Choosing the best healthcare plan for yourself can be quite daunting, as many factors should be considered. The HDHP vs. PPO debate continues to rage on as medical benefits continue to become more confusing. Before deciding between these health plans, take a quick look at the following factors: pricing, coverage, list of diseases and conditions included, pre-existing conditions, etc.
The two most common premium healthcare plan options offered by employers are:
- High Deductible Health Plan (HDHP)
- Preferred Provider Organization (PPO) Plans
When comparing a high deductible health plan and a preferred provider organization plan, you should understand that neither is necessarily better than the other in all circumstances. However, both health care plans offer a wide array of similarities, differences, and advantages that may help you choose the right plan for you and your family.
This post is divided into several important chapters:
Chapter 1: What is an HDHP?
Chapter 2: What is a PPO?
Chapter 3: Which plan is better, an HDHP or PPO?
Chapter 4: The different scenarios
What Is An HDHP (High Deductible Health Plan)?
Do you want higher deductibles but a lower premium? Well, that is exactly what you get when you opt for an HDHP plan. If you decide to go with this option, you will have to pay less money each month. However, you will have the option of more out-of-pocket costs for medical expenses before insurance coverage begins.
Therefore, if you’re willing to pay higher deductibles and want to pay less, HDHP is here to help.
However, before you write off high deductibles, there are several strategies you can use to lower your deductible, which may save you money in the end.
What Are the Pros And Cons Of High Deductible Health Plans?
According to the Bureau of Labor Statistics, in 2010, only 15 percent of the employers offered an HDHP to their employees. However, by 2018, the percentage reached an impressive 45 percent. This is because more and more people are looking to maximize their savings by paying lower monthly premiums but being willing to pay the higher deductible and higher out-of-pocket maximums.
However, this plan does come with its own set of pros and cons, which may make or break your decision.
The Pros Of HDHP Plans
Let’s take a look at the pros associated with the HDHP health care plan.
Lower Premiums And Higher Savings
The first and foremost benefit of opting for an HDHP plan is you will pay lower monthly premiums. How much lower depends on the coverage paid by your employer. However, most plans offer significant discounts in contrast to traditional PPO and HMO plans.
By opting for a lower monthly payment, you can easily cut down on health care costs and save money on health expenses.
This is an amazing option considering that health care costs are consistently rising, and people are getting a little anxious about paying high medical expenses – especially when they are relatively healthy.
Therefore, an HDHP plan allows them to pay lower premiums and enjoy a wide array of medical benefits without stretching their financial budget.
Health Savings Accounts (HSA) – The Secret HDHP Weapon
The second most important benefit of using an HDHP plan is the associated tax shelter with this health care plan. If you decide to go with the HDHP, plan to open a Health Savings Account (HSA). This triple tax-free account allows you to enjoy the following benefits and options to pay for your medical bills:
- Make tax-free contributions
- Generate tax-free growth
- Use tax-free withdrawals for medical expenses
This way, you will not have to pay any additional tax on your health expenses, and you can save up tax-free money to be used for your future medical expenses.
This is yet another important feature and benefit of an HDHP plan that allows you to maximize your savings and easily cater to your medical bills and expenses without having to put a strain on your financial budget.
How A HSA Plan Works For You
Many employers who offer an HDHP offer additional HSA Plan benefits. For instance, many employers will contribute a certain dollar amount into your HSA if you elect to subscribe to an HDHP with an HSA.
If your high deductible health plan has a yearly family deductible of $3,000 out of pocket, it’s not uncommon for your employer to contribute $1,000 to $1,500 into your Health Savings Account at the beginning of the year. This lowers your total out of pocket maximum to only $1,500 until your health care is covered in part or whole by co-insurance (if you have a $3,000 deductible).
As you can see, HDHPs are beneficial for employees and employers, and employers are becoming more willing to help employees fund these types of accounts.
Using pre-tax dollars for your medical care, the HSA is an extremely valuable tool to lower healthcare costs.
Things you can use HSA funds for:
With an HSA, you are given an HSA debit card and can make tax-free purchases with these funds at even traditional retailers.
- Primary doctor regular checkups and office visits
- Preventative care
- Prescription drugs
- Dental care
- Continuous medication
- Hospital care
- Purchases for medical items at local retailers (aspirin, cold medication, etc.)
Investing HSA Funds
If you have built up a few thousand dollars in your health savings account, you also have the option of investing these funds in mutual funds. Not only can you invest tax-free, but your account will also grow tax-free!
The tax advantages of the HDHP with an HSA are second to none.
More Providers In Your Network
Another benefit you will get to enjoy if you opt for an HDHP plan is a broader provider network. This way, you will be able to get help from a wider array of physicians and primary care doctors who can cater to your medical requests and requirements at any time.
