PPO vs. HDHP: Do Your Homework

The not-so-hidden truth is that a lot of employees just wish they could keep the health plan they have at the current cost and not deal with open enrollment at all. Unfortunately, that isn’t usually possible because most employers have to make some kind of change to their health plan every year, so employees will have to make a choice. Many employees get stuck trying to decide between the PPO plan and the High Deductible Health Plan (HDHP). They are attracted to the lower premium that a HDHP usually offers but prefer the lower deductible and the copay benefits traditionally found in PPO plans. Sadly, you usually can’t have it all but, as the Rolling Stones’ song goes, “if you try sometimes you find you get what you need.” The key is you have to try - you must do your homework. Of course, the most important consideration when choosing your health plan is making sure the types of healthcare services you need are covered by the plan you choose. You will also want to consider whether the providers you prefer are participating in that plan’s network. That’s your reading homework – review each plan’s benefits and exclusions and research the provider networks.

You could be paying more than you think for a PPO versus a HDHP

Now it’s time for the math homework. Once you know you have the right benefits and providers covered, the decision really comes down to your budget. You’ll need to think through not only the monthly premium, but also the cost at the time of service and the annual limit on out-of-pocket expenses. While the higher deductibles on a HDHP may seem scary, the deductible amount is often also the maximum out-of-pocket amount you will have to pay for the entire benefit year. When compared to a PPO plan, it is common to find that the PPO out-of-pocket limit is significantly higher than that of the HDHP. On the other hand, the PPO plan may only require a copay on the day of the treatment whereas the HDHP would require paying the entire cost of the visit if you haven’t met your deductible yet.

So here’s the homework assignment: to help decide between the PPO and the HDHP, total up the monthly premium of each and then add their respective out-of-pocket limits to the premium total. If you stay in-network, this will be your absolute maximum liability for covered services for the year. For some, this is all the information needed – if the HDHP premium plus the out-of-pocket maximum is lower than the PPO, then choose HDHP. Here’s another way to visualize this:

 

HDHP premium + out-of-pocket maximum < PPO premium + maximum = no brainer

 

Before making this choice however, be sure your budget can handle it. Will you be able to pay $200 for an office visit on the day of care or $600 at the emergency room until your deductible is met? If your budget doesn’t have room for the higher costs at the time of service, think twice before selecting the HDHP. If you do your homework, you are likely to make an A+ decision.

See what decisions your peers—and their employees—are making on PPOs and HDHPs. Download your free copy of Benefitfocus’ inaugural State of Employee Benefits report, which looks at over 700,000 actual open enrollment elections to provide key insights for the 2016 benefit plan year.