Before the days of managed-care health insurance plans, most people had fee-for-service plans, or indemnity insurance. This type of plan offered you the freedom to go to any doctor you wanted. However, today's health insurance plans are dominated by the managed-care model found in HMO, PPO and POS plans. In these plans, the insurance company creates an entire list of doctors and facilities from which you have to choose. This list is known as the provider network -- it's composed of physicians, hospitals and other providers that offer health care services to members of that health insurance plan.
So, how are these provider networks created?
To stay competitive, health insurance plans must have a fairly diverse list of providers and hospitals within their networks. The same is true for doctors and hospitals, which often rely on inclusion in major plans in order to keep their doors open. To become part of a network, a provider must have a contract with the health insurance company. This agreement usually gives the doctors and other providers a steady stream of patients and offers the health insurance companies service at reduced rates. Because of this, managed-care plans are usually more affordable than fee-for-service plans -- but they impose limitations on your freedom to choose your own medical providers.
A health insurance company usually determines who it contracts with based on how aggressive a provider's discount is and how available the provider's services are to the company's customers. However, most plans consider other credentials for inclusion in the network, including the provider's educational background and board certification.
Once providers are included in a network, they agree to follow the plan's rules. We'll talk about the network rules for specific managed-care plans in the next section.