With medical costs rising, many Americans are researching the advantages of owning their own health insurance policy; however, before searching for a policy it’s important to know the different types of plans available.

Health insurance plans typically fall into two large, very broad categories: managed care plans and indemnity plans.

Managed Care – managed care plans are the most popular in the United States. These plans are typically less expensive than other plans because they focus on managing health care costs and encourage preventative measures. Managed care plans also contract with doctors and health care facilities to provide services for members at discounted rates.

There are two popular types of managed health care plans – Health Maintenance Organizations (HMO) and Preferred Provider Organizations (PPO). The main difference between these two types of managed care plans is that in an HMO, members are required to choose a PCP (Primary Care Physician) that will be responsible for managing all aspects of your health care and will provide referrals if specialist care is needed. In a PPO, members are not required to choose a PCP and referrals are not needed for specialist treatment. If members receive medical treatment outside of the plans network of physicians or facilities, the member will incur more of the total costs.

One lesser-known type of managed care plan is the Point of Service (POS) plan. This plan combines the freedom of choice like the PPO and the lower cost like an HMO. In a POS members are required to choose a PCP within the network, bur referrals can be made outside the network.

Fee-For-Service (Indemnity) Plans – these type plans offer more flexibility than a managed care plan. Members can choose any doctor or facility and the costs are split, on a percentage basis, between the plan and the member.

Understanding the difference in health insurance plans is imperative in choosing the right one for yourself or your family.