What's the Right Health Insurance for You?

Choosing a health insurance plan can be difficult. Many employers offer PPOs (Preferred Provider Organizations) and HDHPs (high deductible health plans). When considering an HDHP vs. PPO, each option has pros and cons.

How do you determine which is better, a PPO or HDHP? To help you decide, let’s review the essential factors in health insurance costs and break down the differences in PPO vs. HDHP.

The costs of health insurance

Some of the biggest financial misconceptions are about health insurance and its terms. Most insurance plans have copays, deductibles, and coinsurance:

A copay is a cost you pay at the time of service. You pay this fee to your doctor’s office or another provider every time you visit. It does not count against your deductible.
The deductible is a set amount you pay for the year toward your health care. Typically, you must meet your deductible before your insurance kicks in to cover the costs.
Coinsurance means cost-sharing between you and the insurer. For example, an 80/20 coinsurance means the insurer pays 80% of the medical costs, and you pay 20%.

Ordinarily, plans that charge a higher monthly premium often have lower deductibles. However, your policy can require separate deductibles for each member covered under your policy.

For example, suppose you have a health insurance plan for the entire family. In that case, the policy might have a deductible for each person or require a combined family deductible before the insurance company starts to cover claims.

Keep in mind that you may pay a larger copay if you visit an emergency room compared to a doctor’s office. You can generally lower your out-of-pocket insurance costs by opting for urgent care or an office visit for something that isn’t an acute emergency, like the flu or a non-life-threatening injury.

What is a PPO and how does it work?

When people think of health insurance, they usually think of PPOs. A PPO, or Preferred Provider Organization, is the most common type of health insurance. PPO plans are available through:

Employer-sponsored health coverage
The Health Insurance Marketplace

With this type of plan, you don’t need a referral from your primary care physician for services. In fact, it might not require you to establish a primary care provider before seeing a specialist.

While you may pay a copay each time you visit the doctor, the provider will bill your insurer and send you a statement of the services and costs.

For example, suppose you went for your annual physical. Your insurance may cover the yearly wellness visit entirely and require you to pay a copay. But your doctor requested additional testing, which your PPO plan only partially covers. After the provider bills your insurance, they’ll send you a statement with the portion of costs that you must pay yourself.

PPO programs set up a preferred provider network to prearrange which providers and services are considered in-network. Then, you can choose from any doctor or provider listed in the network. Typically, the network is regional, so you will pay more out-of-pocket if you receive treatment outside of the network.

What is an HDHP and how does it work?

HDHP is short for high deductible health plan. It refers to insurance policies that have a high deductible. For 2022, the IRS defines a high deductible health plan as:

Any plan with a deductible of at least $1,400 for an individual or $2,800 for a family.

Like PPOs, you can get an HDHP through your employer or the Marketplace. On the whole, HDHP premiums should be lower than what you’ll pay for PPO coverage. However, with an HDHP, the policyholder pays for all treatment costs themselves until they satisfy the deductible.

According to the Society for Human Resources Management, the average family coverage deductible is $4,552. However, the annual out-of-pocket costs (including copayments, deductibles, and coinsurance) cannot exceed $7,050 for an individual or $14,100 per family.

Because of the high out-of-pocket maximums for HDHPs, plans are typically paired with a tax-advantaged savings account like an HSA or FSA to help cover the cost of the HDHP deductible.

HSAs are health savings accounts. They’re like a personal savings account, except the money is used for medical-related expenses.

Usually, you receive an HSA debit card and can spend funds directly at a pharmacy or doctor’s office, just like a bank account debit card. If you don’t use all of the money, the savings can roll over from year to year.

An FSA is a flexible savings account. You and your employer can contribute to the FSA, but employers aren’t required to.

It also has tax-advantaged features — you won’t pay taxes on the money you deposit into your FSA. However, you generally must use the funds in an FSA within the plan year and if you don’t those funds will be forfeited.

Which is Best for You? PPO vs HDHP

Because both options fully cover wellness visits and annual exams, your decision should reflect your personal health needs:

PPOs work best for people who have moderate health or chronic illnesses needing regular care like diabetes, allergies, or depression.
HDHPs typically work best as catastrophic insurance. They are ideal for healthy people who only need annual checkups and preventative care.

Are PPO plans better than HDHP? It depends on your circumstances. To know for sure, work with a financial professional who knows the industry. They can help simplify your financial picture, compare plan costs, and teach you the ins and outs of each program.

Brandy Branstetter, CFP®September 7, 2021