Health Savings Account (HSA) vs. Preferred Provider Organization (PPO)

Choosing the right health insurance policy requires considering your options and weighing your own and your family's needs. Two of the most common options are the preferred provider organization (PPO) and the high-deductible health plan (HDHP). But you can't consider the HDHP without weighing the benefits of the Health Savings Account (HSA), which is available only to HDHP users.

• A PPO offers its users a network of doctors and hospitals to take care of their essential healthcare needs in exchange for a monthly premium plus deductibles and copays that vary with the plan you choose. Enrollees may use out-of-network providers for an additional fee.
• A high-deductible health plan (HDHP) makes the enrollee responsible for a deductible of at least $1,400 for individuals and $2,800 for families each year for 2022. The numbers rise to $1,500 and $3,000 for 2023. But enrollees can open a health savings account (HSA) to save and invest pretax dollars to cover medical expenses.

About 46% of U.S. employees use a PPO, while 28% had an HDHP with a savings option, according to the annual national Employer Health Benefits Survey conducted by the Kaiser Family Foundation. Not every employee gets a choice, as the employer can decide on the available options.

HDHP Plus HSA: Benefits and Limitations

An HDHP usually has a lower monthly premium and significantly higher deductibles and copays. In many cases, it makes you eligible to open an HSA at a bank or an investment firm.

You're saving pretax dollars—deducted from your paycheck—that can be used to cover deductibles, copays, and qualified items not usually covered by insurance.

For healthier, younger workers who do not expect much in the way of medical expenses, an HDHP can have many advantages. There are lower premiums and a chance to save pretax dollars to cover a wide range of expenses including acupuncture, ambulance services, blood sugar test kits and strips, chiropractic therapy, hearing aids and batteries, infertility treatments, X-ray fees, dental and vision exams, and even coinsurance fees.

If the dollars saved in an HSA are not needed, they can be rolled over from year to year. Because both the principal and the interest are tax-free, an HSA can be an effective investment account.

There’s a downside to an HDHP—at least the first $1,400 in expenses must come out of your own pocket, and that can discourage some from using medical care. A recent study found that people who had to spend $1,000 or more in deductibles were less likely to seek emergency room care for chest pain and were sicker when they did show up for care compared with patients in health insurance plans with an annual deductible of $500 or less.

PPOs: Benefits and Limitations

PPO policies must cover a federally-mandated list of essential health benefits, whether they are offered by an employer, bought directly from an insurer, or obtained through the federal HealthCare.gov database and its state offshoots.

These include outpatient and emergency services, hospitalization, maternity and newborn care, prevention and chronic disease management, and many other services.

Traditional health plans such as PPOs and health maintenance organizations (HMOs) have higher premiums than HDHPs. For example, in 2021, annual worker premiums for PPOs averaged $1,389 for an individual and $6,428 for a family. HDHPs averaged $1,242 for an individual and $5,129 for a family.

Worker premiums for HMO plans were somewhat lower than PPOs because HMOs generally limit care to doctors who work for or contract with the organization and the plans cover out-of-network care only in an emergency. HMO premiums are still higher than HDHPs.

Best Choice for You

While the upfront costs of a PPO might be higher, it can be worth it if you need significant medical care or have an unexpected accident or emergency. The PPO network of contracted doctors gives you a place to go for care and may encourage the development of a relationship with providers.

Knowing your care is mostly covered by insurance may encourage you to go earlier and more often to identify and take care of health problems before they worsen.

If you and your family are healthy and seldom use medical care, an HDHP with an HSA might save you money. It helps to be well organized financially so you can save for expensive items such as dental work or hearing aids while depositing sufficient dollars in the HSA to cover deductibles and unexpected expenses.

High-income people who are able to afford the deductible and can cover emergency bills may especially benefit from the tax advantages of an HSA. It's an additional tax-sheltered stream of money to put toward the future.

Sources: Internal Revenue Service (IRS) and HealthCare.gov

The Bottom Line

The HDHP keeps your monthly premium relatively low but keeps you on the hook for costs that might be substantial if you need regular treatment, come down with a sudden illness, or have an accident. It may be best for people who are healthy and lucky and have enough money set aside to handle unexpected medical expenses.

To that end, the HDHP may come with a Health Savings Account (HSA) that is solely open to people with HDHPs. This type of account has distinct tax advantages, and can even augment your retirement savings if your income is comfortable enough to allow you to pay in up to the limit every year (while paying that high deductible out of pocket).

The PPO will have a higher monthly premium but it may cover more of your family's routine and unexpected medical expenses. It can be the less stressful way to go if you don't want to worry about the cost of every doctor's visit and every medical test.