When you come to the United States and start a new job, you may be surprised by the complexity of health insurance plans. After receiving a job offer from an American company while living in Japan and moving to the US, I had to choose a health insurance plan as part of my benefits package. However, the health insurance systems in the United States are so different from those in Japan that I found it very difficult to choose the right plan for my family. I suppose you might agree that the complexity of the American health insurance system is remarkable, even when compared to other countries besides Japan. In this article, I’ll share some of the differences between PPO and HDHP options and the insights I gained through my research.
To get straight to the point, I think that the PPO option is best suited for individuals who need to manage chronic illnesses such as diabetes, high blood pressure, and so on. For most people, the HDHP option is more appropriate. Of course, this is just my personal opinion, so if you have a different perspective or disagree with my conclusion, please let me know.
Table of Contents
- PPO vs HDHP: Definitions and key differences
- Coverage comparison: Premiums, deductibles, out of pocket, copays and in-network vs. out-of-network care
- Factors to consider: Individual needs, budget, and risk tolerance
- Pros and cons: An overview of advantages and disadvantages
- Conclusion: Summary of key findings and recommendations for choosing the right plan
PPO vs HDHP: Definitions and key differences
First I would like to confirm the definitions of PPO and HDHP options.
A Preferred Provider Organization (PPO) plan is a type of health insurance plan that has a network of healthcare providers who have contracted with the insurance company to provide medical services to members at discounted rates. These providers are called in-network providers. While this is also applicable for other types of plans, PPO plans differ in that they also cover a portion of healthcare costs for providers who do not contract with the insurance company, known as out-of-network providers. This added flexibility can be beneficial for plan members who may need to seek medical care outside of the plan’s network.
A High Deductible Health Plan (HDHP) is a type of health insurance plan with a higher deductible than other plans, meaning members must pay a certain amount out of pocket before insurance coverage begins. However, the premium amount is typically lower. HDHP plans also come with a Health Savings Account (HSA), which allows members to save money tax-free to offset out-of-pocket healthcare expenses in the future. In some cases, employers may also contribute to the account.
Coverage comparison: Premiums, deductibles, out of pocket, copays and in-network vs. out-of-network care
The below table shows the typical differences between PPO and HDHP options.
| PPO | HDHP | |
|---|---|---|
| Premiums | higher | lower |
| Deductibles | lower | higher |
| Coinsurance | 80:20 | 80:20 |
| Out of Pocket Maximum | higher | higher |
| Copay | lower | higher or no-copay |
| In-Network | smaller | larger |
| Out-Of-Network | covered but higher cost | covered but higher cost |
| elibigle for HSA? | no | yes |
I would like to point out that while PPO plans are known for their wide range of in-network providers, they are actually relatively smaller compared to HDHP plans. Although I am not completely certain about this, I have come across articles that suggest this. Therefore, I have provided the above table.
Factors to consider: Individual needs, budget, and risk tolerance
To help you determine which plan may be preferred for you, I will provide a case study based on my personal experience. Please note that it may not apply to your situation, but I hope it can assist you in identifying the key components to consider.
The table below displays the benefits package provided by my employer. Although it may not perfectly match my options, I have attempted to match the numbers as closely as possible without compromising generality.
| PPO | HDHP | |
|---|---|---|
| Premiums (Annual) | $7,000 | $5,000 |
| Deductibles | $2,000 | $4,000 |
| Out of Pocket Maximum | $9,000 | $7,000 |
| Copay | $30 (Pharmacy plan) | Deductible and Coinsurance |
| HSA | 0 | $2,200 ( included $1,000 that the employer contributed) |
As you may have noticed, although the premium amounts and deductibles differ significantly between the plans, the total amount that needs to be paid before insurance coverage kicks in (i.e., premium + deductible) is the same for both plans (PPO: $7,000+$2,000=$9,000, HDHP: $5,000+$4,000=$9,000).
The next thing I want to point out is the difference in out-of-pocket maximums (PPO: $9,000, HDHP: $7,000). This means that to receive 100% insurance coverage, you need to reach $16,000 for PPO and $12,000 for HDHP. This is a significant difference, and based on this point alone, HDHP is the superior option. I’m not entirely sure, but I believe the reason for this is that PPO offers lower copays to its members. Instead of providing copays with lower costs, PPO ends up having a higher out-of-pocket limit compared to the other option.
In the case of the HDHP plan, I plan to contribute $100 each month to the Health Savings Account (HSA), and the company will also contribute the same amount each month, making a total of $2,200 annually. With the HDHP plan, I would need to pay $4,000 for medical expenses before the insurance coverage begins. However, since the company will contribute $1,000, I can consider the deductible amount to be $3,000 instead of $4,000.
Pros and cons: An overview of advantages and disadvantages
While there are certainly other differences between PPO and HDHP plans, I believe that the main ones to consider are the premium amount, deductible amount, and out-of-pocket maximum. With a PPO plan, you may face higher premiums and out-of-pocket maximums, but these disadvantages are offset by lower deductible amounts and copay systems. On the other hand, an HDHP plan may have a higher deductible, but the premiums are much lower. Furthermore, an HSA can help offset your out-of-pocket expenses, making it a potentially attractive option for those looking to save money on healthcare costs.
As previously mentioned, despite the differences in premium and deductible amounts, the total costs before insurance coverage (i.e., premium + deductible) are similar between the PPO and HDHP plans. Thus, the key factor to consider is whether copays are beneficial for you or not. While copays provide the advantage of a fixed amount for all medications, it’s worth considering if paying around $30 for each medicine is cost-effective when medications typically cost around $10 each. As I mentioned earlier, the PPO option is more suitable for individuals managing chronic illnesses such as diabetes or high blood pressure.
Conclusion: Summary of key findings and recommendations for choosing the right plan
I ultimately chose the HDHP plan for my family because, in my opinion, the copay feature of the PPO plan was not beneficial for us. However, I recognize that this is a personal decision and my assumptions about medication costs may not be completely accurate. Additionally, there may be other important factors to consider when comparing the two plans that I may have overlooked.
It’s important to note that the details of each plan can vary, so it’s always wise to carefully review the plan documents to understand how copays, deductibles, and out-of-pocket maximums work together. Ultimately, there is no one-size-fits-all answer when it comes to choosing a health insurance plan.
Comments