It’s that time of year again. Every year, during the federal benefits “Open Season”, federal employees must make decisions about which their various healthcare benefits coverage for the following year.
Even if you’ve been enrolled for many years, it’s important that you review your coverage based on how your life—and your healthcare plans—may have changed. Open Season for selecting your 2024 federal benefits is from November 13 – December 11, 2023.
Health insurance programs change over time, as does your health and financial life, and federal benefits Open Season gives you an opportunity to make decisions about your various insurance benefits so that they are aligned to best support your family’s needs.
The Office of Personnel Management (OPM) offers resources for you to utilize in your research, but it is up to you to make the right financial planning decisions for your family, and I hope that this article and our annual guide can help you make smart choices this year.
This article will provide you with:
- Key considerations and factors to keep in mind before choosing (or keeping) a specific benefit
- General facts and terminology
- Perspective from a financial planning point of view
My firm has published our free annual Guide to Federal Benefits Open Season for a more complete resource with key definitions, resources, and more on your Open Season benefits. You can download it at the end of this article.
Planning Perspectives
To start, we’ll cover some important discussions you should have with your family and/or advisors to determine the appropriate coverages for your needs.
Health Insurance Under the Federal Employees Health Benefits Program (FEHB)
Your costs will vary depending on the type of health insurance that you choose. There are myriad considerations, like deductibles, co-pays, out-of-pocket maximums, and more. Changes in these categories impact the cost of the health insurance plan.
If you are relatively healthy, rarely injure yourself, or get sick, and you visit doctors mainly only for regular check-ups, perhaps opting for a lower-priced premium may provide you with enough coverage for your needs. Just make sure to keep an emergency fund liquid in the event that you have a greater health expense than your insurance covers, including deductibles.
For someone with greater health challenges, it may be more advantageous to opt for a plan that has better coverage, especially if you expect to be needing health care more frequently.
Is there a specific treatment or medication that you need next year? Does your current plan still cover that?
Remember that you can have one year of more coverage, followed by another year of reduced coverage. That’s what Open Season is for. It allows for flexibility in changing your plan as your needs change. You’ll want to consider your coverage needs for your overall family.
Be sure to check every year you renew; health insurance carriers often change their coverage each year. This will help you prevent a surprise bill from a medication or care that is no longer covered.
Finally, make sure you understand how becoming eligible for Medicare impacts the decision matrix. Often, Medicare can pair well with certain FEHB plans and help reduce out-of-pocket expenses. If you’re on TRICARE for Life, you must move to Part B when you turn 65.
There are additional costs for Medicare that need to be weighed carefully. Your taxable income determines how expensive your Medicare Part B premiums are, so careful planning is required. Some carriers like BCBS offer reimbursement to help pay for Part B. Medicare becomes your primary coverage, which is a different structure than when on FEHB, so make sure to understand how this affects you.
Life Insurance (FEGLI)
Federal employees can acquire life insurance through FEGLI with a series of coverage levels. FEGLI life insurance open seasons are not common, but qualifying life events or passing a physical exam may allow them to acquire or increase coverage. Reduction or cancellations can be done at any time, as can changing beneficiaries. Despite this, you should take the time to consider your life insurance needs as well.
The primary purpose of life insurance is income replacement. The case for life insurance becomes less clear as a federal employee progresses through his or her career and increases his or her wealth, but consideration should always be given.
If losing an income would be tragic for your family, then life insurance is important, but what if you’re about to retire? It may still be important, and here’s why: if a federal employee were to pass in early retirement, one Social Security benefit goes away (assuming a couple both earning Social Security), and at least half of the fed’s FERS pension will also disappear. If the death occurs early in retirement, how does this reduction in income impact surviving family members?
Secondarily, life insurance can also be used as different ways of achieving legacy goals, whether for family members or charity. Often, some people may be more willing to spend their own wealth if they know they’re leaving behind a life insurance policy when they pass.
FEGLI gets costly as you age and eventually doubles every five years. This can become cost-prohibitive over time, and federal employees are often better served by acquiring private life insurance policies ahead of time if it is determined that life insurance is needed into retirement.
