What’s the Difference Between an HSA and a PPO?
As employers approach open enrollment, it’s vital that they brush up on their understanding of the organization’s benefits. HR administrators know that employees may even look to them as a trusted advisor, particularly when it comes to healthcare coverage. With that in mind, consider this a refresher—or an intro—on the differences between HSAs and PPOs.
What is an HSA and What is a PPO?
A health savings account (HSA) is a personal bank account with significant tax advantages that can be used by an individual to pay for medical expenses that aren’t covered by their medical insurance, which is typically a high-deductible health insurance plan (HDHP).
Meanwhile, a preferred provider organization (PPO) is a health plan that offers participants an extensive network of healthcare providers. If PPO members use providers that are considered in-network—including hospitals and doctors—the medical services are discounted to a pre-negotiated rate or covered completely by the plan.
While not every PPO plan offers eligibility for HSAs, there are many PPO networks that offer comprehensive coverage and are compatible with HSAs, as long as the member uses in-network providers.
PPOs: Pros and Cons
People who use PPOs like it for its flexibility and the control that it gives to users, especially thanks to a larger network of providers that can span multiple states. PPO users also aren’t required to select a primary care physician and don’t need a referral to see a specialist.
However, there are costs associated with these benefits—namely, actual costs.
Individuals with PPO coverage typically pay less for services from in-network providers but are charged higher monthly premiums. PPO members are also usually charged copayments for office visits and other services.
In addition, PPOs require that an annual deductible is met before the majority of costs are paid. For participants, the expectation may be that the initial costs of the higher premium and deductible are lower than the expenses that are eventually covered by the network.
HSAs: Pros and Cons
HSAs require that users are enrolled in a compatible, HDHP to properly utilize their benefits. While HSA owners can use the money from their HSAs to pay for qualified medical expenses, they must be enrolled in an HDHP to actually contribute to their HSA. There is also a limit to what users can contribute, but this money is automatically rolled over every year. (Limits are typically increased each year as well to account for cost-of-living adjustments.)
Other HSA benefits include triple-tax savings on deposited funds, money can be used indefinitely—so long as the purchase is a qualified medical expense—and people can invest their HSA funds to maximize long-term benefits. If someone is covered on a PPO network that includes an HSA-compatible plan, they may be able to invest HSA funds for use in their retirement planning and still have basic medical services covered at lower costs.
But what about the cons? The high deductible is a huge hurdle for a lot of people. The greater the amount, the tougher it is to receive discounted medical services aside from preventative care—meaning they’re spending more out of pocket and unable to invest these dollars.
According to the Mayo Clinic, HSAs can be particularly attractive to younger, healthy individuals who already don’t incur high medical costs, as well as people nearing retirement “because the money can be used to offset the costs of medical care after retirement.” However, if a person knows they’re going to need an expensive operation soon—say, a knee surgery they’ve been putting off for years—a PPO may be the preferable option.
Why Does Knowing the Difference Matter?
As you begin benefits enrollment planning, remember that personalization is key to offering a package that improves your team’s retention and recruiting efforts.
For example, according to the Mayo Clinic, HSAs can be attractive to younger, healthy individuals who already don’t incur high medical costs. They can also appeal to people nearing retirement “because the money can be used to offset the costs of medical care after retirement.” However, if a person knows they’re going to need an expensive operation soon—say, a knee surgery they’ve been putting off for years—a PPO may be the preferable option.
Of course, benefits packages require considering more than one or two variables—or one particular person’s needs. HR pros should do what they can to understand their team’s general preferences; the feedback will help inform the open enrollment decisions that they make, now and in the future.
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