Your PPO Plan Might Be A High-Deductible Plan In Disguise

Just like Blockbusters and landlines, zero-dollar deductibles on PPO plans are becoming a thing of the past. Rising healthcare prices are forcing employers to shift more of their health insurance costs to their employees, often in the form of higher deductibles.

According to a study from Mercer, average PPO deductibles for covered employees of small employers (10 – 499 employees, blue bar in the figure below) have risen 72% from 2009 – 2017. For that same time period, deductibles for employees of large employers (500+ employees, yellow bar) have risen 89%. If you have individual PPO coverage, you should be prepared for an annual deductible between $1,000 and $2,000.

If you currently have a PPO plan, you’d be wise to consider moving to a qualified high deductible health plan (HDHP) and opening a health savings account (HSA).

Busting Myths About HDHPs & HSAs

HSAs are massively tax-advantaged savings accounts used to pay for or reimburse eligible medical expenses; you can use HSA funds to pay for current healthcare costs or invest them to pay for medical expenses down the road (like in retirement). To contribute to an HSA, you must meet certain eligibility requirements; one of those is being covered by a qualified HDHP. And to be HSA-qualified, an HDHP must have an annual deductible of at least $1,400 (for individuals with self-only coverage) or $2,800 (for individuals with family coverage).

Remember, the graph above showed that the average PPO plan’s individual deductible is between $1,000 and $2,000. While having a high deductible health plan may sound intimidating, in reality, HDHPs’ deductibles can end up being comparable to those of today’s PPO plans. If you’re going to have a higher deductible either way, you might as well choose the plan that lets you contribute to an HSA and take advantage of its unparalleled tax benefits. In addition, HDHPs’ monthly premiums (the amount you pay each month regardless of whether you use medical services or not) are generally lower than those of PPO plans.

If your employer offers an HDHP (and 84% of large employers did in 2017, according to the National Business Group on Health), they may also offer an HSA along with it. If they do, remember that, unlike a 401(k) or FSA, HSAs are individually-owned and only belong to their accountholders. You aren’t required to use the HSA offered by your employer if you find another that fits your needs better, and if you retire or change jobs, your HSA goes with you. And even if you lose your HSA eligibility and can’t contribute anymore, you’re still able to use your existing funds to pay for your eligible medical expenses tax-free.

Conclusion

Nowadays, zero-deductible PPO plans are becoming more and more rare, and today’s PPO plan looks more and more like an HDHP. As a result, HDHPs are becoming more attractive options, because participants will potentially save money on their premiums and gain eligibility to make HSA contributions.

If you’re concerned about rising healthcare costs and looking to maximize your tax savings on medical expenses, HSAs are the hands-down best choice. With an HSA, you can pay for current healthcare costs tax-free or build a nest egg for medical expenses in retirement. Ready to begin saving? Start the enrollment process here or, if you already have an HSA, learn how to transfer an existing account.