In Part 1 of this article, we discussed the type of health plans you have to choose from. Once you’ve narrowed down your plan type from an HMO, PPO or FFS plan, you’ll have another level of choices. Do you want a traditional, consumer-driven or high-deductible health plan? Much of this decision is driven by how healthy you and your family are. Your health will be a guiding factor in choosing the best coverage for you.
Traditional coverage is designed for people with fairly significant health issues. If you have a chronic condition, see a specialist more than three times a year, and are on several on-going medications, then a traditional plan may be for you. Although there are usually higher premiums associated with traditional plans, you’ll stand to have more of your health expenses covered during the year.
Consumer-driven health plans are recommended for those who have fewer health issues than those mentioned for traditional coverage. You might have a minor, ongoing condition such as allergies or acid reflux which cause you to take one or two prescriptions occasionally.
If you see a specialist, it might only be once or twice per year. Consumer-driven health plans typically have a set amount of coverage that they pay before you are required to pay anything – a reverse deductible if you will. As an example, the insurer might pay the first $2,500 in expenses on a family’s coverage. You would then be responsible for the next $1,500 and then the insurance company would pick up 90% of the charges and you would be responsible for 10%, up to an out-of-pocket maximum of $6,000.
Any amounts you do not use out of the insurer’s first $2,500 can be rolled over to the next year—provided you stay in the same health plan. So, if you only needed $2,000 of coverage this year and stayed in the same plan, next year, the insurer would pay the first $3,000 of your expenses ($500 from this year + $2,500 for next year). The premiums for consumer-driven health plans are typically less than traditional coverage, so if you’re generally healthy, you stand to have lower overall healthcare expenses.
A high-deductible health plan is a fairly new offering for the federal government. Less than 2% of federal employees are enrolled in these plans. This is not necessarily because they are not viable options, but because employees simply don’t understand the benefits.
If you do not have any known medical issues and only go to the doctor for routine physicals or the occasional flu, and you don’t have any ongoing prescription needs, this might be a great choice for you. A high-deductible health plan can be expected to have lower premiums with higher deductibles much like what were known as "catastrophic" plans in the past.
The unique feature of the high-deductible health plan is the health savings account (HSA). The HSA associated with the high-deductible health plan is different from the flexible savings account (FSA) it is often compared to in that HSA funds are not "use it or lose it." The HSA funds roll over from one year to the next – regardless of whether you stay in a high-deductible health plan or not. These HSA funds earn tax-free interest where FSA funds do not.
HSA funds are completely portable meaning that if you retire or leave federal service, the funds are yours to take with you and spend on health care expenses in the future. The funds you accumulate in your HSA during your working years can be utilized for health care expenses in retirement – including premiums on your federal employee health benefits after age 65. Using the HSA’s tax-free capability is the only way to get a federal tax break on your long-term care premiums. The HSA essentially acts as a healthcare IRA with funds even being inheritable by your heirs!
There are two ways to get funds into your HSA. The first is to contribute funds each month. This can come directly out of your checking account, pre-tax, and go into the HSA. The second way is that the insurer gives back a portion of the premium you pay directly into the HSA. You receive a rebate from the insurer of the premiums you pay actually reducing your overall health care costs.
You must be in a high-deductible health plan to have an HSA. The only exclusions from participating in the HSA are:
- You cannot be enrolled in Medicare
- You cannot be enrolled in a non-OPM health plan
- You cannot be enrolled in Tri-Care or Tri-Care for Life, and
- It will limit how you can participate in an FSA (you can’t contribute to the FSA for health care expenses, but you are still allowed to use the FSA for dental and vision).
The final segment on choosing the best health plan will appear next week. It will cover premiums and out-of-pocket expenses to help you calculate your overall health care expenses.