Final answer:
Managed Care, including HMOs, differs from fee-for-service healthcare systems in reimbursement models and resource allocation. Adverse selection in insurance can lead to a risk imbalance due to information asymmetry between buyers and insurers.
Step-by-step explanation:
The subject in question pertains to the concept of Managed Care and its variations in the healthcare system. Managed Care is a system where medical care providers are reimbursed based on the number of patients they see, promoting efficient allocation of resources. Health Maintenance Organizations (HMOs) are a type of Managed Care where providers manage the care of enrolled patients for a fixed fee. The fee-for-service system, in contrast, reimburses providers based on the cost of each service they provide to patients. This payment model can lead to over-utilization of healthcare services since providers may have an incentive to increase the volume or complexity of services delivered. Another significant aspect of healthcare insurance mentioned is adverse selection, which poses the risk of high-risk individuals being more likely to purchase insurance, while low-risk individuals might forgo it due to cost, potentially leading to an imbalance in the insurance pool.