Health insurance helps Americans pay for medical and surgical expenses and the preventive services they need to stay healthy. While there are many types of health insurance, HDHPs, and PPOs are two of the more common options you’ll see.
High-deductible health plans (HDHPs) have higher deductibles than traditional health insurance plans and are often combined with a Health Savings Account. Preferred provider organizations (PPOs) are managed care plans that encourage participants to use selected providers. Keep reading to learn more about PPO vs. HDHP plans.
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HDHPs vs. PPOs At a Glance
Compatible with HSA?
No, unless it’s an HDHP
Both HDHP and PPO plans cover medically necessary services like doctor services, emergency services, hospitalizations, prescription drugs, and laboratory services. However, the cost of covered services is a major difference between HDHP and PPO plans. HDHPs tend to have lower premiums than traditional PPOs, with higher deductibles and higher out-of-pocket maximums. Traditional PPOs have higher premiums than HDHPs, but the deductibles and out-of-pocket maximums are lower.
There are other important differences to consider, like compatibility with Health Savings Accounts and the size of the provider network, before deciding between high-deductible health plans vs. PPOs.
How HDHPs Work
HDHPs can work very differently depending on the type of provider network they use. Some HDHPs require members to get all non-emergency care from network providers. Others are structured as PPOs, allowing members to see out-of-network providers.
HDHPs are often paired with Health Savings Accounts (HSAs), which allow consumers to set aside pre-tax money to pay for qualified medical expenses. Each year, the IRS sets annual cost limits for both HDHPs and HSAs. Here are the figures for 2023 and 2024:
- Minimum deductibles: $1,500 for individuals or $3,000 for families in 2023; $1,600 for individuals or $3,200 for families in 2024
- Out-of-pocket maximums: $7,500 for individuals or $15,000 for families in 2023; $8,050 for individuals or $16,100 for families in 2024.
- HSA contributions: $3,850 for individuals or $7,750 for families in 2023; $4,150 for individuals or $8,300 for families in 2024.
See It In Action
Here’s an example of what your costs might look like if you purchased the following HDHP plan from the Marketplace:
- Premium: $300
- Deductible: $6,000
- Copay: N/A
- Coinsurance: 50% for most services
- Out-of-pocket maximum: $7,500
You pay a $300 monthly premium in exchange for coverage. The $6,000 deductible is the amount you need to spend out of pocket before your plan starts paying its share. The exception is free preventive care.
Like many HSA-eligible HDHPs, your plan does not have copays. Once you meet the deductible, you pay 50% of the cost of most covered services, like doctor visits, X-rays, and hospital services. Your plan pays the other 50%.
The out-of-pocket maximum is a cap on your annual out-of-pocket costs. If you meet your plan’s $7,500 limit, it pays 100% of covered costs for the rest of the year.
HDHPs are a widely available plan type due to the many advantages they offer consumers. Some reasons to choose an HDHP with HSA include:
- Lower premiums: Consumers pay less per month to keep their health insurance coverage active, which can result in significant savings over the course of a year.
- Compatible with an HSA: HSAs allow consumers to save for health expenses with pre-tax dollars and are only available to people with HDHPs.
- Potential for employer contributions: In 2022, nearly two-thirds of employers that offered HSAs contributed funds to their employees’ accounts.
- Protection from catastrophic medical costs: An HDHP’s out-of-pocket maximum caps the cost of serious illnesses and injuries at a more manageable level.
HDHPs are not right for everyone. There are some downsides to consider before deciding between HDHP vs. PPO, including:
- Higher annual deductibles: Plan members are responsible for paying for their medical care out of pocket until they meet the deductible, which leads some people to avoid necessary care.
- Higher out-of-pocket maximums: People with ongoing or significant health needs may prefer a plan type that sets a lower cap on annual spending.
- Networks may be smaller: Smaller networks may not include the broad range of specialists found in larger networks. Depending on the plan, it may or may not be possible to get care outside the network.
- Rules around HSA usage: To avoid tax penalties, consumers must be aware of annual contribution limits and what counts as an IRS-qualified medical expense.
Who Would HDHPs Work For?
HDHPs with HSAs are a good choice for some people. You may prefer this option if:
- You are young and in good health: HDHPs cover preventive services at no cost, even if you have not reached your deductible, while also offering financial protection from unexpected medical emergencies.
