Choosing the right health plan during open enrollment or a qualifying life event (QLE) is an important decision since it dictates your care and associated costs for the year.
Ahead, we explore two of the most common health plans: HDHPs (high-deductible health plans) and traditional PPOs (preferred provider organizations).
Lower monthly premiums
Higher monthly premiums
Higher deductible and out-of-pocket maximums
Lower deductible and out-of-pocket maximums
Typically grants access to an HSA
May not grant access to an HSA
Note: This table displays 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 generally has higher deductibles and out-of-pocket maximums (with lower monthly premiums) in comparison to a traditional health insurance plan.
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 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 both an HDHP and a traditional PPO option 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.
High-deductible health plans with HSAs
If you enroll in an HDHP, you may get access to a health savings account (HSA). An HSA can be used toward expenses that go toward a deductible, as well as prescription medications or other medical expenses. Funds aren't taxed and are typically deposited into an HSA as part of a payroll deduction.
- Pre-tax contributions: The money you contribute to your HSA won’t be subject to income taxes.
- Tax-free withdrawals: When you need to pay eligible medical expenses, you can withdraw money from an HSA tax-free.
- Reduced taxable income: Much like 401(k)s or individual retirement accounts (IRAs), the funds held in an HSA can help reduce the account holder’s taxable income for the year.
- 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.
- Retirement benefits: Once you turn 65, funds from an HSA can typically be withdrawn without a penalty. However, taxes will need to be paid on any non-medical withdrawals.
- HSA matching: Some employers encourage their employees to open HSAs by offering to match contributions, as they would with a 401(k).
- HSA investments: You can typically invest HSA funds into mutual funds and securities, growing the money and withdrawing it tax-free to pay for qualifying medical expenses at any time (Although again, taxes need to be paid on non-medical withdrawals).
- Dental: In addition to covering medical expenses, your HSA can be used for dental and orthodontic expenses.
- Contribution limits: In 2024, contributions to HSAs are capped at $4,150 for individuals and $8,300 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 aren't taxed and are typically deposited into an FSA as part of a payroll deduction. However, FSAs have different requirements and rules — including rollover limits.
How FSAs work
Any lower deductible health plan, including PPOs, can be used with an FSA. Here’s how FSAs work and how they can benefit your bottom line:
- Pre-tax deposits: The money you contribute to your flexible spending account won’t be subject to income taxes.
- Tax-free withdrawals: When medical expenses need to be paid, you can withdraw money from an FSA tax-free.
- Rollover limits: FSA funds don’t necessarily roll over. Employers may have the option to allow a “grace period” of a few months or to allow up to $640 (as of 2024) of unused funds to roll over, or they may offer neither.2
- Dental expenses: Similar to HSAs, the money saved in your FSA can be used to cover dental expenses, in addition to medical bills.
- Contribution limits: 2024 contributions to FSAs are capped at $3,200 per account, per year.2
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