HDHP With an HSA or a PPO? Run the Numbers
A family of four compared both plans across a quiet year, a broken-leg year and a $60,000 hospital year. The high-deductible plan won all three, by $6,164, $3,284 and $3,824.
- Published
- Read
- 7 min
- $4,824
- Annual premium gap
- $2,500
- Out-of-pocket maximum gap
- $274,537
- HSA at 7% over twenty years
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Open enrolment presents this as a gamble: pay more every month for safety, or pay less and hope. It is not a gamble, it is a subtraction. Compare the annual premium gap against the out-of-pocket maximum gap, and if the premium saving is larger, the cheaper plan wins even in the worst year you can have. For this family the premium gap is $4,824 and the out-of-pocket gap is $2,500, which settles it before a single claim is considered.
That test is the whole article in one line. The rest works it through on real figures, shows the counter-example where the answer flips, and covers the four situations in which an HDHP is genuinely the wrong choice regardless of the arithmetic.
The two plans
| HDHP with HSA | PPO | |
|---|---|---|
| Employee premium share, monthly | $310 | $712 |
| Annual premium | $3,720 | $8,544 |
| Deductible, family | $5,000 | $1,200 |
| Coinsurance after deductible | 20% | 20% |
| Out-of-pocket maximum, family | $8,000 | $5,500 |
| Employer HSA contribution | $1,500 | $0 |
| Primary care visit | Full cost until deductible | $30 copay |
| Preventive care | Free, before deductible | Free |
Both plans use the same network and the same insurer, which is the normal case within one employer's menu and makes the comparison clean. The premium figures are the employee's payroll share, which is the only number you actually control.
That is worth restating because it inverts the way these plans are normally described. The high-deductible plan is not the risky option here. It is the option that is cheaper in the best year and cheaper in the worst year, and the size of the gap is fixed and knowable in November before you enrol.
Three years, worked out
A quiet year, $1,400 of care
| HDHP | PPO | |
|---|---|---|
| Annual premium | $3,720 | $8,544 |
| Preventive visits | $0 | $0 |
| Claims paid out of pocket | $1,400 | $260 in copays |
| Employer HSA contribution | −$1,500 | $0 |
| Total cost | $3,620 | $8,804 |
| HDHP saves $5,184 |
The $1,400 is paid from the HSA with pre-tax dollars, so its real cost at a 22% marginal rate is about $1,092, making the true gap closer to $5,500.
A moderate year, $9,000 of care
| HDHP | PPO | |
|---|---|---|
| Annual premium | $3,720 | $8,544 |
| Deductible paid | $5,000 | $1,200 |
| Coinsurance at 20% above the deductible | $800 | $1,560 |
| Claims total | $5,800 | $2,760 |
| Employer HSA contribution | −$1,500 | $0 |
| Total cost | $8,020 | $11,304 |
| HDHP saves $3,284 |
This is the scenario people fear, and the HDHP still wins by $3,284, because the extra $3,040 in claims is far less than the $4,824 saved in premiums.
A catastrophic year, $60,000 of care
| HDHP | PPO | |
|---|---|---|
| Annual premium | $3,720 | $8,544 |
| Claims. Both hit the out-of-pocket maximum | $8,000 | $5,500 |
| Employer HSA contribution | −$1,500 | $0 |
| Total cost | $10,220 | $14,044 |
| HDHP saves $3,824 |
Both plans cap your exposure. Above the out-of-pocket maximum, in-network covered care costs you nothing on either plan, so a $60,000 year and a $600,000 year produce the same figure here.
Three scenarios spanning $1,400 to $60,000 of care, and the HDHP wins by $5,184, $3,284 and $3,824. The worst case is not the catastrophic year, it is the moderate one, and it still favours the HDHP by more than three thousand dollars.
When the PPO is the right answer
The conclusion above is a property of these two price sheets, not of high-deductible plans in general. Change the premium gap and the answer changes with it. Employers frequently subsidise the richer plan more heavily, which compresses the gap to almost nothing.
| HDHP | PPO | |
|---|---|---|
| Monthly premium | $310 | $405 |
| Annual premium | $3,720 | $4,860 |
| Premium gap | $1,140 | |
| Employer HSA contribution | −$1,500 | $0 |
| HDHP starts ahead by | $2,640 | |
| Out-of-pocket maximum gap | $2,500 | |
| Verdict | Effectively a coin toss |
With $2,640 of advantage against $2,500 of extra exposure, the plans are within $140 of each other in the worst case. At a $70 monthly gap the PPO wins outright in any year with significant claims.
So the rule is not "take the HDHP". It is: find your two gaps, and let them decide. The calculation takes ten minutes with your benefits summary and it is the single highest-value use of open enrolment.
