HMO plans often require members to select a primary care physician from within their network, and this physician serves as the member's main point of contact for most medical needs, including referrals to specialists. The primary care physician plays a critical role in coordinating care and ensuring that patients receive the appropriate services while managing costs by minimizing unnecessary or overly expensive treatments. This helps address the challenges related to moral hazard and adverse selection that can arise in health insurance markets.
Adverse selection is a concept where insurance buyers have more knowledge about their health risks than the insurance company, potentially leading to a scenario where high-risk individuals are more likely to seek insurance. The fixed payment structure of HMOs creates incentives for healthcare providers to offer efficient care to avoid costlier issues down the road. Today, physicians often receive compensation through a blend of managed care and fee-for-service arrangements, blending a steady payment per patient with bonuses for managing specific health conditions effectively.