The list of providers in your network becomes longer with the help of an HDHP plan. Moreover, with the help of a long list, you can also enjoy health care benefits while traveling to other cities or even states.
Employer Match And Co-Insurance
This is yet another benefit of using an HDHP plan. If you decide to go with this plan, as stated earlier, many employers will match or offer an additional contribution to your HSA. This means that you will be able to claim more free money for your medical expenses if your employer offers you the HDHP health care option.
The Cons of HDHP Plans
Let’s look at the associated cons of using an HDHP plan for your health care requirements.
A Higher Deductible
This plan comes with a higher deductible, which means you will have to pay more out of your pocket for your medical costs. However, these cons can easily be offset by the defined maximum of your HDHP plan. You can use your monthly premium savings or the HSA to pay for your medical expenses.
Not Enough Support For Regular Visits
Another con of using the HDHP plan is that it may not help you with your chronic condition or frequent doctor visits. If you have to regularly visit the doctor for a chronic condition, an HDHP plan may not be the best option. You will have to pay more out of pocket for these visits – until you reach your deductible.
However, after reaching your deductible, most costs are significantly covered by co-insurance after being met (depending on your specific plan)
What Is A PPO (Preferred Provider Organization) Plan?
PPO stands for a preferred provider organization plan, and this plan is perfect for you if you want the advantage of a lower deductible and a wide range of specialty services and in-network providers. However, you may have to pay more in monthly premiums, but you will save money on a lower deductible.
These plans have been around longer than HDHP plans, and this is why these are also known as the traditional health care plans in the market. Let’s take a look at the associated pros and cons of PPO plans.
What Are The Pros And Cons Of PPO Plans?
Here are the upsides of using a PPO plan.
The Pros of PPO Plans
Lower Deductibles And Co-Payment
If you choose to go with a PPO plan, you will pay a lower deductible than its counterpart, an HDHP plan. If you frequently need medical care, the idea of a co-payment rather than the full out of pocket costs per visit can be an enticing benefit.
This way, you will only have to pay as little as possible before your health care plan starts covering most of your medical costs.
Lower Out-Of-Pocket Maximum
With the help of a PPO plan, you will also have to pay a lower maximum out-of-pocket cost than the counterpart HDHP plan.
This way, you will only have to spend the minimum amount of money on your medical expenses. Your health care benefits and health care plan will cover most of your medical expenses, therefore, allowing you to save as much money as possible.
The Cons of PPO Plans
Higher Monthly Premiums
If you decide to go with the PPO plan, you will have to pay higher monthly premiums to take a toll on your financial savings. Whether or not you use your health care plan in that month, you will have to pay a higher monthly premium.
Smaller Network of Providers
Moreover, another disadvantage of using a PPO plan is the preferred provider wrinkle. If you decide to go with a PPO plan, you may have a smaller list and network of possible providers than an HDHP plan.
Moreover, to save money and get the best rate on your medical care, you will have to stick to that list, and you will have to make sure that you find a preferred provider within that list. If you decide to go for someone out of your network and preferred providers list, you will have to pay a high out-of-network bill.
No Access To A Health Savings Account
Unfortunately, an HSA is only available when combined with an HDHP. An HSA is not available to employees who elect a PPO plan.
What Is The Cost Difference Between HDHP Plans And PPO Plans?
Based on your current medical needs, deciding between an HDHP vs. PPO plan comes down to three scenarios:
- Both plans cost you the same in the end
- You save more money with a PPO plan.
- You save more money with an HDHP plan.
To properly understand the cost difference between HDHP plans and PPO plans, we will look at examples to see how these two options compare.
Imagine you are a healthy human being who is looking to save money on premiums and wants to take advantage of the HSA option. Therefore, you will go with an HDHP plan.
The plan comes with a $150 monthly premium, and it sounds like an amazing reduction in your monthly expenses. However, the overall annual deductible is $3,000.
On the other hand, if you are currently going through a chronic condition and frequently visit the doctor, you can opt for a PPO plan. It will come with a monthly premium of $450. It may sound like a huge deal at the moment, but your overall detectible will be an annual amount of $900.
Therefore, if you are a healthy human being, an HDHP plan sounds better for you. A PPO plan sounds better if you have frequent doctor visits.
However, we still need to compare both of these options’ costs and see which one is a better fit for modern-day employees. Let’s put everything into perspective.
Using the above scenarios, the total annual premium you will pay if you decide to go with an HDHP plan will be $1,800, whereas the total annual premium for your PPO plan will be $5,400.
The overall annual deductible will be $3,000 for an HDHP plan, and the overall deductible for the entire year will be $900 for your PPO plan.
At the end of the day, the total cost before coinsurance supported by your company and health care plan will come out to $4,800 for your HDHP plan and $6,300 for the PPO plan.
