How to Choose Health Insurance
Part 1: 401(k) Plans and IRAs of this series took me the better part of a year to finish writing and editing, so it’s really quite a feat that I’m pushing this out within a month of my last FAQ. The overwhelmingly positive feedback that I’ve received about Part 1 really motivated me to keep searching and writing, because the sooner you’re educated = the sooner you’re empowered to take control of your finances. Knowledge is power, so if you found this or any of my articles helpful, please share with your friends and family!
This time, in Part 2, I’m here to tell you about two common health insurance options and introduce you to the amazingness that is a Health Savings Account. As always, I’m sharing my opinion, so take my advice with a grain of salt because this is what I’ve found to work for me, n = 1.
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My job offers health insurance. Should I choose PPO or HDHP?
I’m going to focus on two common health insurance plan options offered by employers: Preferred Provider Organization (PPO) and High Deductible Health Plan (HDHP).
PPO Plan:
Has higher monthly premiums than HDHP—meaning you pay more out of your paycheck per month
Has lower deductible than HDHP—meaning you have a lower threshold of paying costs yourself before insurance kicks in to pay for you
Usually smaller co-pays when you visit specialists, lower in-network costs with more coverage/providers in the plan, and you don’t need a referral from your Primary Care Physician (PCP) to see an out-of-network doctor
Comes with a Flexible Spending Account (FSA), where you can set aside pre-tax money to pay for medical expenses and roll over $500 from year to year. Not to be confused with HSAs that are only available if you have a HDHP
I’ve seen PPO plans recommended for people who expect to visit the doctor often or need continuous medication, especially pregnant women and those with chronic conditions. Because of the larger network coverage, you’re more likely to be able to find a healthcare professional in your plan when traveling and are suddenly in need of medical attention.
HDHP (spoiler- I have this) :
Has a lower premium than PPO—you pay less per month
Has higher deductible than PPO—in 2020, the minimum deductible is $1,400 for self-only coverage
Maximum out-of-pocket expenses for the year (including deductibles, copayments, coinsurance) can’t exceed than $6,900 for self-only coverage
May have higher co-pays and less options to choose from in terms of in-network doctors, specialists, etc
Comes with a Health Savings Account, where you can set aside pre-tax money to pay for medical expenses and/or invest it within your HSA provider to let it grow while the money sits. You can roll over the entire balance from year to year, even when you’ve stopped having an HDHP
I’ve seen HDHPs recommended for people who are generally healthy and don’t expect to go to the doctor’s/hospital much, because even though you have a lower monthly premium on HDHP, when you do visit the doctor, you’ll pay more out-of-pocket than if you had a PPO plan. The HSA that comes with HDHPs was a huge factor in my choosing HDHP because you can roll over 100% of the leftover money from year to year, instead of only $500 with the PPO’s FSA.
If I’m on an HDHP health insurance, should I open a Health Savings Account?
Yes! You might have to send in proof of residency and an ID to formally open your HSA like I did, but once it’s open, you can start contributing pre-tax money via automatic payroll deductions and possibly even invest the funds in the stock market (capability to invest funds is subject to your HSA provider; Payflex allowed members to do this beginning Jan 1, 2020).
For more info on the benefits of an HSA, check out, “HSAs: An Awesome Way to Save for Retirement”