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What Are the Benefits of an HSA Compared With a PPO?

A preferred provider organization (PPO) is a type of private health insurance. A PPO works with a network of preferred doctors, specialists, hospitals and clinics, and customers who utilize these resources pay a lower rate for their health care. A health savings account (HSA), on the other hand, is a spending account funded with pre-tax dollars. The HSA is combined with a high deductible health plan (HDHP) and used to pay medical costs not covered by insurance.

  1. Lower Monthly Premiums

    • Since an HSA is by definition coupled with a high deductible health plan, participants can enjoy lower monthly premiums on their health insurance. As deductibles go up, premiums tend to come down, and this can yield significant savings over the course of a year. The rates for HDHP coverage vary widely, but they tend to be must less costly than traditional PPO and HMO coverage. Many employers now offer HDHP coverage combined with an HSA that is either partially or fully funded by the company. In addition, HDHP coverage and HSA plans are widely available on the individual health care market.

    Tax Savings

    • One of the biggest advantages of an HSA account is that it is funded with pre-tax dollars. If you fund your HSA through payroll deductions, the money you put in does not count toward your taxable income. This lowers your taxes and helps you save more money. If you fund the HSA outside of your employer, you can take a tax deduction for the amount you put in when you do your taxes. Depending on your tax situation, this can either boost the size of your refund or reduce your tax liability.

    Greater Flexibility

    • A health savings account is designed to give consumers more control over how and where they spend their health care dollars. The idea behind the HSA is that when consumers pay for health care out of their own pockets, they will be smarter shoppers and more savvy consumers of health care services. Having a finite amount of money to spend increases the chances that consumers will ask about the cost of a medical service or procedure upfront and look for the best value, at least for non-emergency services. The HSA also gives consumers greater flexibility over how they spend those pre-tax dollars since the money can be used to pay for a host of health care expenses.

    Rollover Money

    • One attractive feature of an HSA is that the money can roll over from year to year. If you do not use all of the money you set aside in your HSA by the end of the year, those remaining funds simply roll over, and you can use them as you wish. Any additional funds you put in simply get added to the money already in the account, and over time you can build up a significant nest egg. This can be a big help if you do suffer a catastrophic illness down the line.

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