HMO vs. HDHP Health Insurance

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While you’re comparing the different types of health plans out there, you might come to a confusing crossroad: the difference between an HDHP plan and every other plan out there. You might even drive yourself crazy trying to find an article or even a chart comparing its benefits to HMOs and PPOs.

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While you’re comparing the different types of health plans out there, you might come to a confusing crossroad: the difference between an HDHP plan and every other plan out there.  You might even drive yourself crazy trying to find an article or even a chart comparing its benefits to HMOs and PPOs. Well, we’re here to tell you, there is no difference because an HDHP can be an HMO, a PPO, a POS (aka point-of-service), or EPO.

An HDHP is defined by its deductible while the other types of plans are defined by their networks.  But for the sake of your search, we’ll point out the differences between a traditional HMO and an HDHP HMO in this article.

HMO Plans

Health Maintenance Organizations (HMOs) aim to keep down overall medical costs by creating a narrow network of providers whose care the health plan will cover, and by requiring all patients to get the approval of their primary care provider (PCP) before they see a specialist, have a test done, or receive just about any other type of care.

Under all HMOs, the PCP will manage the patients’ care and there is little to no paperwork for the patient to complete.  Which sounds great because it’s low maintenance for the patient.  The drawback is that the patient has very little choice in terms of the doctors he or she sees since the only care that’s covered is in-network care.  So, if you found a doctor you liked outside of the health network, you would have to pay for the care 100% out-of-pocket.

Traditional HMO plans tend to have lower premiums and deductibles than other types of plans, which lead to lower out-of-pocket costs for the patient.  There is also an efficiency of care because it’s managed by one person, the PCP.

HDHP Plans

High Deductible Health Plans (HDHPs) are plans that can have any kind of network: HMO, PPO, POS or EPO, but the deductible and out-of-pocket costs are usually the highest you’ll find on the market.

Why would you sign up for this type of plan?  Well, HDHPs usually come with the most affordable premiums and the ability to open up a Health Savings Account (HSA).  The HSA is a pre-tax savings account you can use to pay for medical expenses like your deductible, copays, or any other out-of-pocket expenses.

The 2020 deductible for an HDHP will be between $1,400 for an individual, $2,800 for a family, and an out-of-pocket maximum $6,900 for an individual, $13,800 for a family.  Preventative care is free even if you haven’t met your deductible and you won’t ever be charged a copay. The maximum HSA contribution for 2020 is $3,550 for an individual and $7,100 for a family.

The 2020 deductible for an HDHP will be between $1,400 for an individual, $2,800 for a family, and an out-of-pocket maximum $6,900 for an individual, $13,800 for a family.  Preventative care is free even if you haven’t met your deductible and you won’t ever be charged a copay. The maximum HSA contribution for 2020 is $3,550 for an individual and $7,100 for a family.

In 2021, the deductible for an HDHP will remain the same as it was in 2020 ($1,400 for an individual, $2,800 for a family). The out-of-pocket maximum will be $7,000 for individual health care plans and $14,000 for families. The maximum HSA contribution for 2021 is $3,600 for an individual and $7,200 for a family.

How do you choose?

The choice between a traditional HMO and HDHP will largely depend on your expected healthcare needs.  First, if you have a condition that needs to be managed and anticipate needing more care, and your preferred doctor is within the HMO network, you might benefit from a traditional HMO.

But if you only anticipate needing preventative services and will have the ability to contribute to your HSA without using all of your contributions, an HDHP can actually help you pay for future care.  HSA contributions earn interest and rollover from year to year so they can actually function like a true savings account. Which is great if you end up needing a procedure in the future that’s only partially covered by your health plan.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.