HDHP vs PPO Health Plan Cost Comparison

How it works

Out-of-pocket = min(OOP max, min(spend, deductible) + (spend − deductible) × coinsurance); HDHP total = premiums + OOP − employer HSA − your HSA × marginal tax rate; PPO total = premiums + OOP + copays; break-even where the two are equal

A high-deductible plan trades a lower premium and an HSA for exposure to the first few thousand dollars of care; a PPO charges more every month to shrink the deductible and add copays. Which is cheaper depends almost entirely on how much care you use, so the honest comparison is the total annual cost — premiums plus what you actually pay for care — across a range of spending, with the HDHP credited for the employer’s HSA deposit and for the tax you save on your own pre-tax contributions. In many employer plans the HDHP wins at low spending and, surprisingly, also at very high spending, because the premium gap plus HSA money exceeds the difference in out-of-pocket maximums; the PPO wins only in the middle band where its low deductible bites. The numbers ignore the cash-flow shock of a big early bill and the long-term value of an invested HSA, which cut in opposite directions.

Worked example

With $5,000 of expected charges: the HDHP costs $2,160 in premiums plus $3,640 out of pocket, less a $1,000 employer HSA deposit and $900 of tax saved on a $3,000 contribution — $3,900. The PPO costs $5,040 in premiums, $1,600 out of pocket and $400 in copays — $7,040. The HDHP saves $3,140 here and is cheaper at every spending level; even in a worst-case year it tops out at $6,760 against $9,440.

Frequently asked questions