Long Term Care (FLTCIP)
Long-term care insurance is offered through FLTCIP and is a great benefit. According to HHS, 70% of adults over age 65 will require some form of long-term support before they die.
Long Term Care (LTC) insurance helps cover expenses related to activities of daily living if you are unable to do them yourself. The challenge with traditional LTC insurance is that there are increasing premiums during the life of the policy.
This makes planning for these expenses unpredictable and often becomes extremely costly later in life. Many federal employees currently enrolled in the FLTCIP have recently received letters about their premium increases. Also of note, OPM has suspended FLTCIP applications for new enrollees as of December 19, 2022.
The private market has developed alternative long-term care policies that help to stabilize premiums. Federal employees should remain aware that the private insurance markets can be complex and are advised to work with trusted advisors to discuss options.
We encourage federal employees to begin exploring LTC coverage in their late 40s and early to mid-50s. This is a sweet spot for price-to-value (and being able to afford it) when it comes to insurance policy quotes (subject to your health, of course). By waiting until you are older, policies can become too expensive and may require cutting costs elsewhere in a retirement plan to afford them.
Dental and Vision (FEDVIP)
Dental and Vision coverages are offered through FEDVIP at a separate cost. There are significantly fewer choices than FEHB, thus making it easier to navigate. Your dental and vision needs should be addressed through FEDVIP, not FEHB.
Some FEHB plans have this coverage, but you should avoid picking them based on dental and vision coverage. You should make your FEDVIP choices based on the care you believe you will need for the year. If it is a year where you will need higher levels of dental care, you may choose to opt for the higher coverage for one year.
Dual Fed Family
If you’re married and your spouse is a federal employee too, then there are some specialized tips for you.
First, consider whether it makes sense to have two individual plans versus self plus one. If one member needs a higher level of care, then maybe getting separate FEHB plans could make sense. The person with a higher need might choose a more comprehensive plan, whereas the other fed can choose a more streamlined and cheaper plan.
If one of you is retiring sooner than the other, you might want to consider switching to the FEHB plan of the active federal employee. We usually see this when there’s an age difference or maybe someone has an earlier eligibility for federal retirement. When you’re working, your FEHB premiums are paid pre-tax, meaning they are taken out of your paycheck before you’re taxed. This means you get tax-free health insurance.
But as a federal annuitant (retiree), FEHB premiums come out of your FERS pension after it has been taxed. It’s not a huge difference, but every dollar counts.
The price of FEHB is the same, but the cost has been increased by also owing ordinary income tax on the amount of the premiums.
Types of Health Insurance Plans
Now we’ll briefly cover different types of healthcare plans so you can consider them as you think about your own needs. Each operates differently and one may be better than others for your needs during the upcoming year.
HMO Plans: Health Maintenance Organizations
HMOs have historically been known for being focused on wellness and prevention. They typically require that you go see your primary care physician for most of your care. Since this primary physician sees you frequently, he or she will have a good sense of your overall health and will work with you to keep you healthy. This also means that most, if not all your care will be through in-network providers.
This is an important consideration because if there is a specific doctor that you see regularly, you’ll want to make sure that they fall within your network if you are opting to go with an HMO. HMOs also usually have a co-pay instead of deductibles.
With an HMO, if you require medical care from a medical professional who is considered a specialist, you usually must first contact your primary care physician and get a referral. While this isn’t necessarily a game changer, it’s an important to know. You risk not having coverage if you visit a specialist without first having a referral from your primary care physician.
Another factor is that you’ll also likely be seeing a specialist that falls within your network. Again, something to consider if there is a specific doctor that you’d like to use.
There are a few different types of sub-HMO categories that apply to how specific doctors work. We won’t go into that in this article, but you should contact the insurance carrier first before you select it as your insurance.
