Health Savings Account vs. PPO

When it comes time to choose health insurance coverage for yourself and your family, you need to evaluate your options carefully. Signing up for a Preferred Provider Organization (PPO) gives you access to a wide network of physicians, hospitals and medical providers, while opening a health savings account (HSA) can save you money on your taxes as well.

Health Savings Account

• Health savings accounts are part of the drive toward consumer-driven health care. With a health savings account you set aside a set amount of money and then use those funds to pay for your health. Some policymakers feel that giving consumers control over their health care spending will make them smarter and more savvy consumers.

  For 2011, you can contribute up to $3,050 to a health savings account that covers yourself only, or $6,150 to an HSA that covers your entire family. The money left in your HSA at the end of the year rolls over to the next year, allowing you to build up a significant nest egg over time.

Minimum Deductible

• Before you can open or add to an HSA, you must first have a high deductible health plan, or HDHP, in place. In order to quality as an HDHP, that plan must have a minimum deductible of $1,200 for an individual plan or $2,400 for a family plan. If you get your health insurance from your employer, check with your benefits administrator to find an HSA-eligible plan. If you shop on the individual market you can check with the health insurance broker for eligible plans.

Tax Advantages

• Contributing to a health savings account can provide you with significant tax savings. These tax savings provide another incentive for investing in an HSA or adding money to an existing one. You can use a tax preparation software package to see exactly how much you can save by investing in an HSA.

PPO

• A PPO is a type of health plan designed to provide savings to consumers who use healthcare providers who are part of the PPO network. The company offering the PPO negotiates special rates with doctors, hospitals, medical clinics and other providers. In exchange for access to the PPO participants, those providers agree to accept lower compensation for covered services. Consumers who choose to go outside the network face much higher costs, as well as the possibility the services they receive will not be covered at all. Before you sign up for any PPO, you first need to check out the provider network carefully and make sure all of the providers you use are part of that network .

Out-of-Pocket Costs

• When comparing an HSA-eligible HDHP with a PPO, it is important to look at the deductible and co-payments associated with the PPO, as well as the monthly premiums. It is helpful to create a spreadsheet with columns for monthly premiums, required deductible and total out-of-pocket costs. Chances are the HDHP plan will have lower premiums, but the PPO will have a lower deductible. Adding up all of your potential out-of-pocket costs is the best way to select a plan. Some people may be quite comfortable with a high deductible as long as the monthly premiums are low. Others will be willing to spend more per month in exchange for greater predictability of costs.