Federal Employee Medical, Dental and Vision Insurance Plan Choices - Part I
- By Edward A. Zurndorfer
- Nov 06, 2018
Starting Nov. 12 and ending Dec. 10, 2018, Federal employees who participate in the Federal Employees Health Benefits (FEHB) program must decide which health insurance plan they, together with their eligible family members, want to participate in during 2019. 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 2019, they need not take any action. But if they want to enroll in a different FEHB program health insurance plan for 2019, they must do so during the annual benefits “open season”, with their new health insurance plan taking effect on the first day of the 2019 leave year, Jan. 6, 2019.
A brief description and summary of the FEHB program may be found at www.opm.gov/healthcare-insurance/healthcare.
The different choices that employees can make regarding their medical, dental and vision insurance and in the flexible spending account (FSA) program are presented below and in subsequent “open season” e-newsletters. These choices include the type of FEHB program enrollment coverage employees can elect; whether to participate in premium conversion; and the types of FEHB health insurance plans employees can enroll in.
Types of FEHB Program Enrollment Coverage
Until 2015, the FEHB program offered two types of enrollment coverage – “self only” (covering the employee) and “self and family” (covering the employee and multiple eligible members, including a spouse and children under the age of 26). Effective with the 2016 plan year, the FEHB program has also been offering “self plus one” enrollment.
“Self plus one” enrollment means coverage for the employee 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 2019 for “self plus one” enrollment coverage should be less expensive than “self and family” coverage for the same FEHB program plan. A comparison of 2019 premiums for 16 FEHB program nationwide “fee-for-service” health insurance plans shows average bi-weekly premium savings of $11.97 through election of “self plus one” coverage compared to selecting “self and family” coverage for the same FEHB program “fee-for-service” health plan.
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 on their FEHB program health insurance plan can switch to “self plus one” coverage in the middle of the year 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 year old. The child will become age 26 in April 2019 and will be ineligible to remain insured on their parent’s FEHB program health insurance plan at that time. As a result, in April 2019 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 Office the Health Benefits Election Form - SF 2809 - which can be downloaded at www.opm.gov/forms. 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-tax dollars to pay their portion of the FEHB health insurance premiums. This is called “premium conversion”. Premium conversion uses Federal tax rules to allow 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 decrease employee FICA taxes (Social Security and Medicare Part A 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) (increased from 7.5 percent of one’s AGI during 2017 and 2018). Most employees will not to have enough in out-of-pocket medically-oriented expenses in order to deduct them. By including the FEHB premiums as part of their out-of-pocket medical expenses, an employee could exceed the 10 percent of 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;
• Employees can reduce out-of-pocket costs by visiting doctors and hospitals in the provider network.
The remainder of this column and the next column will explain 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
A 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. A FFS plan enrollee can usually choose any doctor he or she wishes and can change doctors at any time.
With a 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 $1,500 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 a 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 a FFS plan does not guarantee that a PPO will be available. PPOs have a stronger presence in some regions than others.
FEHB FFS plan premium costs for 2019 may be obtained at https://www.opm.gov/healthcare-insurance/healthcare/plan-information/premiums/2019/non-postal-rates-ffs.pdf,
Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Registered Health Underwriter 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.