HSA vs. PPO: Which Is Better? | The Motley Fool (2024)

FAQs

HSA vs. PPO: Which Is Better? | The Motley Fool? ›

Most people insured by PPO plans are not eligible to open HSAs. Although the option of opening an HSA is attractive to many people, choosing a PPO plan may be the best option if you have significant medical expenses.

These traditional plans charge higher premiums than HSA-eligible plans, but they also have lower deductibles and out-of-pocket maximums. In fact, some PPO and HMO plans have no deductible at all. They're great if regular office visits are part of your health regimen.

Yes—you can use an HSA with a PPO. But not with just any PPO. Since an HSA isn't actually a type of health insurance, HSAs provide the flexibility to be integrated with any HSA-eligible high-deductible health plan (HDHP). As long as your PPO is an HSA-eligible HDHP, you can use an HSA with the PPO without issue.

You end up needing $6,000 worth of medical care for the year. This shows that an HDHP can be more cost-effective if you don't need much medical care during the year. However, if you have significant medical expenses, a PPO might save you money despite its higher premiums.

A health savings account (HSA) can help you lower your taxes, pay for health care more easily and even save for retirement. HSAs are only available with high-deductible health plans. You can use HSA funds to pay for eligible health care expenses and for out-of-pocket costs your health plan doesn't cover.

On the downside, an HSA is open only to people with HDHPs, and a high-deductible plan is not for everyone. 5 The financial benefit of an HDHP's lower premium and higher deductible structure depends on your personal situation.

HSAs might not make sense if you have some type of chronic medical condition. In that case, you're probably better served by traditional health plans. HSAs might also not be a good idea if you know you will be needing expensive medical care in the near future.

The Last Month Rule

The catch? There is a testing period of twelve months. This means you must stay eligible through the end of the next year, or else you will face taxes and penalties. For example, let's look at the individual above who became HSA-eligible on December 1.

Once you turn 65, you can use the money in your HSA for anything you want. If you don't use it for qualified medical expenses, it counts as income when you file your taxes.

Large medical expenses: Since HDHPs generally only cover preventive care, an accident or emergency could result in very high out-of-pocket costs. Future health risks: Because of the costs, you may refrain from visiting a physician, getting treatments, or purchasing prescriptions when they're not covered by your HDHP.

Is a PPO worth it? ›

PPOs Usually Win on Choice and Flexibility

If flexibility and choice are important to you, a PPO plan could be the better choice. Unlike most HMO health plans, you won't likely need to select a primary care physician, and you won't usually need a referral from that physician to see a specialist.

If your medical expenses are generally low, you should definitely consider an HDHP. If you would benefit from reducing your taxable income by contributing to your HSA, you should consider an HDHP.

HSAs offer triple tax benefits (deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses). PPOs do not provide the same tax advantages, but they offer more predictable costs and lower upfront expenses.

Is an HSA worth it? An HSA is worth it if you expect to have any health expenses, ever, an HSA allows you to pay them with pretax dollars. Since almost everyone eventually faces health expenses, using an HSA to pay for them with pretax dollars can help your money go further.

HSAs are far more attractive to higher-income individuals, who are more likely to have sufficient income to fund the accounts and gain a greater tax benefit than are lower-income individuals subject to lower tax rates.

For example, if you or your dependents require medical services from a network specialist or regular hospital care, the flexibility of a PPO plan might be the best option. However, if budget is your biggest concern, an HMO plan typically has lower out-of-pocket costs and monthly premium payments.

9 Health savings accounts (HSAs) are associated with high deductible health plans (HDHP), which require you to pay expensive deductibles before your coverage begins. Since pregnancy and childbirth bring hefty costs, a lower-deductible PPO plan may be a more affordable option.

Low deductibles are best when an illness or injury requires extensive medical care. High-deductible plans offer more manageable premiums and access to HSAs. HSAs offer a trio of tax benefits and can be a source of retirement income.

Is an HSA better than an HMO? An HSA isn't better; it's just different. An HSA is a kind of savings account for people enrolled in a high-deductible healthcare plan and is used to pay for medical costs. An HMO is a low-cost health insurance plan that gives you access to a specific network of healthcare professionals.