HDHP vs. Traditional PPO 2023: What’s the Difference? 

Choosing the right health plan during open enrollment or a qualifying life event is of the utmost importance since it dictates your care and associated costs for the year. With so many options, acronyms, and policy rules to consider, picking a plan can feel tricky.

Ahead, we explore two of the most common health plans: HDHPs (high deductible health plans) and traditional PPOs (preferred provider organizations).

Note: This table discusses the main differences between a high deductible health plan and a traditional PPO plan with a lower deductible. However, HDHPs can be part of a PPO network. More on that below.

What is an HDHP? 

An HDHP, or high deductible health plan, is a type of health insurance plan that features higher deductibles and out-of-pocket maximums with lower monthly premiums in comparison to a traditional health insurance plan. 

HDHPs can be ideal for customers who only make occasional visits to their doctors. With higher deductibles and out-of-pocket maximums, the value of an HDHP can start to diminish as visits, procedures, and prescriptions become more frequent. 

What is a PPO?

A preferred provider organization (PPO) is a health insurance plan that works with a network of providers who offer certain rates for those enrolled in the plan. Members typically pay a higher monthly premium for these health plans than they would for a high deductible health plan. 

On the flip side, a traditional PPO plan typically has a lower deductible and lower out-of-pocket maximum than an HDHP. For customers who visit their doctor often, lower deductibles and out-of-pocket maximums could help lead to savings once all their medical expenses are paid. 

For example, let’s say you receive a medical bill for $5,000. Under an HDHP, your deductible might be $3,000. That means you’ll be required to cover $3,000 of the bill before your insurance provider covers the rest. With a PPO, you might only have to contribute $1,500 before your coverage kicks in.  

Sample HDHP vs. traditional PPO health plan  

Here’s how an HR department’s insurance brochure might look if it offered an HDHP and traditional PPO for open enrollment.

When a high deductible health plan is part of a PPO

Sometimes a high deductible health plan is part of a PPO network. While that sounds complicated, all it means is that people on the high deductible health plan get access to the PPO’s network of providers. They still pay higher deductibles and out-of-pocket maximums in exchange for lower monthly premiums.

High deductible health plans with HSAs

If you enroll in an HDHP, you typically get access to a health savings account (HSA). An HSA can be used to cover the costly deductibles in a high deductible health plan, as well as prescription medications or other medical expenses. Funds are not taxed and are typically deposited into an HSA as part of a payroll deduction.

HSAs Benefits

1. Pre-tax contributions: The money you contribute to your HSA won’t be subject to income taxes.
2. Tax-free withdrawals: When you need to pay eligible medical expenses, you can withdraw money from an HSA tax-free.
3. Reduced taxable income: Much like 401(k)s or individual retirement accounts (IRAs), the funds held in an HSA reduce the policyholder’s amount of taxable income for the year.
4. Year-to-year rollover: Contributions to your HSA won’t reset every year. You’ll be able to roll over your unused HSA funds and build the account year after year.
5. Retirement benefits: Once you turn 65, funds from an HSA can be withdrawn without a penalty. However, taxes will need to be paid on any non-medical withdrawals.
6. HSA matching: Some employers encourage their employees to open HSAs by offering to match contributions, as they would with a 401(k).
7. HSA investments: You can invest HSA funds into mutual funds and securities,¹ growing the money and withdrawing it tax-free to pay for qualifying medical expenses at any time (though again, taxes need to be paid on non-medical withdrawals).
8. Dental: In addition to covering medical expenses, your HSA can be used for dental and orthodontic expenses.
9. Contribution limits: In 2023, contributions to HSAs are capped at $3,850 for individuals and $7,750 for families.²

Learn more: What Can I Use My HSA For? Including Some Surprises

Lower deductible health plans with FSAs

If you enroll in a traditional PPO or lower deductible health plan, you may be eligible for a Flexible Savings Account (FSA) vs an HSA. Similar to HSAs, FSAs can help cover out-of-pocket medical expenses. Funds are not taxed and are typically deposited into an FSA as part of a payroll deduction. However, FSAS typically come with more restrictions than HSAs — including rollover limits and lower deposit maximums.

How FSAs work

Any lower deductible health plan, including PPOs, can come with an FSA. Here’s how FSAs work and how they can benefit your bottom line:

1. Pre-tax deposits: The money you contribute to your flexible spending account won’t be subject to income taxes.
2. Tax-free withdrawals: When medical expenses need to be paid, you can withdraw money from an FSA tax-free.
3. Rollover limits: Unlike, HSAs, your FSA funds won’t carry over to the next year. Your employer may allow a “grace period” of a few months, giving you a chance to spend any unused FSA funds on medical expenses.
4. Dental expenses: Similar to HSAs, the money saved in your FSA can be used to cover dental expenses, in addition to medical bills.
5. Contribution limits: 2023 contributions to FSAs are capped at $3,050 per account, per year.³

While FSAs are usually paired with lower deductible health plans, they might still be available with a high deductible health plan. Be sure to check with your employer and insurance provider to find out what health savings and spending accounts you can use under your specific plan.

Learn more: 2023 FSA-Eligible Items & FSA-Eligible Expenses

Bottom line: getting the most from your health plan

Regardless of which insurance plan you choose, it’s always a good idea to take advantage of the savings opportunities your health coverage provides. Setting aside some money in an HSA or FSA can help prepare you for medical expenses, whether they result from a high deductible or a traditional PPO.