When it's time to select a health insurance plan, the choices can be overwhelming. As a financial advisor, the two most common options I see are the high deductible plan and the PPO plan.

In this video, we're going to break down the key elements to consider when evaluating each of these plans, including why the most cost effective option may not be what you think.

The easiest way to talk through the components of this comparison is with an example. So I have an actual health insurance plan offering that we'll talk through as we go.

Premiums

The first thing that we need to cover are premiums.

Premiums are what you pay for the actual health insurance that you get.

And if you get health insurance through work, they're deducted from your paycheck before taxes. That means you get to pay for your health insurance with pre tax money, which is great.

High deductible plans normally have lower monthly premiums than PPO plans. Not always, but usually. So if you're enrolled in a high deductible health plan, you could be saving a lot of money on the cost of insurance itself.

Looking at our example, the premium for a family on the high deductible plan is going to be $303 per month, while the premium for the PPO plan is $735 per month.

So right away, the high deductible plan is going to cost $432 per month less than the PPO plan.

Deductibles

The next thing you need to know is the deductible.

The deductible is the amount that you pay for healthcare expenses before your insurance starts to pay.

As the name implies, high deductible plans generally have a higher deductible than PPO plans. So your insurance will start paying sooner on a PPO plan.

Back to our example, the in network deductible for a family on the high deductible plan is $3,500 compared to $2,400 on the PPO plan. Actually, not a huge difference there.

There is an individual deductible and a family deductible. Even if you're on a family health plan, each individual in the family is only subject to the individual deductible (most of the time), while the family as a whole is subject to the family deductible.

So if one person in your family has a lot of health expenses, Once they hit the individual deductible, the health insurance is going to start to pay for their expenses. Insurance won't pay for the rest of the family's expenses until the family deductible is hit.

You can see there's a difference in the in network and out of network deductibles. So this seems like a good time to talk about networks.

Networks

Health insurance companies partner with certain health care providers and hospitals in order to provide coverage to their members.

Using a doctor that's within the insurance provider's network is typically going to cost less than

using a doctor outside of the network.

Always check the network of providers to make sure that your preferred doctors and hospitals are within the plan's network.

Copays and Coinsurance

Moving on to co pays and coinsurance.

Co pays are something that you'll see on PPO plans.

For example, if I visit a primary care doctor on our PPO plan, I'm going to pay a flat $20 for that visit. On the high deductible plan, that visit would cost more.

Coinsurance, on the other hand, is different. After you hit your deductible, you may still have to cover a percentage of your health expenses, and that percentage is called coinsurance.

Looking at our example plans, we can see that the high deductible plan has a 15% coinsurance across the board for in network providers. The PPO plan is a little different, we have a 20% coinsurance for some types of expenses and a copay for others.

And again, under both plans, we can see that the coinsurance would be higher for out of network providers.

But don't worry, you don't have to pay coinsurance forever, just until you hit your out of pocket max.

Out of Pocket Max

The out of pocket max is the most you have to pay for covered medical expenses in a year.

So if you hit this out of pocket max between deductible, coinsurance, and copays, then your health insurance is going to cover 100% of the cost from that point on.

Our high deductible plan and PPO plan actually have the same in-network out of pocket max, except prescriptions are treated differently on the PPO plan.

HSAs vs. FSAs

Okay, one more thing to cover before we compare the plans overall, and that's HSAs and FSAs.

HSAs are only offered on high deductible plans, while FSAs typically come with PPO plans.

I did a video recently on why HSAs are so great. So if you haven't seen that yet, watch that next.

Both FSAs and HSAs allow you to save pre tax dollars to pay for medical expenses. HSAs are significantly more valuable though.

With an HSA, any money that you've saved in the account but don't use in a plan year, you can carry over into the next year and you can even invest those dollars.

With FSAs on the other hand, you can only carry over a limited amount, so you only want to save what you know you're going to spend that year.

Comparing High Deductible Plans and PPO Plans

Now we've hit the highlights on how these plans work, how do we compare so we know which one to pick?

First, as I mentioned earlier, you want to look at the network, services, and medications that are covered in each plan. Make sure the doctors and hospitals that you tend to visit are in network.

Also make sure any planned procedures or medications that you use are covered on the plan that you're considering.

Assuming the high deductible plan and PPO plan both check those boxes. We can compare costs.

The mistake many people will make at this point is to look at the deductible and think that the PPO plan will cost less if they have a lot of health expenses. But we have to factor in the money saved on premiums. Plus, a lot of times employers will make HSA contributions into your HSA. And so you need to factor that in as well.

In our example plans, the high deductible plan is going to cost $5,184 per year less than the PPO plan. Plus you get a $1,200 employer HSA contribution. That means you're starting out by nearly $6,400 ahead on the high deductible plan. And the in network, out of pocket max is only $7,500.

So, there are very few scenarios where the PPO plan would come out ahead in this case.

While not all plans are this extreme, it's common to find a similar theme with high deductible plans.

If your health expenses for the year are low, you'll save a lot of money on a high deductible plan. If your health expenses are high, you still might end up ahead on a high deductible plan or at least pretty close. Plus, with a high deductible plan, you'll have access to the extremely valuable HSA.

So, rather than assuming the high deductible plan will cost you more, I'd encourage you to run the numbers like we did in our example plans.

Figure out your premium savings on that high deductible plan plus any HSA employer contributions and then compare from there.

Many people will find that despite having a higher deductible, the high deductible plan will end up being the most cost effective option.

Ultimately, your choice should depend on the plans that you have available and your family's overall health situation and typical expenses. By understanding each element of these plans, you can make a decision that balances cost along with your healthcare needs.