What’s the Difference Between an HSA and PPO Plan?

An HSA is different from the plan types of PPO, HMO or EPO. Any of these plan types can be an HSA eligible plan. So, you can get a PPO that is also HSA eligible, but not every HSA eligible plan is a PPO, and PPOs aren’t available in every state. HSA eligible plans are available in pretty much every state.

HSA stands for health savings account. It’s separate from the type of network options of a PPO, HMO, etc. and typically is cheaper than non-HSA eligible plans.

You can open an HSA with any HSA eligible health plan, and use those tax deductible funds to pay for eligible medical costs. It’s a stand alone tax-advantaged savings account that is separate from your health plan, and your monthly premiums for your health plan do not get added to your HSA. You or your employer is responsible for contributing to an HSA account.

One of the biggest differences between an HSA and a non-HSA plan is that an HSA does not have any co-pays before you hit your deductible–this is because you’re expected to use your tax-advantaged funds in your HSA account to pay for your qualified medical expenses before you hit your deductible.

Read more about the differences between PPOs and other plan types here.

Apply For A PPO or HSA Eligible Plan

Because HSAs must be paired with a high-deductible health plan, your health insurance premiums are normally much lower than a typical PPO plan with a $500 or $1,000 deductible. The savings from the lower premiums along with the tax-free deductions could be $5,000 or more every year.

However, with an HSA, you may have a higher major medical deductible, and you won’t enjoy office visit and prescription co-pay benefits typical of PPO and HMO plans but still share the same PPO provider network of traditional PPO plans (and in some cases, HMO plan networks). Still, for the large majority of consumers, HSAs produce a net financial gain.

Consider these HSA Advantages over PPO Plans:

• Reduced health insurance premium
• Reduced rate of increase in health insurance premium
• Taxable income reduced by HSA deposits
• Out-of-pocket health care expenses paid with pre-tax funds
• Preventive care benefits included at no cost (applies to all ACA plans)
• A new source of long-term savings

Example of HSA Plan Savings

Below is an example comparing how much a typical PPO plan with a $500 deductible and 80% coinsurance might cost, compared to a typical HSA plan with a $5,000 family deductible and 100% coinsurance.

This example is based on the average health insurance premium of an individual with a family of four living in Chicago, with $1700 in medical expenses and $450 in expenses for dental care, contacts and eyeglasses. This illustrates the difference in plan costs if the plan holder is in a 28% federal tax bracket, pays the 3% Illinois state income tax, and deposits $6,750, the maximum 2017 family contribution allowed, into his HSA. (If over 55, each individual can contribute an additional $1,000, referred to as the “catch up” contribution.)

Opening up an HSA Account

Individuals can sign up for HSAs with banks, credit unions, insurance companies and other approved companies. Your employer may also set up a plan for employees as well.