History

• Health insurance plans became popular in the 1940s when businesses began offering them to their employees. As health care costs increased in the 1960s and '70s, Health Maintenance Organizations (HMOs) began to emerge.
  
  

Traditional Health Insurance

• Traditional health care plans are un-restrictive and simple. Participants choose their doctor or specialist, pay the bill and then submit a claim for reimbursement up to the plan limits. Alternatively, hospitals and some doctors may submit the claim as a courtesy and then charge the balance to the insured.
  
  

Health Maintenance Organizations

• Like traditional plans, HMOs also provide payment for health care, but with restrictions. Patients must select a primary physician that is contracted with the HMO, and then that physician manages all health care needs, including the selection of a specialist if warranted.
  
  

Considerations

• With traditional insurance, the primary contract is between the patient and insurance company. With HMOs, all three entities---the patient, the doctor and the HMO---are contractually connected.
  
  

Cost and Benefit Differences

• Traditional health insurance participants pay deductibles, and their premiums are higher than those of HMOs. While both provide quality care, HMOs focus on preventive medicine. Another variation called the PPO (Preferred Provider Organization) provides some of the benefits of both traditional insurance and HMOs.