High Deductible Health Plans vs. PPOs: A Guide to Health Insurance

HDHPs can be a good form of insurance for the young and healthy and PPOs are designed for freedom of choice; however, your decision should not be made on these factors alone.

If you’re like most individuals who are shopping for health insurance, you are more than likely slightly overwhelmed with all of the available options. Sorting through the available plan benefits and plethora of acronyms that lie within can feel more like a game of Scramble than an important life choice.

But we all want to be educated health care consumers. We want our resolutions to how we determine the best insurance plan for ourselves and those who depend on us to be based on informed and educated decisions.

Below is a full breakdown of the alphabet soup of abbreviations, plan designs, and benefit structures of each of 2 prominent health insurance options.

High-Deductible and Preferred Provider Organizations Plans

Let’s first start with a basic description of each.

A high-deductible health plan (HDHP) is a form of health insurance that offers a higher deductible than other forms of traditional health insurance. Having a high deductible provides an advantage to the health care consumer by reducing their monthly premium for ongoing coverage.

A preferred provider organization (PPO) operates as a network of health care providers that provide health services. You are permitted to visit doctors in your network or outside of it without the need for a referral. A PPO does not require you to select a primary care physician either.

HDHPs

Patients who rarely visit the physician’s office can regard an HDHP as more of a safety net of medical/pharmacy coverage compared with other health insurance plans. If you rarely need to access the medical and/or pharmacy benefits of your plan, high deductibles aren’t really much of an issue.

Why? Because your need to access medical care is so infrequent, the only cost you will incur on a regular basis are your monthly premiums, which are typically lower with HDHPs. Even if you do initially have to pay out-of-pocket, every dollar you do have to spend will get you closer to your meeting deductible, at which point a typical 80/20 cost share plan with the insurer will kick-in. After that, if your incurred medical spending reaches your out-of-pocket (MOOP) total, your plan will then cover 100% of your health care costs.

Even with the high deductibles of an HDHP, most plans cover basic preventive services. These services can include preventative medication benefits, annual checkups, and vaccine administration at no cost to the patient. Although an HDHP may make patients chose between certain provider networks, if you do choose a provider within that network, certain services—such as your annual physical, any blood work, or other basic services—are frequently offered at a discounted rate.

That being said, most plans do allow for patients to select a provider of their choice, regardless of whether the plan has established a network with that provider or not. However, by choosing an out-of-network provider, you are electing to forgo the lucrative cost savings associated with in-network providers. Negotiated rates between provider networks and insurers are, more often than not, below market rates. With lower rates, any out-of-pocket expenses that need to be paid will still be lower than if you visited an out-of-network provider—therefore, buyer beware.

Lastly, HDHPs allow for patients to open up a health savings account (HSA). The purpose of an HSA is to have type of a checking account strictly for your health care spending. The advantage here is that an HSA is tax-free. This means that the funds do not expire, and you can build upon your HSA until you need to take out money for a qualifying medical and/or pharmacy expense.

PPO

First and foremost, one of the reasons that PPOs were created is because they remove a crucial barrier that the insurance plan’s predecessor—health maintenance organizations (HMOs)—had in place, and that is the idea of a gatekeeper. In an HMO plan, primary care physician (PCPs) must facilitate all referrals to services provided by another health care professional and must act as the middle-man to guard a patient’s access to any services needed outside the PCPs office—hence the term “gatekeeper.”

With a PPO, there is no gatekeeper, there is no referral process for services, and no provider limitations or restrictions. In fact, you are not even required to establish a primary care provider before seeing a specialist—likely reducing unnecessary visits. Next, with a PPO structure, all payments for health services are paid at the time the services are rendered.

Because the provider is within network, they have negotiated rates between themselves and your insurer. The provider will submit the service claim on your behalf. Then the insurance company will adjudicate the claim, approve it (hopefully), and send you a summary of the services and costs.

Another main difference especially between PPOs and HDHPs is that PPOs historically do not have deductibles associated with them, which, is a selling point to a lot of health care consumers. In place of deductibles, PPOs have fixed costs, which is usually in the form of a co-pay that patients must pay out of pocket for any benefits received.

HDHPs are typically designed for individuals of above average health, limited comorbidities, and who are young and single. This demographic is statically less likely to need high-cost medical/pharmacy services. If you don’t fall within this demographic, an HDHP may not be for you.

Also, with an HDHP, the high deductibles can act as a deterrent for patients to seek medical attention. The initially high out of pocket expenses can reach up to 5 figures. When considering a PPO, it is important to understand that even if you have the freedom to choose a provider outside of network, those rates are often significantly higher because negotiated rates for services aren’t always established.

Unlike an HDHP, there is no HSA associated with a PPO unless your plan qualifies as an HDHP. This means that any services rendered are required to be paid with post-tax dollars. PPO premiums are also traditionally much higher than with an HDHP plan.

So, what can we take away from this?

HDHPs can be a good form of insurance for the young and healthy and PPOs are designed for freedom of choice; however, your decision should not be made on these factors alone. Rather, your decision should be made based on the amount of money you will save on monthly premiums, as well as the amount of money you potentially could contribute to an HSA account for medical expenses.

With these factors mind, when teetering between the choice of these insurance plan designs, you can make your selection using educated and confident decision making.

About the Author

Ryan earned his Masters of Science in Healthcare Administration from Saint Joseph's University and is currently enrolled in the Masters of Pharmacy Business Administration program at the University of Pittsburgh. The program is a 12 month executive-style, graduate education program where healthcare professionals obtain an in-depth understanding of the business of medicines. Currently, Ryan works for the University of Pittsburgh, School of Pharmacy, Program Evaluation and Research Unit as a research specialist. Ryan’s research is primarily focused on the opioid epidemic and provides technical assistance to stakeholders across the commonwealth in their mutual efforts to reduce opioid death rates in Pennsylvania.