Final answer:
It is true that health plans can act as both the provider of care and the insurer, notably in Health Maintenance Organizations (HMOs). They handle the pooled risks of adverse selection by having a mix of clients and negotiating better rates with service providers. This setup helps HMOs monitor costs and optimize resource distribution among patients.
Step-by-step explanation:
It is true that in some cases, health plans may act as both a provider of care and an insurer. This model is commonly seen in Health Maintenance Organizations (HMOs). In a fee-for-service system, medical care providers are reimbursed based on the specific services they provide to patients. However, HMOs operate differently, as they provide both the insurance coverage and the health care services. In HMOs, providers are reimbursed based on the number of patients they handle, making them responsible for managing the patients' care effectively while keeping costs contained.
The insurance and care provision combination can help counteract adverse selection, which is a situation where there is asymmetric information between insurance buyers and the insurance company. Typically, individuals who are at higher risk may be more inclined to buy insurance, which they perceive as being a beneficial deal for them, whereas those at lower risk may forego it, deeming it too expensive. The insurance aspect of HMOs allows them to effectively negotiate lower rates with service providers due to their large clientele, offering better terms than what individuals might secure independently.
In the United States, one way to address adverse selection has been through offering health insurance through employers. This pools a mix of individuals with varying health risks, thus alleviating concern from the insurer's perspective. Furthermore, the introduction of The Affordable Care Act and state government-sponsored health exchange markets also promotes a more diverse risk pool. Despite these measures, adverse selection is still a relevant issue, particularly as many small businesses may not offer health insurance, leaving individuals to navigate the market on their own.