What are your options for health insurance?
Whether it’s time for open enrollment via your employer, you’re starting a new job, or buying your own policy, picking the right health insurance plan for your needs is a decision that has many financial implications. It’s important to review all the options you have, especially if you have experienced any changes in your family size, have health concerns, have a partner with health insurance options, or are just not happy with the plan you currently have.
If you don’t have an employer-sponsored plan, you will probably be considering enrolling in a private insurance plan, a marketplace plan, or a state-sponsored plan. These kinds of plans can be very flexible and can even be subsidized depending on income and family size to help reduce your monthly premiums.
Generally, the only time to change and update your health insurance via an employer is during open enrollment or after experiencing a significant life event such as losing a job, getting married, moving, or a change in household size. For marketplace or private plans, the enrollment period generally runs from 11/1-1/15, but if you want coverage to begin by 1/1, you need to enroll by 12/15.
There are many different types of health insurance plans available but we want to highlight the differences between HSA and PPO plans as these are the most common options for you. If you are shopping for a private or marketplace plan, it may make sense to connect with a local insurance broker for a free review of options and get their expertise on which plans may be your best option, both for coverage and cost.
What is the difference between an HSA and a PPO health plan?
An HSA (Health Savings Account) is a type of savings account where you can save money tax-free and withdraw funds (also tax-free) to pay for medical and health-related expenses. You qualify for an HSA account when you are enrolled in a High Deductible Health Plan. This account differs from FSA’s or (Flexible Savings Accounts) because the funds you save can accrue indefinitely and be used anytime in the future. There are limits to how much you can contribute to the HSA which are $4,150 for an individual and $8,300 for a family starting in 2024.
A PPO (Preferred Provider Organization) is a health plan that allows you to see a network of providers for your medical care. A PPO plan generally gives you the freedom to see providers that are both in and out of the network. This can be beneficial for you if you see physicians who tend to be out of network for you. If there is a doctor out of network, you will be able to see them, just at a higher cost than your in-network providers. With a PPO plan, you generally can see a specialist directly rather than having to get a referral from your primary care provider.
Advantages of the HSA
The HSA (Health Savings Account) is your most powerful account for retirement as it has a triple tax-free benefit. The money you put in is tax-free (you don’t pay taxes on it when you make your contribution), you pay zero taxes on the growth of your account (most people don’t know you have the option to invest your funds and you want to do this and not keep the funds in cash), and your withdrawals are tax-free when you use it for qualified medical expenses. You don’t want to touch the funds in your HSA account in your pre-retirement years if possible so they grow tax-free for decades as you can reimburse yourself in your retirement years (make sure to keep a folder in your email for healthcare expenses/receipts) and have the power of compounding growth from your investments
There is a lot of flexibility in how these funds are spent and if you don’t use the funds.. To qualify for an HSA, you would need to be enrolled in a High Deductible Health Plan which means that more medical expenses are out of pocket until your deductible is met, but the monthly premiums are generally lower.
Disadvantages of the HSA
As mentioned above, there can be a lot more expenses that will be charged out of pocket due to having a high deductible plan. This means that if you have a lot of medical needs, doctor visits, expensive prescriptions, or expected surgeries, a High Deductible Health Plan with a Health Savings Account may not be best for you. Additionally, if you use the funds in an HSA for non-medical expenses you will be charged a 20% penalty on those funds as well as pay ordinary income tax.
Advantages of the PPO
Typical PPOs are not high-deductible plans (but they can be). Because the deductible is generally lower, your insurance benefits trigger more quickly than a high-deductible health plan, so you can pay less out of pocket. The PPO plan can generally cover a greater range of medical specialists that you can see without a referral from a doctor and can have a wider range of covered care. Generally, this plan can be suitable for those with high healthcare costs.
Disadvantages of the PPO
Since your benefits kick in early with the PPO, that usually means you will pay more in monthly premiums than on your HSA-qualified plan. In addition, this isn’t an investment account like the HSA is, so your flexibility in medical costs will not be as high as a HSA. For example, dental and vision expenses are usually not covered in a PPO plan, but you could use the funds you saved in your HSA for these kinds of expenses.
Key Terms To Understand:
HSA High Deductible Plan
|The monthly payment to maintain your health coverage
|The amount you pay out of pocket before your insurance will start paying for your medical expenses
|The amount you pay to share the cost of covered services after your deductible is met.
|The most amount of money you will pay in a year for coverage. Includes all medical expenses and your monthly premiums. Beyond this, insurance will cover all expenses for the rest of the year
See an example here:
|HSA High Deductible Plan
|Coinsurance after deductible
You have a medical expense that comes to $1,100.
If you have the PPO plan, you would pay the first $400 of the medical expense to hit your deductible. The remaining $600 of the $1,100 would be subsidized by your insurance company and you would pay 20% of the cost totalling $120. Total cost would be $400 (deductible) + $120 (co-insurance ) + $4,500 (annual premiums). If that was all you spent on medical care, your total costs would be $5,020 for the year.
If you have the HSA High Deductible Plan, you would pay the entire $1,100 which would get you closer to your deductible, which isn’t until you hit $2,500 in medical expenses, which would then trigger your insurance to assist in costs. If that was your only medical expense you would be $1,100 (deductible) + $3,400 (annual premiums) for a total of $4,500. Having more medical expenses than that, would mean that the PPO plan may be better for you and your family. However, if you are able to save additional funds towards an HSA, you would get a great tax deduction for your contributions, which would also factor into your total costs.
You have a medical expense that comes to $10,000.
If you have the PPO plan, you would pay the first $400 of the medical expense to hit your deductible. The remaining $9,600 of the $10,000 would be subsidized by your insurance company and you would pay 20% of the cost totaling $1,920. Total cost would be $400 (deductible) + $1,920 (co-insurance) + $4,500 (annual premiums). If that was all you spent on medical care, your total costs would be $6,820 for the year.
If you have the HSA High Deductible Plan, you will pay the entire $2,500 deductible, then 20% of the remaining $7,500 ($1,500, co-insurance). Total cost would be $2,500 (deductible) + $1,500 (co-insurance) + $3,400 (annual premiums). If that was all you spent on medical care, your total costs would be $7,400 for the year. Having higher medical expenses would mean that the PPO plan may be better for you and your family.
The HSA is an amazing savings vehicle that can help your family with a wide variety of medical needs, but is most suitable for those with very low medical needs. If you qualify, you can start saving money tax-free for your future medical needs in retirement and growing your funds through investments in the HSA. The PPO will likely be the better choice if you have a lot of medical and healthcare costs during the year, expecting surgery, or a birth of a child. Check out this calculator that can help you get a general idea of which plan might be best for you financially.