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PPO vs. HSA: Comparing Healthcare Plan Options  

Health insurance helps protect policyholders against the high costs of medical care by covering a portion of healthcare expenses. It typically offsets a portion of the costs of preventative care, treatments, surgeries, and prescription drugs.

There are several different ways to obtain healthcare coverage. Two common options are health savings accounts (HSAs) and preferred provider organizations (PPOs). Both have unique features and their own pros and cons.

A PPO offers members a network of healthcare providers to choose from and typically covers a significant portion of medical costs. Covered individuals pay a monthly premium, along with copays and a deductible, when receiving medical care.

An HSA is not actually insurance. Instead, it’s a savings account that works with a high-deductible health plan (HDHP). It allows individuals to deposit pre-tax funds and use the account to pay for medical expenses. This helps offset the higher out-of-pocket costs that come with HDHPs.

PPO vs. HDHPs With HSAs at a Glance  

Out-of-pocket maximum
Compatible with HSA?
No, except in some cases

Both PPOs and HDHPs are designed to help mitigate the costs of healthcare. PPOs typically have higher premiums, meaning participants pay more each month when compared to HDHPs. PPOs also tend to have lower deductibles and lower out-of-pocket maximums. This can make them well suited to those who expect to need regular medical attention or want greater financial protection.

HDHPs have lower monthly premiums, which can make them a more economical choice up front. However, higher deductibles and out-of-pocket maximums mean you may bear a significantly larger financial burden when medical expenses occur. Pairing an HDHP with an HSA helps offset the costs by allowing you to save and invest pre-tax money you can use to pay medical expenses. This can make them appropriate for those who expect to have fewer healthcare needs and those who can save for future medical costs and are willing to accept a greater financial risk.

How PPOs Work  

One primary difference between PPO and HSA coverage is the use of provider networks. PPOs have a network of approved providers that have agreed to offer services to participants at a lower cost. Covered individuals can see any doctor or specialist in the network, typically without a referral. They also have the option to receive care from out-of-network providers, although typically at a higher cost.

The flexibility and lower costs make PPOs a popular healthcare coverage option. Currently, 49% of insured individuals are covered by PPOs, while 29% have elected coverage under an HDHP. PPOs are also compatible with flexible spending accounts (FSAs), which allow individuals to use pre-tax dollars for eligible healthcare expenses.

Comparable PPO Option: Flexible Spending Accounts (FSA)  

FSAs are similar to HSAs, but they are typically offered by employers as an employee benefit. An FSA allows you to put a portion of your pre-tax earnings into a savings account, reducing your taxable income. Your employer may also make contributions to your FSA.

FSAs have lower contribution limits when compared to HSAs. While the funds in an HSA can be rolled over, if you do not use the funds in an FSA at the end of the calendar year, you may forfeit the balance.

See It In Action

Here’s an example of costs in action if you had a PPO plan with the following costs:

  • Premium: $500 per month
  • Deductible: $2,000 per year
  • Copay: $25 per appointment
  • Coinsurance: 30% for outpatient surgery
  • Out-of-pocket maximum: $8,700


Without an FSA:

Each month, you pay $500, whether or not you need medical services.

For a doctor’s visit, you’re charged a $25 copay, which does not count toward your $2,000 deductible.

If you have not met the deductible and you need outpatient surgery, the full cost comes out of pocket until you meet your deductible. After hitting the deductible for subsequent services, you pay 30% of the cost, while insurance covers the rest.

Once you’ve reached the $8,700 out-of-pocket maximum, insurance covers your remaining healthcare expenses until the end of the year when the amount resets.

With an FSA:

Assume you had put $1,500 into an FSA at the start of the year.

Your monthly premium remains unchanged ($500).

Your copays and deductible can now be paid from the FSA using pre-tax dollars. This effectively reduces your taxable income and provides immediate savings. If you pay a $25 copay, you have $1,475 remaining to help cover your deductible.

After the FSA funds are depleted, you are responsible for paying the remaining $525 deductible out of pocket.

