Which of the following best describes how health insurance networks operate?

Health insurance networks fundamentally operate by contracting with a select group of healthcare providers to offer services at negotiated rates. This approach allows insurance companies to create a network of doctors, hospitals, and specialists that policyholders can utilize. The negotiated rates typically result in lower costs for both the insurer and the insured, fostering a mutually beneficial relationship.

By establishing these contracts, insurers can manage healthcare costs more effectively, providing members access to quality care while keeping premiums relatively lower than they might be without such agreements. This model supports a structured approach to care and often includes incentives for policyholders to use in-network providers, which further enhances cost efficiency and care coordination.

The other options present concepts that do not accurately capture how health insurance networks function. Defining limits of coverage across all states relates more to regulatory frameworks than network operations. Offering services free of charge contradicts the fundamental principle of insurance, which is to share risk rather than provide free care. Lastly, requiring policyholders to see a primary care physician before seeing a specialist pertains more to referral systems in managed care rather than directly describing the operational function of health insurance networks.