Final answer:
Ex post Cost-Based Compensation is a reimbursement method where providers are paid based on the actual costs after services are rendered, contrasting with prepaid methods like those of HMOs. The term also encapsulates the concept of additional external costs affecting third parties outside the immediate market transaction.
Step-by-step explanation:
Ex post Cost-Based Compensation is a method of reimbursement in a fee-for-service health care system where medical care providers are paid after services have been provided, based on the actual costs incurred for those services. This system contrasts with arrangements such as Health Maintenance Organizations (HMOs), where providers are compensated based on the number of patients they handle, irrespective of the individual costs generated by each patient. Challenges such as adverse selection affect the insurance market when buyers possess more information about their risks than the insurance providers, potentially leading to a mismatch in insurance pricing for different risk groups.
Additionally, the term refers to the principles within an economic context where additional external costs may be present. Such costs are additional expenses borne by third parties that are not directly involved in the production or consumption of a good or service but are affected by the production process. These are often not reflected in the market prices, leading to market inefficiencies.