A final way of reducing moral hazard, which is especially applicable to health care, is to focus on healthcare

incentives of providers rather than consumers. Traditionally, most health care in the United States has been

provided on a fee-for-service basis, which means that medical care providers are paid for the services they

provide and are paid more if they provide additional services. However, in the last decade or so, the structure

of healthcare provision has shifted to an emphasis on health maintenance organizations (HMOs). A health

maintenance organization (HMO) provides healthcare that receives a fixed amount per person enrolled in the

plan—regardless of how many services are provided. In this case, a patient with insurance has an incentive to

demand more care, but the healthcare provider, which is receiving only a fixed payment, has an incentive to

reduce the moral hazard problem by limiting the quantity of care provided—as long as it will not lead to worse
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