Final answer:
A managed care organization like an HMO provides healthcare without using a fee-for-service system, instead offering providers a fixed reimbursement rate per patient, focusing on efficient and preventive care to mitigate moral hazard and adverse selection in healthcare.
Step-by-step explanation:
A managed care organization, such as a health maintenance organization (HMO), delivers healthcare services in a way that does not utilize a fee-for-service model. In this system, medical care providers receive a fixed amount of reimbursement per person enrolled, regardless of how many services are provided to each patient. This system is designed to focus on provider incentives to offer efficient care and thus reduce the moral hazard that arises when providers are paid more for delivering additional services.
Adverse selection is a risk in insurance markets where buyers may know more about their health risks than the insurance company, potentially leading to underpricing or overpricing of insurance premiums. By providing a flat fee per patient, HMOs aim to mitigate the risks of both moral hazard and adverse selection while focusing on preventive care to avoid future high costs due to worsening health conditions.
Many doctors now receive a combination of managed care payments and some fee-for-service reimbursements, particularly for treating specific health conditions, offering a blended model that aims to incentivize both comprehensive and high-quality care.