HDHP vs. PPO
When choosing a healthcare plan, you may come across a few options. One of these plans is a high deductible health plan (HDHP). The other is a preferred provider organization (PPO). Employers typically offer both of these options. Each has its pros and cons, which can make deciding between them a challenge.
Selecting the right option for you depends on your individual needs and preferences. Whether one is better for you than the other can even differ from year to year. This is why we break down the differences and the pros and cons of both. We also cover the factors you should consider before choosing between a PPO or HDHP.
High Deductible Health Plan (HDHP) vs. Preferred Provider Organization (PPO)
Comparing PPOs and HDHPs can help you decide what may be the right healthcare plan for you. To help you understand the key differences, you should first be aware of what a premium is and what a deductible is.
- Premium: Your premium is what you pay each month for your healthcare plan.
- Deductible: Your deductible is what you pay out-of-pocket when you receive healthcare services.
An HDHP can mean you pay less every month for your premium. But you may pay more from your own pocket for your healthcare costs because you have a higher deductible. A PPO can mean you pay more monthly for your premium. But you may have fewer out-of-pocket costs. When you do receive healthcare services, you pay a lower deductible.
Typically, an HDHP can be a good option if you are healthy and don’t need a lot of medical attention. You may also want to choose an HDHP if you’re younger and don’t have a family. A PPO with a lower deductible tends to be most suitable for those who expect frequent visits to the doctor. You may visit the doctor more often if you need prescriptions due to a chronic medical condition.
What Is an HDHP?
One option you may have for a healthcare plan is a high deductible health plan (HDHP). An HDHP comes with a lower premium and a higher deductible. This means your monthly costs tend to be lower because of the smaller deductible. An HDHP fully covers routine preventive care. As such, you won’t be responsible for paying coinsurance or copays. But you will need to pay your deductible when you use healthcare services. Your HDHP may cover the following routine preventive care:
- HIV screening
- Screening for depression
- Blood pressure screening
- Nutritional and diet counseling
- Immunizations, such as for the flu, measles and chickenpox
An HDHP is a great option if you are healthy and need coverage in a medical emergency. If your family is wealthy, you may also want to opt for an HDHP. High-income families can more easily afford to pay the deductible. When you combine your HDHP with a health savings account (HSA), you can also enjoy the tax benefits.
If you want to use an HSA, you need a qualified HDHP. In 2022, a QHDHP is defined as a healthcare plan for individuals with a deductible of at least $1,400. For families, the lowest deductible for a health plan to be considered an HDHP is $2,800. If you are young and healthy and want to save on monthly costs, an HDHP may be a great healthcare plan for you.
High Deductible Health Plan Pros and Cons
An HDHP has pros and cons, which you should consider before making your decision. Some of the pros of an HDHP include:
- Combination of an HDHP with an HSA: You may be able to combine your HDHP with an HSA. With an HSA, you can pay for certain healthcare expenses with tax-free money. Your employer may even make contributions to your HSA. Though there is a yearly limit on your contributions, the funds in an HSA roll over from year to year.
- Tax benefits: When you combine your HDHP with an HSA, you may also get some tax benefits. Your contributions are composed of pre-tax dollars, and your earnings grow tax-free.
- Wide range of covered expenses: An HDHP and HSA combination can cover various expenses. These expenses may include prescriptions, vision costs, medical services and dental care.
- Broader network: The list of providers available in your network may be longer when you have an HDHP. If you travel frequently, this can be a key advantage to an HDHP.
- Keep your funds: With an HDHP and HSA, you can keep the funds in your account if you move jobs or change plans.
- Limits on out-of-pocket costs: There is a limit on the expenses you pay from your own pocket. For an HDHP, this amount can’t be higher than $7,500 for an individual. Expenses may include copayments, coinsurance and deductibles. For families, the limit is $14,100. This could mean your premium savings and HSA savings offset your higher deductible. Keep in mind that this limit does not apply to out-of-network services.
- Employer match: If you get an HDHP through your employer, you may receive an employer match for your HSA. This is essentially free money, so take advantage of this benefit if available.
Not everything about an HDHP works to your advantage, though. Some of the possible cons of an HDHP include:
- Greater risk: A medical emergency or health change could affect your finances. This means an HDHP can pose a greater financial risk than a PPO.
- Receipts needed: With an HDHP and HSA, you’ll need to keep records of your medical costs. You’ll also need to submit receipts for approval to ensure your expenses are eligible for your HSA funds.
- Fees: If you combine your HDHP with an HSA, you could face some fees for your HSA. Fees may include a monthly fee for maintenance and a fee when you use your HSA card.
- Ineligible expenses: Your HSA funds can’t pay for every healthcare cost. This means you may need to pay some of your claims out-of-pocket. If you use the funds from your HSA to cover non-qualified expenses, you may need to pay a penalty.