- You have high income and are seeking tax advantages: Health Savings Account contributions can help reduce your taxable income and overall tax bill.
- You are planning for retirement: HSA funds can be used to save for long-term qualified medical expenses, like Medicare premiums in retirement.
- You are an employer offering employee HSAs: Employees are only allowed to contribute to an HSA if they’re enrolled in an HDHP.
- You have predictable healthcare costs: Having routine expenses makes it easier to budget for pre-deductible expenses with HSA funds.
How PPOs Work
PPOs are one of the more popular health insurance options. They have a network of healthcare providers and facilities that have agreed to offer discounted rates to plan members. Consumers are allowed to get care outside the network, but they pay less if they see one of the plan’s “preferred” providers.
A key difference between HDHP and PPO plans is that traditional PPOs are not compatible with HSAs. However, people who have a PPO plan through a job may be offered a Flexible Savings Account (FSA). They’re similar to HSAs in that they let you save pre-tax dollars to pay for qualified medical expenses. However, the funds in an FSA typically must be spent within the plan year.
See It In Action
Here’s what your costs might look like if you enrolled in a traditional PPO with the following features:
- Premium: $700
- Deductible: $3,000
- Copay: $30 for a doctor’s visit
- Coinsurance: 20% for most other services
- Out-of-pocket maximum: $6,500
The $700 premium is due every month, whether you use your plan or not. However, you only need to spend $3,000 on covered in-network services before your plan starts helping with costs.
When you see an in-network primary care doctor, you pay a flat fee of $30, and your plan covers the rest. For other medical services, like X-rays, surgeries, and hospital stays, you pay 20% of the cost. Your annual spending on in-network services is capped at $6,500.
If you prefer, you can get care outside the network. However, the plan has separate, higher costs for out-of-network care.
PPOs offer many advantages over other types of health insurance plans. Some features that attract consumers to PPOs include:
- More flexibility in provider choices: PPOs do not require members to choose a primary care doctor, get referrals to see specialists, or stay within a network.
- Larger provider networks: PPO network sizes vary, but many insurers advertise PPOs that include tens of thousands of doctors.
- Coverage for out-of-network services: While some plans require members to get all non-emergency care within the network, PPOs allow consumers to use out-of-network doctors and facilities.
- Offers comprehensive coverage: PPOs offer major medical coverage, with a wider range of providers and services than some other plan types.
PPO plans have some downsides to be aware of before deciding between PPO vs. HDHP. The main disadvantages are:
- Higher premiums: Large networks and coverage for out-of-network providers come at a cost. PPOs tend to have higher monthly premiums than other plan types.
- Reduced out-of-network coverage: PPOs typically set higher copays and coinsurance for out-of-network services, meaning people who go outside the network pay more.
- Potential lack of care coordination: Plan members who choose not to select a primary care physician will not have a single point of contact overseeing their care.
- Potential for high deductibles: While traditional PPOs have lower deductibles than HDHPs, some PPOs are structured as HDHPs. Confirm the deductible amount before enrolling.
Who Would PPOs Work For?
PPOs are one of the most common types of health insurance plans, and they appeal to a wide variety of consumers. You may prefer a PPO if:
- You have chronic health issues: Plans with lower deductibles start paying for your ongoing medical treatments earlier in the year.
- You have a family with children: With low deductibles, it’s easier to budget for children’s medical needs, from routine doctor visits to treatment for injuries and diseases.
- You are a frequent traveler: The large networks and out-of-network coverage in PPOs make it possible to get care when you’re away from home.
- You have preferred doctors: PPOs offer coverage for out-of-network care, so consumers who already have a doctor or care team can continue seeing them.
- You would prefer comprehensive coverage: PPOs offer a wider range of providers than other plans and may cover services that other plans exclude.
Putting It All Together
HDHPs and traditional PPOs are two widely available health insurance options. To choose between a high deductible health plan vs. PPO, consider your budget, lifestyle, and health.
HDHPs may be a good choice for some groups of people, including young, healthy people or those with predictable healthcare costs. In contrast, PPOs may be better for others, such as people with young children or chronic health issues. For help deciding between PPO vs. HDHP plans, work with a trusted agent.