Health Maintenance Organizations (HMOs): Cost-Effective Healthcare Financing

What is the defining feature of Health Maintenance Organizations (HMOs) in terms of healthcare financing?

Options: A. Preferred Provider Organization (PPO) B. Health Maintenance Organization (HMO) C. Point-of-Service (POS) plan D. Exclusive Provider Organization (EPO) Final answer: Capitation

Answer:

Capitation, a prepaid per person basis for services, is a defining feature of Health Maintenance Organizations (HMOs), contrasting with fee-for-service models by providing more cost-effective healthcare financing.

Services are provided on a prepaid per person basis, known as capitation, in a Health Maintenance Organization (HMO). In healthcare financing, HMOs operate differently from fee-for-service models, as they receive a fixed amount per enrolled person, irrespective of the number of services provided. This approach can mitigate issues like adverse selection and moral hazard by providing incentives for the provider to limit unnecessary services while ensuring necessary care, thereby controlling costs.