How to Choose an HSA or PPO Health Plan

HSA or PPO_ How to Choose Your Medical Insurance Plan - Detailed list explaining the difference between HSA and PPO Health Insurance PlansI have a love/hate relationship with this time of year. I love the holiday season and all the craziness that comes with it.

However, it is also medical benefit renewal time, my least favorite time of the year.

On a positive note, our company is finally large enough to offer both a PPO and an HSA plan to our employees.   Both plans have pros and cons based on the employee’s individual circumstances.

Most employees have a very limited understanding of their health care benefits. Many people ignore their medical plans until they need their health insurance and then it is panic city.  Don’t fall into this trap.

Don’t fall into this trap.

Benefits of HSA/High Deducible Health Plans

Personally, I love HSA plans, but they are not perfect for everyone.

  • HSA stands for Health Savings Account.
    • An HSA is a stand-alone bank account owned by the individual employee (not the company) that can be used in conjunction with a high-deductible health insurance plan.
    • Funds are contributed to the HSA account with pre-tax income and can only be used for medical related expenses.
  • With a high deductible health plan, employees are responsible for all health related costs until they meet their deductible. Depending on your HSA plan, these deductibles can be anywhere from $5,000-10,000.
    • Once the deductible is meet the health insurance plan kicks in and pays based on your insurance split. Most plans are 80/20 or something similar.
    • This means you are responsible for 20% of your medical costs until you reach your out of pocket max (typically $10,000-15,000) at which point your insurance company will pay the remainder of your medical costs for the year.
  • Premium costs for high deductible health plans are typically 30-50% lower than standard PPO plans. The theory is that if you put your premium savings into an HSA account you will have the funds available to cover the higher deductible.
  • HSA/High deductible accounts are ideal for the very healthy and the very sick.

Admittedly, I work for a doctor, so I have an unfair advantage, but so far this year, I haven’t gone to the doctor. I’m an ideal candidate for an HSA account. I’ve been accumulating money in my account for years and will be very well prepared for a medical emergency.

HSA plans also work well for the very sick since once the out of pocket max is met the insurance plan typically covers 100% of the expenses.

Benefits of a PPO Plan

PPO Plans are ideal for average medical users. These are users who will go to the doctors 5-10 times a year and will need occasional blood work and other ancillary services.

  • PPO stands for Preferred Provider Organization. Your insurance company contracts with various medical providers who discount their rates to be part of the insurance plans network.
    • In return for discounting their services, medical providers receive patients referrals from the insurance companies. Consumers are charged “out of network” rates for using non-contracted providers which incentives them to use only providers recommended by the health plan.
    • For consumers to receive discounted rates they must follow the rules laid out by the insurance providers. This includes preauthorizing major procedures (and often minor ones) and using contracted physicians.
  • PPO’s keep costs in check by using cost sharing methods. With a PPO plan, the consumer pays a co-pay each time they see a medical provider. Co-pays range in price from $15-100 depending on the medical provider’s specialty.
  • Consumers pay co-pays until they have reached their deductible. Once the consumers deductible has been met most PPO’s then switch to coinsurance (like an HSA Plan) of 80/20 until the out of pocket max has been reached.
  • PPO Deductibles and out of pocket maxes are typically lower than HSA plans.
    • For example, a PPO plan deductible would be $2,000 with an out of pocket max of $5,000. However, the lower deductibles come at a price, which is increased monthly premiums.

Both plans have a single and family deductible and out of pocket max rate. The family deductible rate is typically $2,500-5,000 higher.

Conclusions

There is no perfect medical plan, the goal is to find a plan that works best for your financial and medical situation. Even if you are healthy, take the time to research appropriate plans and their coverage.

Take a hard look at your estimate future usage.  If you have major medical expenses like pregnancy or hip surgery a PPO plan will most likely be beneficial.  If you are fairly healthy, then you should consider an HSA plan.

The trick is to run the numbers using a variety of possible scenarios and then choose the plan that will be the most cost effective.

Remember – unless you have a job change or purchase your own coverage you are stuck with your choice for the entire year.

Photo Credit:  Urban Bohemian

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