Final answer:
A Health Maintenance Organization (HMO) is a health care system where providers are paid a fixed amount per patient enrolled, rather than for each service provided, aiming to reduce costs and encourage preventive care.
Step-by-step explanation:
A Health Maintenance Organization (HMO) is an alternative to the traditional fee-for-service health financing system. Instead of medical care providers being reimbursed based on individual services they perform, they receive a fixed payment for each patient enrolled in the HMO, regardless of how many services that patient uses. This payment model creates a structure where providers are incentivized to focus on preventive care and cost-effective treatment strategies to manage the health of their patients efficiently. Special attention is given to avoid the scenario of adverse selection, where insurance buyers with more knowledge of their health risks can subvert the cost balance within the insurance market.
By allocating resources based on the number of patients rather than services, HMOs aim to reduce costs and promote comprehensive care. They attempt to address issues of moral hazard, where insured patients may demand more care, by setting fixed fees per patient. This can potentially lead to a more integrated and economical healthcare system that prioritizes patient outcomes over the quantity of care.