PROFIT FROM IT: HDHP or PPO? Information to help you choose

In the last 10-15 years, I've noticed an uptick in the number of employers who provide group health insurance offering not only the typical PPO, or preferred provider organization, plan but also high-deductible health plans (HDHP). This often leaves employees with a choice to make, one that can be confusing. Today I want to contrast a few of the aspects of the two in hopes of eliminating, or at least easing, that confusion.

Deductibles – the most noticeable difference in the two plans usually is the amount of the deductible. A deductible is the amount that you must pay out-of-pocket before the plan begins to cover some or all of your expenses. Typically, a PPO will have a relatively low deductible, sometimes as low as $500, although that low of an amount is becoming increasingly rare. For 2025, an HDHP is any plan with a deductible of at least $1,650 for an individual or $3,300 for a family. These are minimums and may be higher.

Copays – this is a feature common to PPOs. A copay is a set fee that you will pay for certain medical services such as normal doctor visits or lab work. For example, you could have a copay of $50 for each doctor visit. This is typically a savings over what you would normally pay for the visit, however, copays do NOT apply to your annual deductible. HDHPs do not have copays, so all out-of-pocket amounts apply to the deductible.

Coinsurance – this is the term used to describe the percentage (or amount) of each medical bill that you will have to pay AFTER meeting your annual deductible. A typical PPO might have a 20 percent coinsurance provision, meaning if you incur, for example, a $5,000 hospital bill after meeting your deductible, the PPO will pay 80 percent, or $4,000, and you will pay the remaining $1,000. For an HDHP, there is usually no coinsurance, meaning the plan pays 100 percent after meeting the deductible.

Maximum Out-of-Pocket – both types of plans have a set out-of-pocket maximum amount you pay after which the plan pays all costs. I find that an HDHP usually has a lower maximum amount. This means that in years where you have high medical bills, your out-of-pocket cost will generally be lower with HDHP, even considering the higher deductible. I can attest from personal experience on multiple occasions that my firm's HDHP has saved my family from serious financial distress because of this.

Premiums – the monthly cost of an HDHP is significantly lower than for a PPO, thus, can be real budget saver for both employer and employee. For this reason, employers will sometimes contribute some of the savings to a health savings account (or HSA) for the employer to incentivize selecting the HDHP over the PPO.

In fact, HSAs were specifically created to compliment HDHPs. An HSA works much like an IRA, with both employer and employee able to contribute to it (up to certain maximum amounts) on a tax-deductible basis. The funds can be invested, and any earnings are tax-free as long as they stay in the account. Further, they can be withdrawn tax-free if used for qualified medical expenses, including to pay future Medicare premiums or for long-term care expenses. Frankly, I consider an HSA to be one of the most effective ways someone can save for retirement, when medical expenses are usually at their peak.

Lane Keeter, CPA is the Senior Partner of EGP, PLLC, CPAs & Consultants (www.egp.cpa), a full-service financial firm with offices around Arkansas, Managing Partner of EGP's Heber Springs office, and winner of The Sun-Times Reader's Choice Award for Best Accountant.