When it comes to employees’ insurance policies, comparing PPO vs HDHP often becomes a hot topic among employees. Offering these plans is a good way of improving compensation management in your organization, as you give your employees the possibility to obtain quality health coverage.
In this article, you will find the differences between PPO plans and HDHP, as well as some examples. Being on top of this information will allow you to provide your employees with valuable information regarding these two insurance policy plans.
But first, let’s take a look at what PPO and HDHP are, so you understand the implications of both:
What Is a Preferred Provider Organization (PPO)?
A preferred provider organization, or PPO, is a health insurance arrangement that offers subscribed clients the possibility to get medical services at reduced rates.
Similar to HMO plans, PPO plans feature a network of health professionals and hospitals you can visit to save on health costs. Moreover, PPO plans also provide coverage for out-of-network at a more expensive rate than PPO’s network.
What Is a High-Deductible Health Plan (HDHP)?
A high-deductible health plan (HDHP) is a health insurance plan that offers lower premiums and higher deductibles than traditional plans such as PPO or HMO.
Since an HDHP deductible can be considerably higher than a PPO deductible, high-deductible health plans are intended for covering “catastrophic” illnesses that require long term hospitalization.
If you are wondering which plan provides better benefits to policyholders – employees in this case – you need to understand how each of these plans works. Also, you need to make calculations regarding the average medical expenses in a year compared to the amount spent on premiums and deductibles.
What’s the Difference Between PPO and HDHP?
The main difference between PPO and HDHP lies in their deductibles and premiums. I know this might sound a little confusing, so let’s take a look at what insurance deductibles and insurance premiums are:
What Is an Insurance Deductible?
An insurance deductible is the amount of money the policyholder has to pay in the case of an insurance claim before the insurance takes over. In other words, it is a fixed amount of money that the customer pays before the insurance covers the rest.
Let’s take a look at the following example:
You get an insurance policy with a deductible of $1,000. When an unexpected event happens, let’s say an event that will cost $5,000, you agree to pay the first $1,000 of that amount and the insurance will take of paying the rest.
The insurance will cover the remaining debt until the insurance terms and conditions dictate so. You can find this information on the declaration page of your insurance policy.
What Is an Insurance Premium?
An insurance premium is the amount of money a policyholder has to pay to the insurance for the benefits of having an insurance policy. Unlike the deductible, an insurance premium is an amount you have to pay when acquiring the policy and not in case of an insurance claim.
Once you acquire your policy, the insurance will offer the options to charge the premium in monthly installments, a single upfront amount, or annual payments. This may vary from to .
It is important to note that if policyholders fail to pay their premiums, this can result in loss of coverage or even the complete cancellation of their insurance policy.
PPO vs HDHP
If we compare PPO vs HDHP the main difference is their premium and deductible. Under normal circumstances, preferred provider organization (PPO) plans come with a higher premium compared to high-deductible health plans (HDHP).
On the other hand, PPO plans also come with significant lower deductibles than those of HDHPs.
Let’s say that you are thinking of providing your employees with both health insurance options. How can you explain to them the difference between PPO and HDHP?
An HDHP charges a deductible of $2,000 in the case of an insurance claim and charges a monthly premium of $400.
On the other hand, a PPO plan charges a deductible of $700 and a monthly premium of $500. These numbers translate into:
- PPO Annual premium: $6,000
- PPO deductible: $600 (In case of an insurance claim)
- HDHP annual premium: $4,800
- HDHP deductible: $2,500 (In case of an insurance claim)
As you can see, there is a significant difference between the annual amount of money employees have to spend on premiums depending on the option they choose. At first sight, the best option seems to be HDHP, since it allows you to save $1,200 a year on premium.
However, when an unexpected event occurs, the deductible amount comes to play. Here is where the real difference becomes notorious. During an emergency, the deductible you will have to pay if you chose an HDHP is $1,900 more than that of a PPO plan.
In short, if you go a whole year without having to make an insurance claim you can save up to $1,200 by choosing an HDHP instead of a PPO plan.
However, if you do need to make an insurance claim with an HDHP, you will have to pay $2,500 compared to just $600 of a PPO plan.
Even though this is just an example, you must know that the numbers reflected above are an average of the real cost of these policies according to the Employee Health Benefits Summary of Findings by The Kaiser Family Foundation and Health Research and Educational Trust.
What’s the Best Option for Employees?
As you can see, numbers don’t lie. Employees need to compare the average medical costs they have in a year and then select the insurance policy that best suits their needs. They have to compare yearly costs to the amount they can save up on premiums as well as the ‘s contribution to their HSA.
It is a matter of avoiding out-of-pocket caps as much as possible but making sure their medical expenses are covered the best way possible.