It’s time to review and select your health insurance plans in America. Picking between the two can be hard. I’ll break down the Moneyaire thought process regarding plans and what we choose.
First, let’s get through the general differences between a PPO and HMO plan. An HMO (Health Maintenance Organization) is less costly per month, but you also have less flexibility and options in regards to the health providers you can see. With a PPO (Preferred Provider Organization) you have more flexibility in choosing healthcare providers but that choice comes at a higher monthly cost and out-of-pocket expenses and deductibles.
– Offers flexibility regarding the providers you can go see. You don’t need to select a primary care physician.
– You don’t need a referral to see a specialist
– Out-of-network providers are covered; if you do see an out-of-network provider you’ll pay more to see them but some of the cost may be covered.
– Higher monthly payments
– Higher out-of-pocket deductibles
– Low monthly payments
– Lower out-of-pocket costs
– Less flexibility in providers. You’ll only be able to see in-network providers for insurance to cover the care
– You need a referral from your primary physician to see a specialist
– Out-of-network providers are not covered unless it’s a true emergency
The Moneyaires have chosen to go with a PPO plan from Mr. Moneyaire’s job. It’s a high deductible plan that has an associated Health Savings Account (HSA). We chose this plan because:
- We wanted the flexibility to chose our providers and care without worrying about referrals.
- We wanted the option to see out-of-network providers and have insurance cover some of the cost.
- We wanted a high deductible plan (HDHP) so we could take advantage of an HSA account.
What’s a high deductible health plan?
High Deductible Health Plans according to Healthcare.gov:
For 2021, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $7,000 for an individual or $14,000 for a family. (This limit doesn’t apply to out-of-network services.)
For 2022, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $7,050 for an individual or $14,100 for a family. (This limit doesn’t apply to out-of-network services.)
The Moneyaires, for years, have chosen a PPO plan. We had some special care we needed. We were having trouble getting pregnant and we didn’t want the red tape of an HMO to complicate an already complicated matter. We wanted the flexibility to choose the providers we wanted and change those providers when we felt we could get better care elsewhere, even if it meant going out of network.
If you have a high deductible health plan, then your plan may qualify to have an HSA along with it. The PPO plan we use is considered a high deductible plan that allows us to have an HSA. We’re in generally good health and can afford our out-of-pocket costs and deductibles. The benefits of an HSA are really appealing, especially to those of us in the FIRE movement. HSAs offer you an opportunity to put away money pre-tax (thus lowering your AGI), invest that money tax-free, and withdraw the money tax-free (so long as it’s for qualified medical expenses). Also the account stays with you; you don’t lose it if you switch jobs and you don’t have to use it by a certain date. You can put up to $3,500 in 2021 ($3,650 in 2022) into this plan as a single person or $7,200 in 2021 (7,300 in 2022) as a family. Many companies, like Mr. Moneyaire’s, will also contribute to the account. Our goal is to pay for surprise medical expenses with our HSA money and, more so, invest it for later in life when we assume our medical expenses will climb and we may need long term care.
Our HSA is through Fidelity and 100% of it is invested into Fidelity’s zero fee ETF that tracks the US stock market. Currently, we don’t have much in this account. Our HSA is pretty depleted as we used all of the funds in it to pay for fertility treatments and drugs. We’re working on building that account back up now that we have Baby Moneyaire.
Although we do have an HSA, which we fully fund every year, we do not fund an FSA (flexible savings account). An FSA is an account funded with pretax dollars which lowers one’s AGI. The money in this account, however, can’t be invested. The maximum amount that can be contributed into the account is $2,750 in 2021 per person. Money from this account can only be used to pay for medical expenses and aren’t taxed when used for such. However, an FSAs main drawback is that the funds in the account must be used by the end of the plan year. We don’t take advantage of an FSA because of the “use it or lose it” rule. We’ve gotten burned by this rule when we didn’t spend all the money in the account by the deadline and lost that money. We would also get annoyed and stressed out trying to figure out how to spend down all the money in the FSA before it was taken away from us. For many folks, an FSA is a wonderful tool that can be used towards co-pays and OTC health items and medicine as well as prescriptions among other things. We found it cumbersome and we lost money using it.
So what health plan is right for you? Well, if you’re healthy and don’t care about flexibility and don’t mind staying in-network, get an HMO. If you can afford an HDHP HMO with an HSA, go for that option. An HSA is a great way to save for medical emergencies or for future healthcare needs you may have when you retire.
If you want more choice and can cover the extra expenses, get a PPO. If you can afford higher upfront costs, get a HDHP PPO to take advantage of an HSA.
All of this is very dependent on your individual needs and where you are in life. There is no right or wrong answer here. The Moneyaires have chosen a more expensive comprehensive plan with a high deductible that qualifies for an HSA because it fits our goals and budget. We’re very fortunate Mr. Moneyaire works for an organization that offers really good healthcare and we want to make sure we’re getting the best healthcare we can afford. If you’re young, healthy and single, you may want to opt for a high deductible HMO with an HSA account.
Otherwise, opt for the PPO. Neither one of us wanted to jump through the hoops of an HMO plan to save money. If we wanted to see a specialist, or one out-of-network, we wanted to be able to do that without a referral and without having to bear all of the cost. We’re fairly healthy (outside of needing help to have Baby Moneyaire) but in case we did get sick or injured, we don’t want our insurance to limit the care we can afford or easily access–especially if we’re getting medical care for Baby Moneyaire.
Paying MORE for healthcare might come as a surprise to many of you. I get it; the Moneyaires who won’t splurge on a cup of coffee have the Cadillac of health insurance plans?! We’re not opposed to spending money. That just isn’t true. We can’t afford to get the best of everything and indulge in every want we have. We make decisions to spend as little as possible on the things that don’t matter to us. We do, however, choose to spend the money necessary to make sure we stay happy and healthy and we hope you will too.