Managed care is probably the most popular, and affordable, type of health insurance today. 

Health Maintenance Organizations (HMO) are the oldest form of managed care. They were created in the 1980's as an alternative to indemnity insurance. They are highlighted by their focus on preventative care and efficiency measures. 

HMOs were initially hailed as the future of health insurance, but they haven't quite lived up to the hype. They've been heavily criticized for their inflexibility. Plan administrators have been accused of making decisions on a financial, rather than medical, basis. 

Despite this, HMOs usually offer the lowest rates. They can range in quality, but there are some great HMO plans that have provided excellent service to millions. 

How HMOs Work
HMOs focus on preventative care. They seek to reduce health care costs by identifying and treating illness early on, before it becomes a more serious--and costly--situation. That said, HMO plans usually do a better job in covering routine check-ups and vaccinations than other types of health insurance. Additionally, they frequently offer general well-being incentives such as smoking cessation or weight loss programs. 

The HMO functions as a healthcare network. Aside from emergencies, your Primary Care Physician (PCP) serves as your primary and initial point of contact for all health concerns--sort of like an information hub. The PCP then refers you to appropriate specialists, if needed. If you elect to go to a doctor or hospital outside the HMO network, you'll have to pay the fees on your own. 

The intent of having a PCP is to prevent unnecessary doctor visits, thus saving money. In reality, this system sometimes creates unneeded visits. For instance, if a woman uses a pregnancy kit and discovers she's pregnant, then she probably knows she needs to see an Ob/Gyn. Most women won't need a referral to figure that out. 

With HMOs, premiums are paid monthly. Since HMOs are considered pre-paid health care, you usually won't have to pay a deductible, but plans vary. When you visit a doctor, go to the hospital, get a prescription or receive other health services, you will have to make a small co-payment ranging from $10-$25. 

Unlike indemnity plans, HMOs do not institute a life-time limit on what they will pay for. 

Types of HMOs
There are several common HMO structures: 

• Staff or Group Model HMO. The HMO owns and operates their own medical facilities with physicians, specialists, hospitals and emergency services and supportive staff.
  

• Individual Practice Association (IPA). The HMO does not have their own facilities or practitioners, and contracts with hospitals and providers outside the organization in order to offer comprehensive services. To reduce premium rates, they centralize administrative and billing services. In exchange for referral volume, practitioners agree to charge lower fees to HMO patients.
  

• Exclusive Provider Organization (EPO). This works like an IPA, but you don't always have to have a primary care physician. You can self-refer to other physicians and specialists within the network. Generally more expensive that other HMO plans.