Can You Have a PPO and FSA?

Many people are faced with the decision of choosing between a PPO (Preferred Provider Organization) and an FSA (Flexible Spending Account) when enrolling in employer-sponsored health insurance plans. The good news is that in most cases, you can have both a PPO health plan and an FSA. However, there are some limitations to be aware of.

What is a PPO?

A Preferred Provider Organization (PPO) is a type of health insurance plan that offers more flexibility and choice than an HMO plan. Here are some key features of PPOs:

Network of preferred providers: PPOs have contracts with a broad network of healthcare providers like doctors, hospitals, and clinics. These “in-network” providers agree to provide care at discounted rates negotiated by the insurance company.
Out-of-network care: Unlike an HMO, you can see providers outside of the PPO network, although you’ll pay more out-of-pocket through higher deductibles, copays, and coinsurance rates.
No referrals needed: You don’t need a referral from your primary care physician to see a specialist. You have more freedom of choice.
Annual deductible: PPOs have an annual deductible you must meet before the plan starts sharing costs for care. Deductibles typically range from $500-$3000 per individual.
Copays and coinsurance: Once you meet your deductible, you pay a copayment (flat fee) or coinsurance (percentage of costs) when you receive care until you reach your annual out-of-pocket maximum.

PPOs offer flexibility but higher premiums than HMOs. They work well for people who want provider choice without the expense of a high-deductible health plan.

What is an FSA?

A Flexible Spending Account (FSA) allows you to set aside pre-tax dollars to pay for qualified healthcare expenses. There are two main types of FSAs:

Health Care FSA: Used to pay for medical, dental, and vision care expenses like copays, deductibles, prescriptions, glasses, orthodontia, etc. You decide how much to contribute annually, up to $2,850 in 2022.

Dependent Care FSA: Used to pay for eligible child or elder care expenses so you can work. Contribution limits are $5,000 per household ($2,500 if married filing separately).

FSAs offer several benefits:

Contributions are pre-tax, so you save on income taxes.
You have access to your entire annual election on day 1 of the plan year.
You can use FSA funds to pay costs before you meet your health plan deductible.

The downside is FSAs are “use it or lose it”—if you don’t use all your funds by the end of the plan year, you forfeit the remaining balance. However, many plans now allow you to rollover up to $570 to the next year.

Can You Have Both a PPO and FSA?

The short answer is yes! You can absolutely have both a PPO plan and a Flexible Spending Account. Here’s how they work together:

The PPO acts as your main health insurance plan, providing coverage for doctor visits, hospital care, prescriptions, etc.
The FSA allows you to pay for copays, deductibles, and other out-of-pocket costs associated with your PPO plan using pre-tax dollars.

For example, let’s say your PPO plan has a $2,000 deductible and 30% coinsurance. You frequently go to the doctor for minor illnesses and prescriptions, so you decide to contribute $1,000 to a Health Care FSA.

When you go to appointments and get prescriptions during the year, you can tap your FSA balance to cover the costs instead of paying out-of-pocket. Doing so helps you reach your deductible faster. Once your deductible is met, your PPO coverage kicks in and starts paying a percentage of your costs.

The FSA gives you an upfront way to pay those predictable medical expenses pre-tax while still having the major medical protection of your PPO. They compliment each other nicely!

However, there are couple nuances to understand:

Limitations with PPOs and FSAs

While you can have both a PPO and FSA, there are some limitations:

FSA Eligibility with HDHP Plans

Many PPO plans today are considered “high deductible health plans” (HDHPs). HDHPs have deductibles of at least $1,400 for individual coverage or $2,800 for families in 2022.

With an HDHP, you cannot contribute to a traditional Health Care FSA. Doing so would disqualify you from opening or contributing to a Health Savings Account (HSA), which must be paired with an HDHP.

However, you can have a limited purpose FSA with certain HDHPs. Limited FSAs can only reimburse dental and vision expenses until you meet your deductible. Once your deductible is met, you can access funds for medical costs. This allows you to save and pay for dental/vision care pre-tax while preserving HSA eligibility.

Annual FSA Contribution Limits

Make sure to check your plan’s annual contribution limits for the Health Care FSA and Dependent Care FSA. In 2022, the IRS limits are:

Health Care FSA: $2,850 per year
Dependent Care FSA: $5,000 per year ($2,500 if married filing separately)

Some employers impose lower limits, so check your plan details. Contribute conservatively, since any unused funds at year-end will be forfeited.

FSA Reimbursement Restrictions

One downside of FSAs is that reimbursement is restricted if you terminate employment. By law, you can only be reimbursed for eligible expenses incurred while you were actively employed.

With the PPO, terminating employment does not impact your ability to continue using the plan between jobs. But you cannot make new FSA contributions without being actively employed.

So while you can have both a PPO and FSA, make sure you understand how they coordinate should you leave your job.

Weighing PPOs vs. HDHPs + HSAs

As mentioned above, many PPO plans today are HDHPs with deductibles over $1,400/$2,800. So you may want to consider an HDHP paired with a Health Savings Account instead of a PPO with a limited FSA.

HSAs offer triple tax savings, funds that roll over and remain yours, and the ability to invest your balance for retirement healthcare expenses. For healthy individuals who want to save and have control over their healthcare dollars, an HDHP and HSA is usually the better route.

But PPOs with traditional FSAs can make more sense for those with chronic conditions and predictable healthcare expenses each year. The choice depends on your health needs and financial situation.

The Bottom Line

Just be aware of the limitations around FSA eligibility with HDHPs and HSA contributions, annual election limits, reimbursement rules if you leave your job, and weighing PPOs vs. HDHP + HSA combinations. Talk to your employer or benefits broker if you have any questions.

With a little planning, you can use FSAs and PPOs together to lower your taxes and healthcare costs!

High Deductible HSA VS. PPO

FAQ

Can I have an FSA and health insurance?

Yes. A Flexible Spending Account (FSA) is an employer-sponsored benefit add-on that lets you contribute tax-free income to cover qualified health care expenses such as those not paid for by your insurance plan.

Can I have an HSA if I have a PPO?

Yes—you can use an HSA with a PPO. But not with just any PPO. Since an HSA isn’t actually a type of health insurance, HSAs provide the flexibility to be integrated with any HSA-eligible high-deductible health plan (HDHP). As long as your PPO is an HSA-eligible HDHP, you can use an HSA with the PPO without issue.

Can I have an FSA with an HMO?

Qualified individuals can pair an FSA with an HMO, PPO, or other types of qualified insurance plans. HSAs have stricter eligibility requirements. You can only pair the account with a qualified high-deductible health plan (HDHP). Your plan must meet minimum deductible and maximum out-of-pocket expense.

Which is better PPO or HSA?

However, if you do have a lot of medical expenses – regular doctor’s visits, dental procedures, eye exams, or several prescription medications – you probably don’t want to write off a traditional PPO. But, if you have a larger, known medical expense coming up, an HSA can be a great solution, Dahna said.