Choosing the best healthcare plan for you can be a tricky process. You may have more questions than answers after reviewing your health benefits when starting a new job or during open enrollment.
High deductible health plans (HDHP) and preferred provider organization (PPO) plans are two common options employers provide for health insurance. One of these plans is not necessarily always better than the other. When it comes to choosing between an HDHP vs. PPO plan, the answer for the best plan differs by individual. It may even vary year-to-year for a person based on his or her circumstances.
Comparing the coverage and costs of HDHPs and PPOs can help you make a better selection.
HDHP vs. PPO
A high deductible plan is a type of health insurance with higher deductibles but lower premiums. You’ll pay less money each month but have more out-of-pocket costs for medical expenses before insurance coverage begins.
A preferred provider organization (PPO) is a plan type with lower deductibles but higher monthly premiums. You’ll pay more money each month but have lower out-of-pocket costs for medical services and may be able to access a wider range of services or providers.
“HDHPs typically benefit healthier consumers who do not expect to need much medical attention for the year, and the advantages include lower monthly premiums,” explains Susan Beaton, a former VP of Provider Services, Care Management, and Risk at Blue Cross and Blue Shield of Nebraska.
“A PPO, especially one with a low deductible, may suit those who expect frequent doctor visits and prescriptions due to something like a chronic condition,” Beaton says.
Pros and cons of HDHP with HSA
An HDHP is useful for those who do not anticipate having many medical expenses throughout the year. Typically, HDHPs are beneficial for younger people, individuals without families, and those who are generally healthy. Keep in mind that you may not have a copayment on doctor’s visits with an HDHP plan until you meet your high deductible.
“Be sure to ask if your employer offers an HDHP with a Health Savings Account (HSA),” advises Beaton. When you choose an HDHP, you may also be able to elect to use an HSA with an employer contribution. HSAs are sometimes not offered for employer-sponsored PPO plans—but, alternately, you may be able to use a flexible spending account (FSA) with PPO plan types.
An HSA is a pre-tax savings account that’s used as a payment method for approved medical expenses. The money in this savings account rolls over year-to-year; however, there is an annual max contribution that differs between individual plans ($3,550) and family plans ($7,100).
An HSA is especially advantageous because it uses pre-tax dollars and accrues tax-free earnings. HSAs cover a wide range of eligible expenses, including medical services, vision, dental care, and prescriptions. Your HSA funds will stay with you even if you change plans or move jobs. They can also be shared with your family.
The use of HDHPs with HSAs is becoming increasingly popular, especially for younger people. While an HSA may seem like an attractive benefit, these savings accounts can include fees for monthly maintenance and using your HSA debit card at the pharmacy or doctor’s office.
HSAs also require that you stay on top of your records and submit your receipts for approval of qualified medical expenses. Some claims may not be paid by the HSA admin if they’re not eligible expenses. Check with your HSA administrator before making questionable purchases at a pharmacy or elsewhere.
Also, if you use your HSA for non-qualified expenses before the age of 65, you will be faced with taxes and a 20% penalty, according to changes in the Affordable Care Act (ACA). Some people think of an HSA as an emergency fund, but with these considerations, you may think more carefully about how you view an HSA.
Pros and cons of PPO
PPOs are usually better for those who anticipate having more medical expenses throughout the year. These plans are typically beneficial for older people, those with families, and people with health conditions that require regular treatment.
As you age, encounter health issues, or support a family, a PPO may start to make more sense. PPOs have higher monthly insurance premiums, but they can help you save in the long run if you need healthcare services frequently. By investing more in your health insurance throughout the year, you can have more of your medical expenses covered by insurance.
PPOs also come with added flexibility advantages. On a PPO plan, you have the freedom to choose the doctor or hospital of your choice. Even if they aren’t in your network, your insurance frequently will still offer coverage. With a PPO, you can see a specialist or have a procedure or test done without approval from your primary care physician. If flexibility in your healthcare choices is important to you, a PPO plan may be better than an HDHP.
Which plan is worth it?
Now we’ll review how you decide whether an HDHP or a PPO plan would be better for you. First, consider the following questions:
- How often do you go to the doctor?
- Do you have a chronic health condition that requires frequent treatment?
- How often do you need emergency care?
- Do you have a planned surgery coming up?
- Are you expecting a baby this year?
- Do you support a spouse or a child’s medical expenses as well?
