Edward A. Zurndorfer-
Starting Nov. 11 and ending Dec. 9, 2019, federal employees and annuitants who are eligible to be enrolled in the Federal Employees Health Benefits (FEHB) program must decide which health insurance plan they, together with their eligible family members, want to be enrolled in during 2020. If they are satisfied with the FEHB program health insurance plan that they are currently enrolled in and want to remain in that plan for 2020, they need not take any action. But if they want to enroll in a different FEHB program-sponsored health insurance plan for 2020, they must do so during the annual benefits “open season”, with their new health insurance plan taking effect on the first day of the 2020 leave year, Jan. 5, 2020 (annuitants who change their health insurance plans during the 2019 “open season” will see their new health insurance plans taking effect taking effect Jan. 1, 2020). A brief description and summary of the FEHB program may be found here. The different choices that employees can make regarding their health insurance are presented below. These choices include the type of FEHB program enrollment coverage to elect, whether to participate in premium conversion, and the type of FEHB health insurance plan.
Types of FEHB Program Enrollment Coverage
Until 2015, the FEHB program allowed two types of enrollment coverage, namely: (1) “self only” (covering the employee or annuitant); and (2)“self and family” (covering the employee or annuitant and multiple eligible members, including a spouse and children under the age of 26). Effective with the 2016 plan year, the FEHB program has been offering “self plus one” enrollment.
“Self plus one” enrollment means coverage for the employee or annuitant plus one eligible family member. Eligible family members include: (1) a spouse – including a valid common-law spouse in a state recognizing common-law marriages; (2) a recognized natural child younger than age 26; (3) a legally adopted child younger than age 26; (4) a stepchild younger than age 26, including a child of same-sex domestic partners; (5) a child age 26 or over who is incapable of self-support due to a mental or physical disability that existed before age 26; and (6) a foster child who meets certain requirements with the employee’s certification.
The premiums for many FEHB program plans during 2020 for “self plus one” enrollment coverage should be less expensive than “self and family” coverage for the same FEHB program plan for the simple reason that a self plus one enrollment covers two individuals, namely the employee or annuitant and one family member such as a spouse or one child . But a self and family enrollment includes coverage for the employee or annuitant and unlimited eligible family members including a spouse and multiple children under the age of 26. But the premium savings between self plus one and self and family coverage for the same FEHB program health insurance plan may be less than expected.
The real savings in terms of choosing the least type of FEHB program insurance coverage comes in the situation of a married couple in which both spouses are federal employees and have no children or have children older than age 26 and no longer eligible to be enrolled in the FEHB program. Assuming the married couple want to be enrolled in the same FEHB health insurance plan, the question becomes which type of coverage results in overall cheaper premiums: (1) Two “self only” FEHB plans (each spouse enrolls separately in the same FEHB plan); or (2) One “self plus one” FEHB plan in which one spouse enrolls in an FEHB plan and covers the other spouse. Other considerations in deciding which coverage is overall cheaper involve individual and family deductibles.
Those employees who will benefit by enrolling in “self plus one” FEHB program coverage may do so during the upcoming “open season”. Those employees who are currently enrolled in “self and family” coverage but who cannot switch to “self plus one” coverage at this time because they have more than one eligible family member enrolled in their FEHB program health insurance plan can switch to “self plus one” coverage in the middle of the year (outside of the benefits “open season”) if they experience a qualifying life event (QLE). For example, suppose the employee currently has “self and family” enrollment coverage that includes a spouse and one child who is currently 25 years old. The child will become age 26 in April 2020 and will be ineligible to remain insured on their parent’s FEHB program health insurance plan at that time. As a result, in April 2020 the parent can switch to “self plus one” FEHB program enrollment coverage. Employees who want to enroll in “self plus one” FEHB coverage may do so by filling out and submitting to their Personnel or Human Resources Office the Health Benefits Election Form SF 2809, which can be downloaded here. Some agencies use an online self-service system such as Employee Express, MyPay, Employee Personal Page, or EBI.
Participation in Premium Conversion
Federal employees use before-taxed dollars to pay their portion of the FEHB health insurance premiums. This is called “premium conversion”. Under IRS tax rules, “premium conversion” allows employees to deduct their share of the FEHB insurance premiums from their gross salary. This reduces the amount of an employee’s taxable salary, which can decrease their federal and in many cases, state and local income annual tax liabilities. Premium conversion also decreases employee FICA (Social Security) and Medicare Part A (hospital insurance) payroll taxes. The amount of tax savings depends on the amount of the employee’s FEHB program plan premiums and their overall (Federal and state) tax bracket.
Premium conversion went into effect in October 2000. Unless an employee formally elects not to enroll in premium conversion during an “open season”, the employee is automatically enrolled.
An employee would not enroll in premium conversion for three possible reasons, namely: (1) flexibility; (2) effect on Social Security benefits; and (3) itemizing their FEHB premium expense may be to their tax advantage. These reasons are now discussed.
Flexibility. An employee participating in premium conversion generally has the same flexibility with respect to their FEHB coverage choices as a person who chooses not to participate. But an employee who waives premium conversion has the flexibility (without giving any reason) to either drop their FEHB program health insurance altogether or to change from self and family enrollment to self plus one, or to self only enrollment, at any time during the year. An employee participating in premium conversion will be allowed to drop FEHB coverage, or change to self only coverage, only if the decision to do so came at the time of a “qualifying life event” such as marriage, or the employee’s spouse gets a job that covers the employee with the spouse’s employer-sponsored health insurance. This flexibility is generally of little or no value compared to the tax savings associated with premium conversion.
• Social Security benefits. For FERS-covered employees who pay Social Security taxes on their salaries, premium conversion may eventually result in somewhat lower Social Security benefits in retirement. In rare situations, it may be advantageous to pay full Social Security taxes rather than lowering one’s Social Security wages under premium conversion.
