Flexibility and Choice: HSA vs. PPO

When it comes to choosing the right health care plan for your small business, flexibility and choice are important considerations. For many small business owners in California and Arizona, the decision often comes down to two popular options: Health Savings Account (HSA) plans and Preferred Provider Organization (PPO) plans.

Like onerecent article at The Motley Fool summarizes:

“When choosing between different types of health insurance, you may be weighing a health savings account (HSA) versus a preferred provider organization (PPO) plan. An HSA can save you money on medical costs, while a PPO plan gives you access to a network of healthcare providers.”

Each of these benefits offers unique benefits, but understanding the differences can help you select the best option for your employees and your budget. Understanding the flexibility and choices that both HSAs and PPOs offer can help you make an informed decision.

Understanding Health Savings Accounts (HSAs).

An HSA is a tax-advantaged savings account that comes with a high-deductible health plan (HDHP). Employees can deposit pre-tax dollars into the account, which can then be used to pay for qualified medical expenses such as doctor visits, prescriptions and even dental and vision care. HSAs are particularly attractive because they offer several tax benefits:

• Tax-deductible contributions: Employees contribute pre-tax dollars, reducing their taxable income.
• Tax-free growth: Funds in an HSA grow tax-free, similar to a retirement account.
• Tax-free withdrawals: When funds are used for qualified medical expenses, there are no taxes on withdrawals.

One of the standout features of an HSA is the flexibility it offers employees. Unlike other types of health insurance, an HSA is entirely employee-owned. This means that even if they change jobs or leave the company, the money in their HSA remains theirs to use for future medical expenses. Additionally, unspent funds roll over from year to year, allowing employees to build significant savings over time and potentially use these funds for healthcare costs in retirement.

Exploring PPO plans: flexibility in network access

A PPOor Preferred Provider Organization, is a type of health plan that offers more flexibility in choosing health care providers. With a PPO, employees can choose to see both in- and out-of-network providers, although care from in-network providers is typically covered at a higher percentage. PPOs do not require employees to choose a primary care physician or get referrals to see specialists, which can be a major benefit for those who need regular specialty care.

PPOs are often preferred by companies and employees who want more freedom in selecting healthcare providers. Employees have the option to consult with out-of-network physicians and specialists, although this typically entails higher out-of-pocket costs compared to in-network services. The main trade-off with PPOs is that while they offer greater provider flexibility, they typically come with higher monthly premiums compared to HSA/HDHP plans.

For small businesses in California and Arizona, where healthcare provider availability can vary by region (particularly in rural areas), PPOs provide a valuable solution by expanding access to care beyond a limited network.

Compare cost structures: premiums, deductibles and out-of-pocket costs

One of the most important factors for any business when selecting a healthcare plan is the cost structure. BothHSAs and PPOsoffer several approaches to controlling healthcare costs.

• HSAs: An HSA combines the plan with an HDHP, which typically has lower premiums but higher deductibles. This means employees may have to pay more deductibles before their insurance will cover the costs. However, the HSA’s tax benefits can help offset these costs. Employees also have the flexibility to decide how much they want to contribute to their HSA, giving them more control over their healthcare spending.
• PPOs: On the other hand, PPOs have higher premiums but lower deductibles, making them more attractive to employees who expect to use health care services more frequently. PPOs generally cover a greater portion of upfront medical costs, which can result in lower out-of-pocket expenses for employees, especially when using in-network providers.

The key difference here is that HSAs are best suited for employees who are generally healthy and have low use of healthcare services, while PPOs are better for those who may need more consistent care.

Flexibility in managing healthcare costs

Another area where HSAs and PPOs differ is in how healthcare costs are managed.HSAs give employees the ultimate flexibility in controlling their healthcare dollars. Because employees own their HSA, they decide when and how to use the money for qualified expenses. They can also choose to save their money for future healthcare needs or invest in long-term growth. This flexibility is especially attractive for younger employees or employees approaching retirement.