- How important is flexibility in choosing a preferred doctor?
- How important is flexibility for seeing a specialist?
If you frequently visit the doctor, have a chronic condition, often seek emergency care, have planned surgery, are expecting a baby, support multiple family member’s medical expenses, or care about flexibility, a PPO will be better than an HDHP. However, if none or few of these considerations matter to you, you will likely be better suited with an HDHP.
Note: HDHP and PPO plans are not your only health insurance options. There are also Health Maintenance Organizations (HMO), Exclusive Provider Organizations (EPO), and Point of Service plans (POS).
RELATED: HMO vs. PPO
Next, make sure you understand the key terms associated with each of these health insurance plans.
- Premium: How much you pay each month to have health insurance.
- Deductible: How much you have to pay upfront annually for medical care. Once you meet your deductible, health insurance coverage kicks in.
- Out-of-pocket limit: After spending this amount in a year for medical care out-of-pocket (not including premiums), your insurance will pay for 100% of eligible expenses.
- HSA: A pre-tax health savings account that can be used with an HDHP. Contributions to HSA plans roll over annually.
- Copay: A flat fee you pay for prescriptions, check-ups, and other healthcare services.
- Coinsurance: The percentage of costs you pay for covered medical expenses after you meet your deductible.
HDHP vs. PPO calculator
Understanding the terms above can help you navigate the calculations for how much you’d pay for health insurance. When you’re deciding between the two, you should first estimate your annual medical expenses. A healthy individual may not have many estimated expenses. However, they should consider the possibility of catching the flu or sustaining an injury.
Once you estimate your medical expenses, add up the monthly premium of each plan, plus their respective out-of-pocket limits. Assuming you use in-network treatment, this number will be your absolute out-of-pocket maximum cost for the year.
As an example, a PPO plan may charge a $1,250 deductible with a monthly premium of $600. After multiplying the monthly premium for 12 months ($600 x 12) and adding the deductible for out-of-pocket costs, this amounts to a total of $8,450 annually, not including copays or coinsurance. However, the out-of-pocket maximum for group plans in 2020 is $8,150 for individuals and $16,300 for families. Your out-of-pocket expenses may be equal to or less than this limit.
An HDHP may charge a $3,000 deductible with a monthly premium of $400. After multiplying the monthly premium for 12 months ($400 x 12) and adding the deductible for out-of-pocket costs, this amounts to a total of $7,800 annually. In 2020, out-of-pocket limits for HDHPs cannot exceed $6,900 for individuals or $13,800 for families. Therefore, you can expect your out-of-pocket costs to be equal to or less than the out-of-pocket limit.
In the second example, you pay $200 less each month on the premium and save $900 on annual costs, not including copays or coinsurance.
“If you find that the out-of-pocket cost for the HDHP is lower than the PPO option, it seems as though the smart choice would be to choose the HDHP,” says Beaton. “However, before making this choice, be sure your budget can handle it. Will you be able to pay $250 for an office visit on the day of your visit, or $800 at the emergency room, and so on, until your deductible is met? If your current budget does not have room to cover the higher costs at the time of service, then you need to think twice before choosing the HDHP plan.”
It may make more sense in the long run to choose a PPO plan with a higher premium each month but get more insurance coverage. This is especially true for those whose calculations show that the HDHP would cost more out-of-pocket or for those who aren’t willing to bet on not having any unexpected medical expenses arise throughout the year.
Other factors to consider
Choosing a health insurance plan is a highly individualized decision that requires weighing many factors, including:
- Your state of health
- Your family’s health
- Flexibility preferences for healthcare providers or specialists
- Your financial situation
- Whether you can pay more upfront with premiums for more coverage
- How much HSA funds you can use
- The out-of-pocket spending cap on each policy
If you still need help choosing a plan, consult a health insurance agent or HR personnel in your company. You have the opportunity to adjust your plan annually during open enrollment or in the case of life status changes. Qualifying life events include marriage or divorce, the birth of a child, etc.
Save with SingleCare
Regardless of your health insurance coverage, SingleCare coupons are available to all pharmacy customers. Even if you don’t have health insurance, you can use SingleCare to find discounts on most prescriptions.
SingleCare is not a form of health insurance, and it cannot be used in combination with your health insurance. Any out-of-pocket expenses for prescriptions discounted with a SingleCare coupon are not applied to your deductible.