HDHP vs. PPO Health Plans: How the Two Types of Coverage Differ

Shoppers comparing health plans during open enrollment often treat an HDHP and a PPO as two items on the same menu. They are not. The two labels measure different parts of a plan. HDHP stands for high-deductible health plan, and it describes how much you pay out of pocket before the plan starts paying for most care. PPO stands for preferred provider organization, and it describes the network of doctors and hospitals the plan works with. A single plan can be an HDHP and a PPO at the same time, which is one reason the two terms cause confusion.

How an HDHP works

An HDHP has a deductible that is higher than a standard plan’s deductible. The deductible is the amount you pay for covered care before the plan pays its share. Under federal rules, preventive care such as routine screenings and vaccinations is covered before you meet the deductible. After you meet the deductible, you usually pay coinsurance, a percentage of the bill, until you reach the plan’s out-of-pocket maximum. Past that point, the plan pays the full allowed amount for covered care for the rest of the year.

Monthly premiums for HDHPs are usually lower than premiums for plans with lower deductibles. That trade is the point of the design: you pay less each month and take on more of the cost when you need care. Enrollment in a qualifying HDHP also opens the door to a health savings account, or HSA, a tax-advantaged account you can use for medical costs. The Internal Revenue Service sets the minimum deductible and the maximum out-of-pocket limit for HDHPs each year, so the exact dollar figures change from year to year.

How a PPO works

A PPO contracts with a network of doctors, hospitals, and other providers who agree to set rates. You pay less when you use a provider in that network. You can also see providers outside the network, but you pay a larger share of the bill, and the provider can bill you for the difference between the charged amount and what the plan pays. Most PPOs do not require you to pick a primary care doctor, and they do not require a referral before you see a specialist.

PPO premiums are usually higher than premiums for plans with tighter networks, because the plan pays for a wider choice of providers and for some out-of-network care. Copays, fixed dollar amounts for a visit or a prescription, are more common in PPOs than in HDHPs, where you more often pay the full negotiated price until the deductible is met.

Side-by-side comparison

	HDHP	PPO
What it is	A plan defined by a high deductible and a set out-of-pocket maximum, with rules set by the IRS each year	A plan defined by a network of preferred providers, with coverage for out-of-network care at a higher cost to you
Who gets it	Anyone offered one through an employer or a marketplace plan; enrollment in a qualifying HDHP allows an HSA if you have no disqualifying coverage	Anyone offered one through an employer or a marketplace plan; no referral or primary care doctor is usually required
Costs	Lower monthly premium, higher deductible, coinsurance after the deductible, and a yearly out-of-pocket maximum	Higher monthly premium, often a lower deductible, copays for many visits, and higher cost sharing for out-of-network care
Pros	Lower premiums, HSA eligibility, and preventive care covered before the deductible	Wide choice of doctors, no referral needed for specialists, and some coverage outside the network
Cons	Large bills early in the year before the deductible is met, and costs that are hard to predict visit by visit	Higher premiums, and out-of-network bills that can run well above the in-network rate

The verdict

Choose an HDHP if you are healthy, rarely need care beyond preventive visits, want the lowest monthly premium, and can cover a large bill early in the year from savings or an HSA. The lower premium only pays off if you do not use much care, or if you use the HSA to set money aside for the deductible.

Choose a PPO if you see specialists, want to keep a doctor who may sit outside a narrow network, or want predictable copays instead of paying full negotiated prices until a deductible is met. The higher premium buys wider choice and steadier costs per visit.

Because the labels describe different things, check both on any plan you consider. A PPO can carry a high deductible, and an HDHP can use a PPO network. The plan documents, not the label alone, show the deductible, the network, and the out-of-pocket maximum that decide what you pay.

Explainer based on program rules published by the Internal Revenue Service and the Centers for Medicare and Medicaid Services.