Be sure to consider both the pros and cons of an HDHP when choosing a healthcare plan.
What Is a PPO Plan?
A preferred provider organization (PPO) plan is a health insurance option. PPOs have higher premiums and lower deductibles. This means you may pay more for your healthcare plan month to month. Depending on how often you use healthcare services, though, you may save money over the course of the year.
PPOs were created to remove the gatekeeper in health maintenance organizations (HMOs). With an HMO, your doctor needs to give you referrals for services from other doctors. With PPOs, your doctor is not a gatekeeper or go-between. You don’t need referrals. There also aren’t provider restrictions or limitations. You can even visit a specialist before finding a primary care provider when you have a PPO.
With a PPO, you pay for healthcare services when you receive the services. In-network providers have already agreed on rates with your insurer. Your provider will submit claims for you. Your insurance provider will then examine your claim and approve it. Finally, you’ll get a summary of the healthcare services and costs.
PPOs have fixed costs instead of deductibles. This usually takes the form of a copay, which you will pay out-of-pocket when you receive benefits. A PPO can be a great healthcare plan if you are older or have multiple conditions.
PPO Pros and Cons
Typically, a PPO is a good choice if you have more medical costs throughout the year. If you have a medical condition or a family or are older, you may benefit more from a PPO. Some of the pros of a PPO include:
- Less risk: With a PPO, you may take on less financial risk because you’ll have a lower deductible. If you face a major health issue or need to support your family’s health, a PPO can make more sense financially. Despite the higher monthly insurance premiums, you may save more in the long term. This is often the case if you regularly use healthcare services. When you have a PPO, your insurance plan will cover more medical costs.
- FSA option: If you have a PPO, you may also be able to open a flexible spending account (FSA). Like an HSA, you can use your pre-tax dollars to contribute to an FSA. The funds in this account can cover your eligible healthcare expenses. These may include medical, dental and vision costs.
- Greater flexibility: Flexibility can be important in healthcare services. PPO plans tend to be more flexible. You can choose your preferred hospital or physician, even if they are not in your network. A PPO lets you visit a specialist or get a test done without needing your doctor’s approval. If you want to focus on flexibility in your healthcare plan, you may want to choose a PPO.
- Lower out-of-pocket costs: The most you’ll pay out-of-pocket tends to be lower with a PPO plan than an HDHP.
Of course, not everything about a PPO benefits you. Some of the potential disadvantages of a PPO include:
- Higher premium: One of the most obvious disadvantages of a PPO is the higher premium. You must make this payment each month. If your health is good and you don’t need healthcare services often, you may be spending too much on a plan.
- Can’t be used with an HSA: Typically, you can’t get an HSA when you have a PPO plan through your employer. This is because HSAs are usually only offered with a high-deductible plan.
- Smaller network: Compared to an HDHP, a PPO plan usually has a smaller network of doctors you can choose from. To get the best rate, you need to stick with an in-network provider.
Consider both the pros and cons of a PPO when choosing a healthcare plan.
Factors to Consider Before Choosing
Before you choose a plan, consider these factors to help you with your decision.
- How often you visit the doctor: If you see the doctor frequently, you may want to choose a PPO plan. If you rarely visit the doctor, you may be better off with an HDHP.
- Whether you have a chronic medical condition: If you have a chronic medical condition, you may need regular treatment. In this case, a PPO may be a better choice for you. If you are healthy, you may not need a PPO and may want to choose an HDHP instead.
- How often you need emergency care: Someone who regularly needs emergency care may want to get a PPO plan.
- Whether you have an upcoming surgery: If you have a surgery scheduled for this year, you may want to choose a PPO plan. This plan may be more likely to cover more of the costs of your surgery than an HDHP plan.
- How frequently you travel: If you travel regularly, you may want to choose an HDHP. This is because there are usually more providers available in your network. With an HDHP, you can access healthcare away from home that may still be in-network.
- Whether you cover a dependent’s healthcare costs: Do you have a spouse or family? You may want to choose an HDHP plan if you don’t have a family or spouse. Choose a PPO plan if you are responsible for your spouse’s or child’s healthcare costs.
- Whether you are expecting a baby: If you or your spouse are pregnant, you may want to get a PPO. Your plan can cover the costs of the pregnancy and birth. If you are single or not planning on starting a family, you may want to stick with an HDHP.
- How important flexibility is to you: A PPO may be right for you if you want greater flexibility. A PPO lets you choose a specialist or doctor. If flexibility is not a concern, you may want to select an HDHP.
Considering these factors can help you make the right choice for you. Look at what you have spent in recent years on healthcare to inform your decision. Depending on your circumstances, you can save more with an HDHP or a PPO. Generally, a PPO may be better if you need healthcare services often. Otherwise, an HDHP tends to be the better financial option due to the lower premiums.
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