Choosing an HDHP vs a PPO

Consider family expenses, pre-tax benefits, employer contributions, and retirement planning when choosing between HDHP and PPO.


Family Expenses and Pre-tax Benefits Savings

Your health plan drives many of your decisions during open enrollment and throughout the year. One emerging trend is employers offering their employees health plan options. Nearly two-thirds of large employers provide their employees with the choice of a high-deductible health plan (HDHP) and a traditional health plan, such as a preferred provider organization (PPO), during open enrollment. Does your employer offer options? If so, here are four factors you should consider when choosing an HDHP versus a PPO.

You and your family’s expenses

During open enrollment, you may see tables or charts that show your available plans’ premiums, deductibles, and/or out-of-pocket responsibility. Once you have those numbers, compare them with your family’s typical costs for expenses such as doctor visits and prescriptions. That’s a critical first step when weighing your choice of an HDHP versus a PPO or another type of traditional health plan.

If you don’t anticipate you (or your family) will require a lot of medical care in the coming year, it may make sense to participate in an HDHP so you can save money by paying less in premiums. Use our HDHP/HSA Vs. Traditional Health Plan Calculator, which lets you input your annual doctor visit and prescription expenses to see the plan that’s right for you.

Pre-tax benefits savings

Premiums aren’t the only way you can save on healthcare costs. Pre-tax employee benefits plans, such as health savings accounts (HSAs) and flexible spending accounts (FSAs), let you save money by putting aside pre-tax dollars to pay for eligible medical, dental, vision and other expenses. Any unspent HSA funds will roll over from year to year, allowing you to build tax-free savings for future medical care.

However, to take advantage of the savings and investment potential of an HSA, you must be enrolled in an HDHP. And, if you have an HDHP and an HSA, you can pair both with a limited FSA (which covers dental, vision and preventive-care expenses) for even more savings!


Employer Contributions and Retirement Planning

Employer contributions

Who isn’t interested in free money? Employers are able to contribute to their employees’ HSAs, some choose to contribute annually while others match their employees’ contributions. In 2021, the average employer contribution to employee HSAs was $867. Research has shown that employer contributions encourage employees to engage with their accounts and enhance the perceived value of their HDHP. These contributions will help you cover the cost of a higher deductible when you do choose an HDHP versus a PPO.

Retirement planning

Healthcare costs are the biggest reason that household expenses increase during the first six years of retirement. The average 65-year-old couple is now expected to need around $350,000 just for medical care in retirement. If you feel an HDHP is right for you, then an HSA can be part of your retirement-planning strategy for many reasons, including:

  • All HSA funds carry over from year to year, so unspent funds will be there for you later in life.
  • The investment capability of these accounts rivals a 401(k) or an IRA, allowing you to grow your funds even faster than you would simply through interest.
  • Once you turn 65, HSA funds can be spent on ineligible expenses without being subject to a 20 percent tax penalty (although these purchases on ineligible expenses will still be taxed).