Final answer:
A deductible is a predetermined amount that must be paid out-of-pocket by a policyholder before an insurance company covers expenses; it's a mechanism in health insurance to prevent moral hazard. Co-payments and coinsurance are additional forms of cost-sharing even after a deductible is met and are different from fee-for-service or HMO payment arrangements.
Step-by-step explanation:
The fixed amount of money a policyholder must pay each year before an insurance company starts covering expenses is known as a deductible. This upfront cost is a common feature in various insurance policies, including health insurance. As an example, if a health insurance plan has a $1,000 deductible, the insured person must pay that amount out-of-pocket for medical services before the insurance benefits apply. After the deductible has been met, the policyholder might still be responsible for co-payments or co-insurance. A co-payment is a fixed fee for a specific service, such as $20 for a doctor's visit, while coinsurance is a shared cost between the insurer and insured, often split at a certain percentage, such as 80/20, where the insurer covers 80% and the insured covers 20% of the costs.
To mitigate moral hazard, which occurs when the insured party takes more risks because they do not bear the full cost of those risks, these cost-sharing mechanisms ensure that the policyholder has some financial responsibility. In terms of health care provider payment arrangements, fee-for-service has providers receiving payment for each service rendered, whereas a health maintenance organization (HMO) involves a fixed amount paid per enrollee, regardless of service usage.