Most HMOs require you to select a specific doctor as your primary-care physician. This doctor is supposed to be your first port-of-call for most any medical condition, although exceptions are typically made for emergencies. As such, he or she will end up providing most of your medical care. Your choice of specialists and hospitals is usually limited to those already under contract with the HMO, and your primary care physician is the one who decides whether or not a referral to a specialist is actually necessary.

Primary care providers and hospitals in HMOs are typically paid in advance for a members healthcare. Therefore, patients can make office visits or hospital stays without filling out claim forms. Co-payments and deductibles, however, may still be required.

PPO stands for Preferred Provider Organization. PPOs combine some of the characteristics of HMOs with the flexibility of traditional fee-for-service plans.

As with an HMO, PPOs offer a specific set of doctors and hospitals that the member can choose from to get discounted rates. These are called preferred or in-network providers. PPO members are free to see any in-network provider at any time. Members can also see doctors who are not in the network, but the co-insurance payment for those doctors will be higher.

National survey data from Mercer Human Resources Consulting shows that in 2002, 49% of employees in the United States were enrolled in PPO plans. In the same year, 31% of employees were enrolled in HMOs, 14 percent in so-called POS plans, and 6% in indemnity plans with no provider network.