According to these numbers, it will look like that both of these options come pretty close in terms of the total cost before coinsurance. However, we still have to consider the HSA option supported by the HDHP plan and see how this factors into the total cost before coinsurance.
How Does An HSA Factor Into The Overall Cost
One of the major benefits of using an HDHP plan is the additional benefit of your employer’s associated HSA option. This tax-free account gives you the final edge over PPO plans and stands out on top.
This HSA helps pay for additional medical expenses. Your employer will help you set up a tax-free account that can come in handy to pay for higher out-of-pocket expenses.
The HSA Offers Several Additional Benefits:
The lower premiums result in lower annual medical costs out of your pocket. This means you have to pay a lower amount to cover your frequent doctor visits and pay a lesser amount of money for your health care options and medical care.
Secondly, you can easily save up for a rainy day in a completely tax-free investment option, and you can also withdraw this money without having to pay any tax for sudden medical expenses. This way, you can have tax-free money for your medical costs.
Here is how an HSA can help you cover your medical expenses if you decide to go with the HDHP option:
All the money you put into your HSA is completely tax-free, and you will not have to pay any additional tax to cover your medical expenses. You can save this money for a rainy day without having to pay any tax and make use of this money to cover your additional medical care charges and healthcare costs.
Another important benefit of using an HSA is that you can easily request the funds to be invested, and the growth will also be completely tax-free. This means that any additional money you earn by investing your existing capital will be free of additional charges and taxes. You will be able to enjoy more money to cover your medical expenses and medical costs.
Another amazing benefit of using an HSA is when you withdraw the money, the money will also be tax-free as long as you use it to cover your medical expenses and not for unqualified expenses. This means you can easily use this money for your medical bills without having to worry about paying any additional charges of taxes on the withdrawal process.
If you decide to go with an HSA your money will not expire at the end of every year. Instead, your money will be rolled over to next year, and it will be constantly saved and accumulated as long as you have the account.
Additionally, all your savings and earnings from the investment will also be rolled over to the next year, and you will end up with a lot of savings in your account to take care of your medical bills.
An HSA also offers you the option of using the employer match on your contributions. This way, you can enjoy similar perks as a 401k for your medical expenses.
If you currently work for an employer and use their health care option to open an HSA, your account will not be closed when you leave the job and find a new company. This way, you will be able to use your HSA for as long as you want, and you will not have to stay in a single place or company to keep using your health care benefits.
Lastly, if you still have funds in your account when you turn 65, the laws for your HSA will change, and you will be able to enjoy a wider array of health benefits from the same HSA. This means that you will not be required to use your HSA money and savings for only medical expenses, and you will be able to use the saved amount for a retirement plan.
Which Plan Is Better? PPO Vs HDHP?
Choosing the right plan type can be quite tricky and difficult. Preventive care is something that not everyone can enjoy, but you can let your health care plan serve you with the right health insurer.
Before you finalize the decision to choose between an HDHP plan or a PPO plan, every health insurer recommends a few questions you need to answer to understand which plan would be a perfect fit for you.
How Often Do You Have To Visit The Doctor?
The first question that you need to answer is how often do you actually go to the doctor. If you have to visit the doctor frequently and you have to visit the doctor every month, an HDHP plan may not be suitable for you as it comes with higher deductibles, and the copayment only kicks in on higher payments as per the insurance company policies.
Therefore, you will have to pay a lot of money out of your own pocket to cover your medical expenses before the copayment takes in, and you may end up losing money with an HDHP plan with higher pocket expenses.
Therefore, if you have to visit a doctor every other week, it may make sense to go with the PPO plan to allow you lower deductibles that can easily take care of frequent doctor visits. This way, your employer’s copayment will kick in as soon as possible with the help of lower deductibles.
Are You Currently Suffering From Any Chronic Condition?
Another question that you need to answer before choosing between an HDHP and a PPO plan is whether you have a chronic health condition requiring intensive and frequent treatment.
If you have a chronic condition and the monthly charges are higher than the detectible for your HDHP plan, then an HDHP plan with an HSA can work to your benefit.
On the other hand, if you have a chronic medical condition, but your overall monthly medical expenses will not exceed your deductible, you should go with a PPO plan. This way, even smaller medical expenses will be taken care of with the help of your chosen health care option, and you will not have to pay higher premiums.
How Often Do You Go To The Emergency Room?
Another question that you need to answer before choosing between the two options is your emergency care trips ratio. How many times do you have to visit the local emergency care center or a primary care physician for emergency medical treatment?
If you have to visit the emergency care center frequently, an HDHP plan with an HSA will be your best bet. However, if you rarely visit the emergency care center and do not have to worry about paying a lot of money out of your pocket, the PPO plan may be more suitable.
Do You Have Any Expensive Medical Costs Coming Up?
