What Is the Difference Between an HDHP and a PPO?

Health insurance plans help manage medical costs. Understanding the different structures of these plans is important for making informed decisions about healthcare coverage. This article will clarify the characteristics of High Deductible Health Plans (HDHPs) and Preferred Provider Organizations (PPOs), two common types of health insurance.

High Deductible Health Plans (HDHPs)

A High Deductible Health Plan (HDHP) is a type of health insurance characterized by a higher annual deductible compared to more traditional health plans. For instance, in 2025, an HDHP must have a minimum deductible of at least $1,650 for individual coverage and $3,300 for family coverage, as defined by the Internal Revenue Service (IRS).

While the deductible is substantial, HDHPs typically offer lower monthly premiums. This trade-off means that while ongoing monthly costs might be reduced, individuals assume more financial responsibility for their healthcare expenses early in the plan year. Preventive care services, such as annual physicals, immunizations, and certain screenings, are generally covered at 100% by HDHPs even before the deductible is met.

An HDHP also includes an out-of-pocket maximum, which is the most an individual or family will pay for covered healthcare services in a calendar year. For 2025, the IRS sets these maximum out-of-pocket expenses for HDHPs at $8,300 for individuals and $16,600 for families.

A significant feature of enrolling in an HDHP is the eligibility to open and contribute to a Health Savings Account (HSA). An HSA is a tax-advantaged savings account specifically designed for healthcare expenses. Contributions to an HSA are tax-deductible, the funds grow tax-free, and withdrawals for qualified medical expenses are also tax-free. Funds in an HSA roll over year to year and remain with the individual, even if they change jobs or retire, offering a portable and long-term savings vehicle for medical costs.

Preferred Provider Organizations (PPOs)

A Preferred Provider Organization (PPO) is a type of health insurance plan that establishes a network of contracted healthcare providers, including doctors, hospitals, and other medical facilities. When plan participants use providers within this established network, they generally pay less for services because these providers have agreed to offer their services at lower, negotiated rates to PPO members.

PPO plans offer a notable degree of flexibility, allowing individuals to seek care from a wide range of healthcare professionals. Unlike some other plan types, PPOs typically do not require a referral from a primary care physician (PCP) to see a specialist. This flexibility extends to the option of receiving care from providers outside the network, though this usually comes with higher out-of-pocket costs for the individual.

Cost-sharing in PPO plans often involves copayments and coinsurance. A copayment is a fixed dollar amount paid at the time of service. Coinsurance is a percentage of the cost of a medical service that the individual pays after their deductible has been met, with the insurance plan covering the remaining percentage.

Claims in a PPO plan are handled with a tiered cost structure, distinguishing between in-network and out-of-network services. Services received from in-network providers are subject to lower deductibles, copayments, and coinsurance rates, as the plan has pre-negotiated rates with these providers. Conversely, choosing an out-of-network provider means the individual will likely face a higher deductible, increased coinsurance percentages, and potentially the full cost of any charges above what the plan deems a “reasonable and customary” amount for that service.

Comparing HDHP and PPO Plans

The primary difference between an HDHP and a PPO plan lies in their deductible structure and initial cost-sharing. HDHPs require individuals to pay a substantial amount for most medical services before insurance contributes. PPO plans typically feature lower deductibles and often incorporate copayments for certain services, allowing the plan to share costs sooner.

Cost sharing also varies significantly between the two plan types. With an HDHP, individuals are responsible for paying the full cost of covered services until their high deductible is satisfied, after which coinsurance typically applies until the out-of-pocket maximum is reached. PPO plans, however, frequently use copayments for routine services like doctor visits or prescription drugs, which are paid at the time of service and may not count towards the deductible, but reduce the immediate out-of-pocket expense for the member.

Network flexibility is a key differentiator, with PPOs generally offering broader options. PPO plans allow members to seek care from out-of-network providers, albeit at a higher personal cost, providing greater choice in selecting healthcare professionals. While HDHPs can also be structured as PPOs, the high deductible characteristic means that even with out-of-network flexibility, the initial financial burden is substantial before insurance coverage applies.

Another contrasting element is the requirement for referrals to see specialists. PPO plans typically do not require a referral from a primary care physician to consult with a specialist, offering individuals direct access to specialized medical attention. HDHPs, as a deductible structure, do not inherently dictate referral requirements; however, this aspect depends on the specific network type (e.g., PPO or HMO) chosen in conjunction with the high deductible.

Finally, eligibility for a Health Savings Account (HSA) is uniquely tied to HDHPs. Only individuals enrolled in an HSA-eligible HDHP can contribute to an HSA, which offers significant tax advantages for saving and paying for qualified medical expenses. PPO plans, by themselves, do not confer eligibility for an HSA, unless they also meet the IRS criteria to qualify as an HDHP.