Not all health care providers are alike. It's easy to assume that, like most product and service providers, health insurers basically offer the same services with different packaging. In reality, different health insurers have vastly different approaches to providing insurance, and it's important to understand these differences before you purchase medical coverage for you or your family.

The Three Main Types of Providers

Many traditional insurance companies (those that insure physical goods and property) offer a type of medical insurance called indemnity, or fee-for-service insurance. Fee-for-service is a lot like other traditional types of insurance: You pay a predetermined premium and a deductible, and then the insurance company covers a percentage of your medical bills. The deductible and the percentages vary widely, but it's common to see a deductible of several hundred dollars and an 80/20 ratio of coverage/co-pay for your medical bills.

Unlike fee-for-service plans (which allow you to go to pretty much any doctor or hospital), Preferred Provider Organizations (or PPOs) require you to get care from care providers in their network if you want the best coverage. PPOs allow you to go outside of their network, but the percentage of the cost they will pay for out-of-network care is substantially lower. You may also be forced to pay deductibles that don't apply to care within the network.

HMOs are a very common type of health insurance. The name actually stands for Health Maintenance Organization, and it is in fact the oldest type of managed health care. HMOs are usually the cheapest, but they are also the most restrictive type of health insurance. To get any kind of coverage, you are required to use only doctors and specialists that are in the HMO's network.