Final answer:
In healthcare, a provider can bill a third-party payer for services in a fee-for-service system or receive a set payment per patient in an HMO. Both arrangements are subject to adverse selection, impacting the insurance market.
Step-by-step explanation:
Transactions between medical care providers and third-party payers are common in healthcare systems. Here are two examples:
- In a fee-for-service system, a healthcare provider might bill an insurance company for each individual procedure or service delivered to a patient. The third-party payer then reimburses the provider based on the agreed-upon fees for those services.
- Under a health maintenance organization (HMO), a provider might receive a set payment for each enrolled patient regardless of the number of services provided, known as capitation. This arrangement requires the provider to manage the patient's care within the budget received from the third-party payer.
Both systems are affected by adverse selection, a scenario where individuals with higher risk are more likely to purchase insurance, potentially leading to increased costs for the insurance company.