• Itemizing FEHB health insurance premium expenses. By being enrolled in premium conversion, an employee is not permitted to include the FEHB premiums deducted from their gross salaries as medical expenses on Schedule A of their federal income tax returns, assuming the employee itemizes on his or her federal income tax return. In order for an individual to deduct their out-of-pocket medical, dental and vision expenses, the total expenses would have to exceed 10 percent of the individual’s adjusted gross income (AGI). Most employees will not have enough in out-of-pocket medically-oriented expenses in order to deduct these expenses. By including the FEHB premiums as part of their out-of-pocket medical expenses, an employee’s out-of-pocket medical, dental and vision expenses could exceed the 10 percent of the AGI threshold.
Types of FEHB Health Insurance Plans
The following is a summary of some of the important features associated with the FEHB program:
• No waiting periods and no pre-existing condition exclusions for any FEHB health insurance plan;
• Each fee-for-service plan contracts with doctors and hospitals, known as a provider network; and
• Employees can reduce out-of-pocket costs by visiting doctors and hospitals in the provider network.
The remainder of this FEDZONE column explains FEHB health insurance plan choices for employees. Employees should carefully compare both costs and coverage; in particular, they should compare (1) Premium cost; (2) coverage/benefits; (3) access to doctors, hospitals and other providers; (4) access to after-hours and emergency care; (5) out-of-pocket costs including coinsurance, copayments and deductibles; and (6) plan exclusions and limitations.
Fee-for-Service (FFS) Plans
An FFS plan is a traditional type of insurance in which the health plan will either pay the medical provider directly or reimburse the insured after the insured has filed an insurance claim for each covered medical expense.
FFS plans offer more flexibility in choosing doctors and hospitals. An FFS plan enrollee can usually choose any doctor he or she wishes and can change doctors at any time.
With an FFS “indemnity” plan, the plan pays only part of the insured’s medical bills. The insured is responsible for the remainder and will need to spend a certain amount each year before the plan begins to pay benefits, called a deductible. Deductibles may range from $100 to $1,000 per year, per covered individual, or $500 or more per year for a self and family plan.
FFS plans pay a portion of the bill – typically, 75 to 90 percent – after the deductible has been met. This may vary from plan to plan. The enrollee pays the remainder, typically 10 to 25 percent of the total bill, called coinsurance.
FFS plans typically have an out-of-pocket maximum. This means that once an enrollee’s expenses reach a certain amount during a calendar year, the fee for covered benefits typically will be paid in full by the insurance plan for the remainder of the plan year. If an enrollee’s doctor bills are more than what the insurance company considers as a reasonable and customary charge, then the enrollee may have to pay an additional portion of their medical bill.
There may be more paperwork associated with an FFS plan. Some doctors will submit the claim on behalf of the enrollee. Once the doctor receives payment from the insurance company, the doctor will bill the enrollee for the difference of the actual claim and what the insurance company paid the doctor. With other doctors, the enrollee will pay the entire bill and then file a claim with their insurance company to be reimbursed.
FFS Plans with a Preferred Provider Organization (PPO)
This type of FFS plan allows enrollees to see medical providers who reduce their charges to the plan. Enrollees pay less out-of-pocket money when they use a PPO provider. However, going to a PPO hospital does not guarantee PPO discounts for all services received within that hospital. Not all services may be covered by the PPO agreement.
In general, enrolling in an FFS plan does not guarantee that a PPO will be available. PPOs have a stronger presence in some regions of the US than others.
Health Maintenance Organizations (HMOs)
A health plan that provides care through a network of physicians and hospitals in particular geographic or service areas. HMOs, coordinate the healthcare service an employee or annuitant receives and free the employee or annuitant from completing paperwork or being billed for covered services. The employee or annuitant’s eligibility to enroll in an HMO is determined by where the employee or annuitant lives or, for some plans, where the employee works. Some HMOs are affiliated with or have arrangements with HMOs in other service areas for non-emergency care if the employee or annuitant travels or if they are away from home for extended periods. Plans that offer reciprocity discuss it in their brochure. HMOs, limit the employee’s or annuitant’s out-of-pocket costs to the relatively low amounts shown in the benefit brochures.
- The HMO provides a comprehensive set of services – as long as the employee or annuitant uses the doctors and hospitals affiliated with the HMO. HMOs charge a copayment for primary physician and specialist visits and generally no deductible or coinsurance for in-hospital care.
- Most HMOs ask the employee or annuitant to choose a doctor or medical group to be his or her primary care physician (PCP). The PCP provides the employee’s or annuitant’s general medical care. In many HMOs, an employee or annuitant must get authorization or a “referral” from the PCP to see other providers. The referral is a recommendation by the PCP for the employee or annuitant to be evaluated and/or treated by a different physician or medical professional.
- Care received from a provider, not in the plan’s network is not covered unless it’s emergency care or the plan has a reciprocity arrangement
HMO Plans Offering a Point of Service (POS) Product
- In an HMO, the POS product lets the employee or annuitant use providers who are not part of the HMO network. However, the employee or annuitant pays more for using these non-network providers.
- Some plans are Point of Service (POS) plans and have features similar to both FFS plans and HMOs.
Consumer-Driven Health Plans (CDHP)
- Describes a wide range of approaches to give the employee or annuitant more incentive to control the cost of either one’s health benefits or healthcare. The employee or annuitant has greater freedom in spending healthcare dollars up to a designated amount, and the employee or annuitant receives full coverage for in-network preventive care. In return, the annuitant assumes significantly higher cost-sharing expenses after depleting the designated amount. The catastrophic limit is usually higher than those common in other plans
Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While the employees of Serving Those Who Serve are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
FEHB Options 2020