FFS Plan: Fee-for-Service
A fee-for-service plan is a more flexible type of insurance. With these plans, they will typically pay the medical provider directly or they might reimburse you after you file an insurance claim for medical treatment. This means that you have more flexibility in choosing your medical care providers, so you can change doctors frequently if you’d like, without having to talk to your primary doctor.
If your fee-for-service plan is an indemnity plan, then you have a deductible. The plan will only pay for a portion of the medical costs and pass the rest on to you as the insured. It’s not until you reach your deductible limit or max out-of-pocket that the insurance company will begin covering the remainder of the cost of your medical care. Out-of-pocket maximums reset each year, so know that you may experience higher expenses if you see many doctors with this plan.
In some plans, you might have access to a PPO, or Preferred Provider Organization. As the name indicates, this is a group of medical providers that agreed to be part of this group and as such, reduce their charges for service. An employee seeking medical care from a PPO would likely pay less out of pocket, but as with everything, there are exceptions so be sure to look carefully before enrolling.
POS Plans: Point of Service
A point of service is a combination plan. If you took some of the benefits of HMO plans and put it together with a PPO, you’d get this plan.
Enrollees are typically less restricted than in an HMO since their range of doctors is bigger. Enrollees also tend to have lower costs and out-of-pocket expenses compared to a PPO.
You’ll still select a primary care physician from their list, and you’ll still need to have a referral if you’re going to see a specialist. It behaves sort of like a regular HMO, except you’ll find that the cost to you tends to be less than the traditional HMO.
Our clients have indicated that point of service plans have required them to use generic brands of prescription, so if you are on continued medication, make sure your specific brand is covered. Any cost savings can easily be destroyed by extra expenses from prescriptions, especially if you take a medication that does not have a generic equivalent, or if the generic doesn’t work as well for you.
HDHP: High Deductible Health Plans
A high deductible plan is one in which an enrollee typically has higher annual out-of-pocket expenses. The deductible is a much higher amount than in other types of plans. So why would an employee choose this plan?
First, the monthly premium tends to be lower with high deductibles. If you are someone who does not frequently require doctor visits and is in good health, perhaps this might be a good plan for you. Yearly checkups (wellness visits) are often included in this.
Another incredible benefit of a high deductible plan is that you have access to an HSA (health savings account). This type of account allows you to deposit money into it on a pre-tax basis, grow it with investments, and then use the grown money in a tax-free status if you’re using it for qualified expenses.
It’s like an FSA, but better because any unused balance will roll over into the next year for you. If you use it for non-qualified expenses, you’ll be penalized so be careful.
There are many expenses that insurance may not cover (including Medicare); HSAs may be a source of funds to cover these expenses in a tax-free status if they’re qualified expenses. This is an underutilized planning vehicle, especially by young people.
A nice benefit of an HSA is that after 65 years old, you can use it for non-medical expenses as well, but it will be subject to ordinary income tax like a pre-tax retirement account.
CDHP: Consumer-Driven Health Plans
This is the odd one out. These are still high deductible plans but tend to be more customized plans, and it isn’t just one particular type of plan.
You can set aside money on a pre-tax basis to help pay for your health care, but the cost of health care will be higher than some other traditional types of health insurance. These plans tend to have lower premiums and as such, are most popular by employees that tend to be healthy and conscientious about their health and the care they need.
In short, it allows enrollees to look around and select competitive care to reduce costs. The philosophy is to put the power in the hands of the enrollee. It hasn’t been too popular of a plan since most people just don’t have the knowledge or time to research the world of medical care. You have more choices of medical care providers than traditional health care programs but that also means more research on your part.
Guide to 2023 Federal Benefits Open Season
Choosing your federal benefits coverage is a personal process and involves careful planning. There’s plenty to think about as each plan type serves a specific group of people and their needs.
OPM offers great resources but expects you to do your own research to understand your benefits. They do not offer planning considerations, nor is it their intention to offer context on how federal employees should be thinking about their benefits as it relates to their overall financial well-being.
As such, we’ve put together a free guide that covers some important details for your benefits that you can use in combination with OPM’s resources to make smart financial decisions this open season. If you’re interested in it, you can download it here.
