Moving From the Security of a PPO/HMO to an HDHP Paired with an Health Savings Account (HSA)?

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It’s hardly newsworthy that health insurance and health payments are becoming more expensive. Here we will discuss a few of the major factors in deciding to select one over the other.

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It’s hardly newsworthy that health insurance and health payments are becoming more expensive.  This trend impacts employers, who still pay the majority of health care costs in the US, as well as employees whose share of the total costs continues to increase.  This cost sharing occurs in a few components, as well as across insurance formats, the most popular choices being PPOs and HDHPs.  Here we will discuss a few of the major factors in deciding to select one over the other.

Health Insurance Plan Options

  1. HMO, PPO, and HDHP, the costs are all rising. Unfortunately, no matter which form of health insurance you choose, you should anticipate your health care costs will rise.  This is due to the fact the underlying costs of providing health care continues to grow, while these costs are being passed on to employers and employees.  There is no one choice of health care plan thar can immunize you (get it?) against this growing cost.  Occasionally a PPO will have deductibles so high it may “feel” like a high deductible, though not meet the IRS standards that qualifies a plan to be a “HSA-qualified HDHP.”
  2. Many plans share the same network. While each health care plan is different, whether a PPO, HMO or HDHP, you should expect to have many of the same health care providers, hospitals and care clinics.  The same goes for the prescription drug plan, which is structured outside of the network but included as part of the overall health insurance plan.  As a result the difference in plans often comes down to how the premiums, co-pays, deductibles and co-insurance work together in “risk sharing” the financial responsibility of providing health care costs to a group of people..
  3. Estimating health care cost is hard. Many employers, particularly large ones, offer health care cost estimators under various health insurance plans to help employees with next year budgeting.  These are well intentioned efforts by employers to give their employees peace of mind supporting their benefit choice.  However, recognize these estimates are just that.  Life, and health, can be unpredictable.  Budget accordingly, and conservatively if you can.
  4. Health care plan specifics may change year to year. Regardless of your choice of plan, with health care in a seemingly continuous state of transition, you should review plans specifics each year during open enrollment.  Even if you elect to remain in the same plan, make sure you find out what may have changed.  Also keep in mind that if you have certain preferred providers you should ask them directly about their participation.  Your employer and their benefits consultants may not know about upcoming participation decisions.
  5. HSAs can help tip the financial scale in favor of HDHPs. While often using the identical network as a PPO option, an HSA-qualified HDHP changes the economics by charging less in monthly premiums but increasing the costs at the time of service.  Depending on how frequently the plan is used, the fixed monthly premium savings often make up the out-of-pocket difference.  This financial advantage can compound through the use of Health Savings Accounts.  HSAs can “store” the difference in premiums through account contributions.  Further, many employers offer deposit incentives to encourage employees to participate in these accounts.  Be sure to check with your employer about what financial benefits you may be entitled to.

While the financial planning details of health care plan selection is beyond the scope of this post, recognize that similar to insurance of all types, the consumer is often advantaged by agreeing to lower monthly premiums in exchange for accepting higher costs when submitting an insurance claim.  Given the many advantages of Health Savings Accounts, this is even more true when selecting an HSA-qualified HDHP and employing many of the HSA’s investment savings and tax benefits.

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.