Choosing between an HSA and PPO

Question

I need to choose between a PPO and HSA plan offered by my employer and it seems like the "obvious" choice is the HSA plan but I fear that I am missing something that will come back to bit me later. In the past I have only ever used a PPO plan and am not sure what to expect with an HSA.

                                   Summary of the plans
                                  PPO                    HSA
Deductible:                       $0                    $1500
Out of Pocket Max:                $3000                 $3000
Coinsurance:                      0%                    0%

The PPO plan also has copays for a lot of services however they are generally pretty low ($10 PCP/$20 Specialist). The prescription coverage has the same copays with the expectation that the HSA copays only apply after the deductible has been met. As far as the premiums go, the HSA plan is $20 less per month which is a difference of $240 annually. Additionally, my employer will contribute $1500 annually to the HSA which effectively covers the deductible and is the reason that the HSA seems like the obvious choice.

Due to the fact that my employer contributes to the HSA it seems like if I hit the deductible I will not have to pay anything for the rest of year other than prescription copays. Also, I do not expect to hit the deductible so I should save money not only on the lower premium but also have money in the HSA at the end of the year to use later in life, even if I do not contribute anything at all.

I have been doing research online and reading the plan summaries and it seems like there is no reason that anyone should choose the PPO plan. Am I missing something obvious?

Answer 1

Here are the advantages to the HDHP/HSA option over the PPO option, some of which you've already mentioned:

1. Lower premiums, saving $240 annually.

2. Your employer is contributing $1500 to your HSA. As you mentioned, this covers your deductible if you need it, and if you don't, the $1500 is yours to keep inside your HSA.

3. The ability to contribute more to your HSA. You will be able to contribute additional funds to your HSA and take a tax deduction.

Besides the medical expenses applied to your deductible, HSA funds can be spent on medical expenses that are not covered by your insurance, such as dental, vision, chiropractic, etc. Anything left in your HSA at age 65 can be withdrawn just like with a traditional IRA, with tax due (but no penalty) on anything not spent on medical expenses.

With the information that you've provided about your two options, I can't think of any scenario where you'd be better off with the PPO. However, you definitely want to look at all the rest of the details to ensure that it is indeed the same coverage between the two options. If you find differences, I wrote an answer on another question that walks you through comparing insurance options under different scenarios.

Answer 2

In my experience, there is one aspect of HSA's that people often overlook.

In an HSA you will not have "nice" copays nor will co-insurance kick in until you have met the deductible (always double-check the summary of benefits, but this is a defining characteristic of HSA plans).

This first-dollar responsibility is something shared by all HSAs (US gov't calls them Qualified High-deductible Health Plans). In exchange for the nice tax-benefits, the government wants HSA subscribers to pay the full amount for provided services until they meet their deductible (theory being that this will reduce the demand for unnecessary medical services).

Check the summary of benefits for more specifics, but you should not be surprised to learn that this applies to Prescription Drugs as well as any doctor or hospital services (i.e. you would pay the insurer's negotiated price for prescriptions until you've paid $1500 out of pocket). And that is one area that surprises many first-time HSA subscribers.