After factoring in the cost of the plan and HSA contributions, modeled (PPO) and actual (HDHP) total out of pocket costs for the year were: PPO: $1,974; HDHP: $936; So, I ended up saving $1,038 out of pocket. When it comes to health plans, you always need to look at the facts of your specific plan. Scenario 2: $5,000 in medical expenses during the year. You save more money with an HDHP plan. Each one is just a different balance point between benefits vs. restrictions and between spending a lot vs. spending less. However, since we know that anything can happen in the future (and given the likelihood that we would start having kids in the next year or two), it would not be wise to make our decision solely based on this scenario. In addition, we’d save 7.65% in FICA taxes on the $5,525 we contribute to the HSA (which amounts to about $423). As fair warning, none of what you read here should be considered a rule of thumb or as a recommendation of one type of plan over another. When you’re choosing between an HDHP vs PPO, there is a multitude of factors you must consider. Assuming that we don’t incur any medical expenses during the year, other than for preventative care, the HDHP clearly comes out ahead. Downgrading from a PPO to an HMO may provide more limited network availability — so check first before making a move — but premium and copay expenses may be cheaper. Not once in the above examples does the PPO come out ahead. Employer contributes $750 to HSA. HDHP’s will have lower premiums than PPO’s. One of the most critical decisions employees make during open enrollment is which type of health insurance plan you select. Earnings grow tax-free. All Rights Reserved. Fee-Only. Looking For A Comparison Chart? HSA (Health Savings Account) is a tax-advantaged health benefit plan exclusively available to taxpayers in the United States who are enrolled in a High-Deductible Health Plan (HDHP). Health Savings Accounts (HSAs) were created by the Medicare bill signed by President Bush on December 8, 2003. Even though the HSA plan has both a higher deductible and a higher coinsurance percentage, the huge gap in premiums and the lack of an employer HSA contribution under the PPO plan put it at a big disadvantage. CDHP vs PPO – The Difference Between CDHP and PPO Health Insurance Plans. If you go to the doctors a lot, you have a chronic condition, and you need prescriptions, then a PPO … When comparing these two plans specifically, the combination of the $2,555 in reduced annual premiums and the $1,125 employer HSA contribution (combined total of $3,680) are simply too much for the PPO plan to overcome. You can invest your HSA contributions, and the interest accrues tax-free. Here is a quick overview of the two plans (Note: All of the figures below are for in-network coverage for an employee and spouse): In order to determine what our total costs might be under each plan, I ran some scenarios based on varying levels of annual medical expenses. Again, specific tax and medical situations could impact the final number, but I doubt in most situations it would swing the pendulum far enough to actually favor the PPO. Your email address will not be published. But this plan allows you to see specialists and out-of-network doctors without a referral. If you … I've been using the HDHP+HSA option for the last 3 years, and have been able to save ~7k in my HSA account, all of which was the difference in premium from the PPO and HDHP plans (PPO premium was 125, HDHP premium was 50, so my contribution to my HSA was 75). It could save you a lot of money! If you visit the doctor frequently, are taking a lot of prescription medications, or expect that you may have a significant medical event on the horizon (e.g. Now you’ve read about both options. 600 17th Street Suite 2800 South, It’s also essential to know that the money you contribute to an HSA is always yours, and unlike Flexible Spending Accounts (FSAs), it doesn’t expire. 1. 2. The catch-up contribution limit for those over age 55 is $1,000. Lower costs on premiums, higher costs on deductibles and out-of-pocket expenses. You’ll see this is a recurring theme regardless of the assumed annual expenses. No, an HDHP doesn’t require a PCP. But, if you have a chronic condition or large family, the out-of-pocket costs under an HDHP may be too high for you. Even if your nonmember doctor accepts the PPO rate, your plan may make you pay an extra amount because the doctor isn’t a member of the plan. Thus, I thought it would be helpful to share an example of how to compare two of the more common health insurance options offered through a major employer: A high-deductible health plan (HDHP) with an HSA vs a preferred provider organization (PPO) plan. Similarly, under a PPO, participants don’t need a referral to receive care from a specialist or a hospital.  The short answer: if you have the cash flow to afford the possibly larger deductibe, a HDHP very […]. One ER visit with transport: $1800.00 under the HDHP/HSA plan. Jonathan Duong, CFA, CFP® is the Founder and President of Wealth Engineers, a fee-only independent Registered Investment Adviser (RIA). An HDHP means lower premiums and a higher deductible. And in order to open an HSA, you need to be covered by an eligible high deductible health plan (HDHP) and have no other coverage. Deductible remaining: $1200.00 HDHP/HSA, $1200.00 Traditional. A PPO (Preferred Provider Organization), refers to the network coverage your health plan gives you access to. It also empowers the patient to seek lower costs since they have to foot a larger percentage of the bill when they need care. Baby is due in June. You can make withdrawals from your HAS tax-free, as long as the money is used for qualified medical expenses. Well, as with most choices in life, it depends. Having a high deductible provides an advantage to the health care consumer by reducing their monthly premium for ongoing coverage. Employee + Spouse: $1,400. © 2013-2021 Wealth Engineers, LLC. Giving participants their choice of provider (within the network) encourages you to compare prices for health, dental, vision, and prescriptions. These are paid by you and your employer regardless of whether you use the benefits or not. No, a PPO doesn’t require a PCP. Thus, what I’ve outlined is how we specifically thought through our decision. 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