Another important factor you need to consider is whether you have a planned surgery or operation coming up in the next year. If you are currently going through a medical condition and you have surgery planned for the coming years, you need to go with an HDHP plan with an HSA as it will offer you higher deductibles and will make sure to take care of your medical bills without any hassles.
On the other hand, if you do not have a planned surgery coming up in the next year or any other expensive medical costs, a PPO plan may save you money.
An HDHP plan will make sure to take care of your expensive medical bills with the help of higher deductibles. Moreover, the HDHP plan will ensure that you get the recommended and required medical coverage from your employer’s tax-free account option.
Do You Have Any Family-Related Medical Expenses?
If you are married or expecting a baby within the next year or the coming few years, you need to go with an HDHP option. An HDHP with an HSA plan will easily take care of your pregnancy costs and your baby’s medical expenses as well.
Therefore, this is another question that you need to ask yourself whether you plan to have or raise a family in the coming years. If you do want to have a family in the coming years, you need to take advantage of the HSA associated with the HDHP plan, and you need to make sure to get higher deductibles and a wider array of medical benefits for yourself and your family.
This way, you will not only be able to enjoy tax-free rainy day medical coverage for yourself, but you will also be able to take care of your multiple family members without any problems with a high deductible plan and employer contribution.
Are You Currently Supporting A Spouse’s Medical Costs Or Child’s Medical Expenses?
If you have to pay alimony or other medical expenses for your kid or wife, you have to go with the HDHP plan to help you take care of higher medical expenses.
This means that you will not only be able to take care of your personal medical expenses, but you will also be able to easily cover all the medical expenses related to your child or spouse without any problems.
You will not have to put additional strain on your financial situation by planning ahead, and you will be able to easily take help from the copayment option offered by your employer in the form of an HSA tax-free account.
You can also save up money in this HSA and invest to earn tax-free growth over the coming few years to easily take care of your children’s or spouse’s medical expenses.
Is Choosing A Preferred Health Insurer An Issue For You?
Another important factor when choosing between HDHP vs. PPO is the flexibility in choosing a health insurer. As we have already discussed, the HDHP plan offers a broader array of medical providers, and you can easily choose from a long list of doctors and primary care physicians for your benefit.
Moreover, a broader list of healthcare providers will also allow you to get health benefits when you move or travel to other cities. On the other hand, if choosing a preferred doctor is not a big issue for you, you can always go for the PPO plan as it will offer you lower deductibles and take away your preference in choosing a doctor.
So, if you want more options and want to get a second opinion from a wide array of doctors, you need to go with the HDHP option, whereas, if you are not that influenced by your choice in a preferred doctor, you can go with the PPO plan.
A lot of people are interested in consulting specialists for their medical requirements. Therefore, if you also need access to a wide array of medical specialists, you need to choose the HDHP options so that you can enjoy a broader array of health care providers.
The PPO option will not offer you the ability to choose specialists on the go, and you may have to pay out-of-network bills to see the specialists.
What Is The Bottom Line?
Both options are beneficial in their own unique way. If you want an option that offers you lower premiums, a tax-shelter option, an employer match, and a broader network of providers to help with your health care benefits, you should choose the HDHP option for your health care coverage.
- On the other hand, if you want an option with a lower annual deductible and lower out-of-pocket maximums for your medical coverage, you should go with the PPO option that does not offer you the ability to choose from a wide list of preferred healthcare providers.
- Moreover, if you are a healthy and young individual, the HDHP option with an HSA is your secret weapon to invest your medical savings in a tax-free environment for future medical needs.
- On the other hand, if you have to frequently visit the doctor’s office and have a chronic condition, you should go with the PPO healthcare option as it will take care of all your out-of-pocket expenses without you having to meet really high deductibles.
- Moreover, if you also have to support multiple family members’ medical expenses with your own health care plan and mutual funds, you need to choose the PPO health care option as it will allow you to easily take care of several family members without having to put a strain on your budget.
- Additionally, if you have any expensive medical costs coming up in the next few years or you have to seek emergency care every other month constantly, you need to choose the PPO option as it offers lower deductibles that will easily allow the health care plan to cover your out-of-pocket maximums and will allow you to save more money by taking care of your medical bills from the copayment option.
- Lastly, if you care about the ability to choose from a wide array of specialists for your special medical requirements, you need to go with the HDHP option that will allow you to choose from a wide array of health care providers and specialists that you can see without having to pay any additional charges of price.
The HDHP plan will also offer you the option of opening up an HSA that will allow you to put aside money for rainy days without worrying about any taxes. This is a great option as you can save up a lot of money and earn from investments without paying any taxes on your money legally.
The final choice depends on your personal preferences, medical conditions, insurance premiums, insurance coverage, and elements that greatly influence your healthcare option’s overall choice.