If you have health insurance, you're most likely covered under a group plan provided by your employer or your spouse's employer. Some people who don't have the benefit of a group plan through work purchase their own individual policies or are covered under COBRA (more on that a little later). Others have no coverage at all.

No matter how old (or young) you are, you need health insurance to protect yourself against financial disaster if you become seriously ill or have an accident. These things happen to people of all ages. It's extremely foolhardy to go without some type of health insurance at any age. If you simply can't afford the premiums, buy a policy with a very high deductible ($5,000 for example) to limit your exposure.

Indemnity or Fee-for-Service Plans

Whether you're eligible for health insurance under an employer's plan or buying your own individual policy, you'll probably be offered a number of choices, including HMOs, PPOs, and point-of-service or indemnity plans. Indemnity plans, also referred to as fee-for-service plans, are traditional plans that allow you to go to any doctor you choose.

These plans provide the most flexibility, but due to spiraling health care costs and higher premiums, fewer employers are offering them. Employers are attempting to control costs by shifting more of the cost to employees who choose these plans instead of HMOs and PPOs. Often indemnity plans require you to pay up-front and submit a claim to your insurance company for reimbursement.

The biggest advantage of indemnity plans is that you can get your medical care anywhere you want without getting referrals or approvals from your primary-care physician. You don't have to go to doctors that belong to a specific network. Because this freedom of choice results in higher costs, insurance companies shift more of the costs to you, making indemnity plans the most expensive type of coverage.

Health Maintenance Organizations (HMOs)

An HMO is an association of health care professionals and medical facilities that sell a fixed package of health care services for a fixed price. Each patient has a primary-care physician, who is often referred to as a gatekeeper because services provided by a specialist are not covered unless the gatekeeper determines that the specialist is necessary.

The advantages of HMOs are lower and more predictable out-of-pocket costs and no claim forms. The major disadvantage is that services provided by health care professionals outside the network of your HMO aren't covered. If your network is small, your choices of doctors and other health professionals will be very limited, and services provided by specialists will be dependent on a referral from your primary physician.

In HMOs, it's possible that you might not receive the medical care you need because of incentives paid to HMO doctors by the insurance company that reward doctors who limit tests and referrals to specialists.

Preferred Provider Organizations (PPOs)

PPOs combine the managed-care aspects of an HMO with the flexibility of a fee-for-service plan. When you use doctors in your approved network, more of your medical costs are covered, but you can go outside the network of health care professionals and facilities to any health care provider of your choice when you feel it's necessary. The main advantage of a PPO is the flexibility and a wide choice of doctors and facilities. The only disadvantage is that it's more difficult to predict your out-of-pocket costs and you'll pay more for your health care if you go out of network.