With the Affordable Health Care Act (Obamacare) well into effect, health insurance has risen to the national spotlight over the last few years. Americans have more choices than ever for covering medical expenses. Below is a highlight of the differences between two very different but equally popular insurance types: High Deductible Health Plans (HDHPs) paired with Health Savings Accounts (HSAs),
and PPOs (Preferred Provider Organization).
Like other insurance plans, the PPO enables account holders to choose doctors and hospitals based on who will accept the insurance. PPOs will often have a network of doctors and specialists that are covered by the plan. If the plan holder visits out-of-network doctors or facilities, he or she will often have to pay a higher cost.
PPOs require premiums to be paid. Premiums are the cost of the plan, and are typically (though not always) split between the employer and the employee in company situations. PPOs also have varying deductibles, which is the amount the plan holder pays in a given year. Lower deductibles typically indicate higher premiums. For PPOs, deductibles can range anywhere from $200 to $5,000.
HSAs operate differently. The HSA itself is not an insurance plan; therefore HSAs are always coupled with High Deductible Health Plans (HDHPs). The HSA is a savings account that pays off medical expenses incurred in an HDHP.
HDHPs have little to no premium if offered by an employer. Employers often contribute additional money to their employee's HSAs. Medical expenses that are incurred by the plan holder until the deductible is reached are paid by the account holder; typically via HSA funds. For example, if the HDHP’s deductible is $5,000, and the plan holder gets a blood test for $230, the plan holder would pay the full price. In the case of a bad medical year, the HDHP prevents against colossal medical costs by covering almost everything above the deductible limit.
What makes HSAs unique is how account holders can use the funds. Account holders can pay for their medical expenses out of pocket, keep money in their HSA, and then reimburse themselves anytime in the future (as long as the expense is a Qualified Medical Expense, and the account holder keeps the receipt.) Additionally, when account owners use HSA funds for qualified medical expenses, they achieve a discount on their expenses due to their tax-exempt status.
While funds remain in account holders' HSAs, they can invest them in everything from stocks and bonds to real estate and precious metals. The flexibility of the HSA and its potential for massive growth attracts many investors. The HSA is an excellent way to save on medical expenses and grow funds that can help build a profitable retirement portfolio. If account holders still have funds in their HSA by the time they reach retirement age, they can distribute them like a Traditional IRA
account, and use them for whatever they choose.
For more information on HSAs or how they compare to other health insurance plans, visit our HSA page.