Compared with their private-sector counterparts, federal employees have a wide range of choices when it comes to health insurance vendors and options.
With the introduction of health care flexible spending accounts last year, the Federal Employees Health Benefits Program (FEHBP) added a tax-reduction tool that had long been offered by many private-sector employers. Also, the Office of Personnel Management has taken an aggressive step in requesting that insurance vendors include a relatively new form of benefit, the health savings account, in their 2005 proposals for the FEHBP. This will add a new dimension to an already complex array of choices that must be considered by participants during the open season this fall.
The choices include the following benefit type:
- Health maintenance organization plans: Insurance plans using the HMO model seek to reduce your annual health costs by maximizing the insurer’s ability to control the type, amount and source of patients’ care. The plans generally require enrollees to use participating providers and restrict access to services through the use of a gatekeeper — a primary-care physician. An HMO reserves the right to decide what care you will receive and who will provide it. Managing care this way usually enables HMOs to charge lower premiums. Another benefit of HMO coverage is that deductible and co-payment obligations — the amounts you are required to contribute toward your care — are either eliminated or low. HMOs usually cover relatively large amounts of preventive care at no charge.
- Point of service (POS) plans: Point of service plans are similar to HMO plans except that they add the option to obtain service from outside the plan’s network of participating providers. POS plans typically offer low deductible and co-payment obligations as long as you stay within the network for services. Obtaining service from or referrals to specialists and other providers from primary-care physicians is also
required to qualify for the plan’s maximum benefits. Going outside the plan’s provider network or bypassing the gatekeeper requirements result in higher out-of-pocket costs. The premiums for POS plans are usually higher than those for comparable HMO coverage. - Preferred provider organization (PPO) plans: PPO plans are the most liberal of the so-called managed care plans. A PPO will usually offer one set of benefits for in-network care and another, less generous set for services received outside the plan’s network of participating providers. Unlike the HMO and POS plans, the PPO does not require referrals from a primary-care physician to qualify you for maximum plan benefits. You may go directly to any provider in the network and receive the plan’s maximum benefit levels. You can use the providers you want, with a substantial financial incentive to use the plan’s preferred providers. PPO premiums are usually higher than those for comparable POS plans.
- Fee for service: Fee for service plans, sometimes called indemnity plans, are based on the oldest and most flexible model for health insurance. The plans usually have no established network of participating or preferred providers and pay benefits for covered care after any deductibles have been met. There is usually a co-payment provision requiring the insured party to pay a portion of charges for health care services. These plans offer maximum freedom of choice, but typically carry the highest premiums among insurance plans.
- Health savings accounts: Health savings accounts are not insurance, but special, tax-advantaged accounts to fund health care expenses when used with an approved high-deductible medical insurance plan. If account assets are used to pay for qualified health-related expenses, they can be withdrawn tax-free.
Any funds remaining in a health savings account at the end of the year stay in the account and earn tax-free interest, just like an individual retirement account. The accounts are open only to people enrolled in plans with deductibles of at least $1,000 for individual coverage or $2,000 for family coverage.
OPM is encouraging insurance carriers to offer such accounts to employees during the enrollment period for next year’s coverage.
Since these plans require the participant to self-insure for the first few thousand dollars of medical expenses per year, they aren’t appropriate for everyone. But for employees in good health with adequate and reliable income, they are worth considering.
Visit www.opm.gov/insure/ health to learn more about your medical insurance options.
- Health care flexible spending accounts: These accounts are a relatively new federal employee benefit. The accounts are similar to health spending accounts in that they allow participants to use pretax dollars to pay for qualified health-related expenses. The accounts are stand-alone, however, and don’t require the use of health insurance to be effective. Participants elect to defer a certain amount of their pay, pretax, into the flexible spending accounts. The funds can then be withdrawn, without tax, to pay for qualified expenses. Similar accounts are available to pay for child and elder care expenses.
Unlike the health spending accounts, however, any unused funds in a flexible spending account are forfeited each year, so it’s important to accurately predict the amount of qualified expense you will be likely to bear during the coming year before enrolling in and funding an account.
If your health-related expenses are fairly predictable beyond a few hundred dollars during the coming year, a flexible spending account is a money saver.
A participant in the 28 percent tax bracket who diverts and spends $1,000 through a flexible spending account will save $280 in taxes. You can currently contribute as much as $4,000 per year.
It may pay to review the list of allowable health-related expenses to see if you may benefit from participating in a flexible spending account in 2005. You can enroll during the regular FEHBP open season in the fall. Visit www.fsafeds.com for more details on what expenses can be paid with the accounts, how to calculate the savings possible by opening an account and other information.
Written by Mike Miles
For the Federal Times
Publication August 23, 2004