Once the deductible is met, you’re responsible for 30% of covered costs until expenses reach the out-of-pocket (OOP) maximum of $8,700. Then, insurance covers your remaining healthcare expenses until the end of the year.


When deciding between an HSA vs. PPO, there are several important pros and cons to consider. Some common benefits include:

  • Flexibility in provider choices: PPO plans offer the freedom to visit doctors or specialists without requiring a referral, making it easier to see your preferred healthcare providers.
  • Large network: PPOs typically come with a wide selection of in-network providers, reducing the hassle of finding a doctor who accepts your insurance.
  • Out-of-network coverage: Unlike some other plan types, PPOs typically provide coverage for out-of-network healthcare providers, although at a higher out-of-pocket cost.
  • Comprehensive coverage: PPOs typically cover a wide range of services, from preventive care to major surgeries, for a full spectrum of health coverage.


While PPOs are quite popular, there are some potential drawbacks to consider, including:

  • Higher premiums: PPOs generally have higher premiums than other types of health plans, making them less affordable for some individuals.
  • Limited coverage for out-of-network care: While PPOs do provide out-of-network coverage, the benefits may be significantly reduced, leading to higher out-of-pocket expenses.
  • Care coordination: While some healthcare models, like health maintenance organizations (HMOs), use a primary care physician to manage treatment, PPOs may provide less coordination of care when seeing multiple healthcare providers.
  • Deductibles and copays: PPOs typically have deductibles and copays, requiring out-of-pocket payments before comprehensive coverage begins.

How HSAs Work  

Health savings accounts are like personal savings accounts for your healthcare expenses. They offer a triple tax advantage: Your contributions are tax-deductible, the account grows tax-free, and money used for qualified medical expenses is also tax-free.

HSAs must be paired with a high-deductible health plan. An individual healthcare plan must have a minimum deductible of $1,500 in 2023 ($1,600 in 2024) to qualify as an HDHP. Family plans must have a minimum deductible of $3,000 in 2023 ($3,200 in 2024).  

When covered by an HDHP, your maximum out-of-pocket cost is $7,500 for individuals in 2023 ($8,050 in 2024) and $15,000 for families in 2023 ($16,100 in 2024). Total out-of-pocket costs include deductibles, copayments, and other costs but do not include premiums. There are also annual contribution maximums. In 2023, the maximum HSA contribution for individual plans is $3,850 ($4,150 in 2024). The maximum for families is $7,750 ($8,300 in 2024).  

You can use HSA funds for various medical expenses, from doctor’s visits and prescriptions to dental and vision care. The funds roll over year after year, so there’s no pressure to spend them within a calendar year. When you retire, you can still use the HSA money tax-free for qualified medical expenses. After age 65, you can withdraw funds for other purposes without penalty, but the withdrawal is taxable if you do not use it for medical expenses.

Some HDHPs may offer preferred pricing for using in-network providers. While you can use your HSA funds for out-of-network care, costs may be higher.

See It In Action

Here’s an example of costs in action if you had an HSA/HDHP with the following costs:

  • Monthly premium: $350
  • Deductible: $3,000
  • HSA contribution: $100 per month
  • Coinsurance: 20% after deductible
  • Out-of-pocket maximum: $6,500


You’re required to pay the $350 per month premium whether you use your plan or not.

Until you meet your $3,000 deductible, your insurance does not cover anything. Your monthly premium and copays do not count toward your deductible. However, you can pay your copay and deductible using your HSA.

Once you have met your deductible, you pay 20% of the cost of procedures, while your insurer pays the remaining 80%. You can use the funds in your HSA to pay the 20% out-of-pocket cost.

If your covered medical procedures cost more than $6,500 (not including your premiums), your insurance covers the remaining costs through the end of the year. At the beginning of the new year, your out-of-pocket maximum resets.

If you have not fully depleted your HSA by the end of the year, the remaining balance rolls over to the next year, continuing to earn interest.