PPOs, on the other hand, offer flexibility in choosing providers. Employees can visit any provider, including specialists, without a referral. Although PPOs offer more freedom in accessing care, cost sharing is more structured, with employees responsible for co-pays, deductibles and coinsurance.

Small business eligibility in California and Arizona

The choice between an HSA and a PPO can depend greatly on the type of business you run and the needs of your employees. In California, where the tech industry is booming and many workers are younger, healthier and place a greater value on long-term savings, an HSA may be the better option. These employees are more likely to take advantage of the tax benefits and the opportunity to invest unused funds for the future.

This has come to light in recent years. Like CNBC articlenoted,

“According to data from the Charles Schwab 2022 401(k) Participant Study, 48% of millennials and Gen Zers who are given the opportunity to contribute to a Health Savings Account (HSA) choose to do so. This step is motivated by the desire to save for healthcare-related expenses after retirement.”

The popularity usually reveals itself in certain sectors. For example, USAFacts.org found that in July 2023, about a quarter of young people did thisfrom 16 to 24 years worked in the leisure and hospitality sector, the highest proportion of young people of any sector.

In Arizona, where industries like construction and agriculture have a higher risk of personal injury, a PPO may make more sense. Workers in these sectors may need more direct access to healthcare providers and specialists, which a PPO plan can provide. The higher premiums may be worth it for the lower out-of-pocket costs and more comprehensive coverage.

The Long-Term Benefits of HSAs vs. HSAs PPOs

HSAs provide a long-term benefit that PPOs cannot: the ability to save for future healthcare costs. Funds in an HSA roll over each year and can even be invested, similar to a 401(k). This makes an HSA an attractive option for employees who want to build up savings for medical expenses after retirement.

PPOs, meanwhile, offer more direct access to care and greater flexibility in choosing healthcare providers. For employees who expect to use health care services frequently or for employees with chronic conditions, PPOs can provide greater peace of mind by covering a greater portion of medical costs up front.

Employee engagement and satisfaction with HSAs and PPOs

Employee satisfaction is a critical consideration when selecting a healthcare plan. HSAs tend to be attractiveemployees who are financially literateand enjoy the control and flexibility these plans offer. HSAs can also promote healthier behaviors because employees may become more involved in managing their health care spending.

PPOs, on the other hand, are typically easier for employees to navigate. You don’t have to worry about managing an HSA or figuring out how much to contribute. For employees who value ease of use and ample access to care, PPOs may be more attractive.’

Choosing the right option for your business

Ultimately, the choice between an HSA and a PPO depends on the needs of your employees and your company’s budget. HSAs offer long-term financial benefits, tax benefits, and flexibility in managing healthcare costs, making them an excellent option for younger or healthier workers. PPOs, with their broader access to healthcare providers and lower out-of-pocket costs for frequent care, are ideal for employees who value immediate access to a broad network of physicians and specialists.

Consulting with an experienced insurance broker can help you evaluate these options and choose the plan that best suits the needs of your small business, whether you are in California or Arizona.

JC Lewis: your partner in optimizing health benefits for your business

At JC Lewis Insurance Services, we are proud to offer a range of health insurance options from top providers licensed in California andArizona. Our expertise and certifications allow us to provide comprehensive coverage tailored to the needs of small employers.

Navigating the complexities of employee health benefits can be overwhelming, but you don’t have to do it alone. Our team at JC Lewis Insurance Services is here to guide you every step of the way, from selecting the right plan to managing renewals and ongoing support.

We also specialize in helping seniors find Medicare supplemental and prescription drug benefits that fit their needs.

Whether you are exploringSmall group insurance(1-50 employees), considering the Small Business Health Options Program (SHOP) or addressing employer-related insurance issues, JC Lewis strives to find the ideal solution for your business.

Contact us today! Your peace of mind is our mission, and we are committed to helping you find the best insurance package for your unique needs.