The HSA is the reason the maths works
A health savings account is the only account in the tax code with three separate advantages, and comparing the plans without it understates the HDHP considerably.
| HSA | 401(k) | Roth IRA | |
|---|---|---|---|
| Contributions deductible | Yes | Yes | No |
| Growth untaxed | Yes | Yes | Yes |
| Withdrawals untaxed | Yes, for medical | No | Yes |
| Exempt from payroll tax | Yes, via payroll | No | No |
| Required minimum distributions | None | Yes | None |
| Usable for anything after 65 | Yes, taxed as income | Yes, taxed | Yes, untaxed |
Contributing through payroll also avoids the 7.65% payroll tax, which no other retirement account does. On a $8,550 family contribution that is roughly $654 on top of the income tax saving.
The compounding case is the part most people miss. If this family contributes the difference in premiums rather than spending it, and pays routine costs from cash flow, the account becomes a retirement asset with better tax treatment than the 401(k).
| Years | Contributed | At 5% | At 7% |
|---|---|---|---|
| 5 | $31,620 | $35,839 | $37,730 |
| 10 | $63,240 | $81,834 | $91,218 |
| 20 | $126,480 | $216,615 | $274,537 |
Two return assumptions shown because the difference over twenty years is $57,922. Both assume the account is invested rather than held in the default cash sweep, which is where the majority of HSA balances sit, earning almost nothing.
| HSA | Health FSA | HRA | |
|---|---|---|---|
| Who owns it | You | Employer | Employer |
| Portable when you leave | Yes | No | No |
| Rolls over year to year | Fully | $660 or a grace period | Employer's choice |
| Can be invested | Yes | No | No |
| Requires an HDHP | Yes | No | Varies |
| You can contribute | Yes | Yes | No. Employer only |
Only the HSA is yours. FSA balances above the small carry-over are forfeited, which is why the two accounts should never be planned the same way.
Who should not take an HDHP
Four situations where the arithmetic above is the wrong basis for the decision.
- You cannot cover the deductible in cash. If a $5,000 bill in February would go on a credit card at 24%, the interest erases the premium saving and the plan has changed your problem rather than solved it. Fund the HSA to at least the deductible first, or take the PPO until you can.
- You take a specialty drug. Biologics and specialty medications can run thousands per month and are typically subject to the deductible on an HDHP. You will hit the out-of-pocket maximum every year, predictably, which makes the comparison purely about premiums plus the maximum, and often favours the PPO.
- You are enrolled in Medicare. Medicare enrolment ends HSA eligibility, and contributions must stop up to six months before Part A begins. Contributing after enrolment triggers a penalty.
- Your spouse has a general-purpose health FSA. It disqualifies you from HSA contributions entirely, even if you are not on their plan. The FSA is treated as covering the whole family. A limited-purpose FSA for dental and vision does not create this problem.
Ten minutes at open enrolment
- Write down the monthly premium for each plan and multiply by twelve.
- Subtract any employer HSA or HRA contribution from the HDHP's annual cost.
- Write down each plan's out-of-pocket maximum and subtract one from the other.
- If the premium gap exceeds the out-of-pocket gap, the cheaper plan wins in every scenario. Stop here.
- If it does not, estimate a realistic claims year and run both columns.
- Check whether the family deductible is aggregate or embedded.
- Confirm your regular doctors and any ongoing prescriptions are in network on both plans.
- If you choose the HDHP, open the HSA immediately and set the payroll contribution. The tax advantage only exists if you use it.
Frequently asked questions
- What are the HSA contribution limits?
- For 2026, $4,400 for individual coverage and $8,750 for family coverage, plus a $1,000 catch-up contribution from age 55. Employer contributions count toward the limit, so the $1,500 seed in this example reduces what you can add yourself.
- What happens to my HSA if I change jobs or switch to a PPO?
- It stays yours. You keep the balance, it stays invested, and you can spend it on qualified medical expenses forever. You simply cannot make new contributions in a year you are not covered by a qualifying high-deductible plan.
- Is preventive care really covered before the deductible?
- Yes. Annual physicals, immunisations, screenings and well-child visits are covered at no cost on both plan types. Many HDHPs now also cover certain chronic-condition medications, such as insulin and statins, before the deductible.
- Can I use HSA money for my family if they are not on my plan?
- Yes. HSA funds can pay qualified expenses for your spouse and tax dependants regardless of whose insurance covers them. The HDHP requirement applies to contributions, not to spending.
- What if I use HSA money for something non-medical?
- Before 65 it is taxed as income plus a 20% penalty. After 65 the penalty disappears and it is simply taxed as income, which is how the account functions as a retirement plan of last resort.
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