Several key features make HSAs attractive to certain individuals. Some of the primary benefits include:

  • Tax advantages: Contributions are made pre-tax, reducing taxable income. Withdrawals for eligible medical expenses are tax-free.
  • Lower premiums: HSAs are typically paired with high-deductible health plans, which have lower monthly premiums when compared to some other plans, like PPOs.
  • Funds roll over: Unspent HSA funds roll over year to year, unlike FSAs, which typically require you to use the funds in the account by the end of each year or risk forfeiting them.
  • Portability: HSA funds belong to the individual, ensuring they are available regardless of employment status or health plan changes.
  • Growth potential: Funds can be held in an interest-bearing account or invested, potentially growing tax-free.


Before choosing an HSA/HDHP, there are some potential drawbacks to consider:

  • High deductibles: To qualify for an HSA, you must be enrolled in a high-deductible health plan, which can lead to higher out-of-pocket costs when you need medical care.
  • Higher out-of-pocket maximums: While monthly premiums are lower, out-of-pocket maximums can be higher, potentially leading to larger financial liabilities.
  • Spending restrictions: HSA funds must be used for qualified medical expenses to remain tax-free. Non-medical withdrawals are penalized or taxed, depending on your age.
  • Contribution limits: HSAs have annual contribution limits. 
  • Smaller networks: HDHPs may have more limited networks compared to PPOs or other plan types.


Plan Owner
Plan Compatibility
Employer-sponsored health insurance
Eligible Usage
Deductibles, copayments, prescription drugs, OTC medicines with doctor’s prescription, medical equipment, medical and dental services. Cannot be used for insurance premiums.
Deductibles, copayments, prescription drugs, OTC medicines with doctor’s prescription, medical equipment, medical and dental services. CAN use for COBRA or insurance premiums while you are on unemployment, Medicare premiums, and Long-term care insurance premiums.
Rollover Funds
No; limited to employer rules, but typically, funds must be used within the year.
Contribution Limits
Lower; cannot exceed $3,200 in 2024
Higher; cannot exceed $4,150 for individuals or $8,300 for families in 2024

FSAs and HSAs both offer opportunities to pay for medical expenses with pre-tax dollars. However, there are some significant differences. FSAs are owned by employers and complement traditional employer-sponsored health insurance. Many FSAs have a “use it or lose it” rule, requiring participants to use the entire account balance by the end of each year or forfeit the remaining funds. Some may provide a grace period or allow a portion to be rolled over to the next year; however, this is less common.

HSAs are owned by individuals, even when sponsored by an employer, and must be paired with an HDHP. HSAs are known for their flexibility, allowing participants to roll balances over from year to year and maintain the account regardless of employment status. Contribution limits for HSAs are higher than for FSAs, and the funds can be invested, allowing you the opportunity to accumulate a significant balance to cover healthcare costs.

Putting It All Together  

Understanding the difference between HSA and PPO plans can help you confidently decide which option may fit your needs. PPOs offer broader provider networks and lower out-of-pocket expenses for in-network services but come with higher premiums. HSAs, when paired with HDHPs, offer lower premiums and tax advantages but require higher deductibles. FSAs are similar to HSAs but must be offered by employers. They’re typically not portable, have lower contribution limits, and “use it or lose it” rules.

Before making a decision, be sure to weigh the potential advantages and drawbacks of each option against your healthcare needs and financial goals.

Frequently Asked Questions

HSAs offer three individual tax advantages. First, contributions are made on a pre-tax basis. The account balance grows tax-free, and withdrawals for qualified medical expenses are not taxed. PPOs do not come with these tax benefits. However, they can be paired with a flexible spending account (FSA) if your employer offers it. FSAs offer some tax benefits, but since they typically can not be rolled over from year to year, they do not offer tax-free growth.

Both PPOs and HDHPs connected with HSAs can cover family members. HSAs linked to plans offering family coverage have higher contribution limits to cover expenses for multiple individuals.  

Yes, but with conditions. You can have an HSA with a PPO plan only if the PPO is considered a qualifying high-deductible health plan (HDHP).

Employers can contribute to your HSA. Their contributions are not included in your gross income, making them tax-exempt and boosting the tax-advantaged nature of HSAs. Both employer and employee contributions count toward the annual limit.

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