Health Insurance Choices, Part One

The first in a three-part series on open season for the Federal Employees Health Benefits Program focuses on fee-for-service plans.

September 29, 2006

Retirement Planning

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Once you choose one of these three basic styles, you'll have fewer than 10 available plans to pick from. (And some FEHBP participants will only have two basic choices, because the HMO option isn't available everywhere.) There are also some disadvantages to these kinds of plans: Some FEHBP fee-for-service plans, such as the Mail Handlers high option, have much higher premiums than other plans in the category. A plan that has a higher proportion of retirees than current employees may incur higher expenses, due to a greater incidence of enrollees needing hospitalization or requiring prescriptions. The National Active and Retired Federal Employees Association reported in November that OPM data showed that 59 percent of the enrollees in the Mail Handlers plan are retirees, with employees making up 41 percent. Blue Cross Blue Shield, on the other hand includes 47 percent annuitants and 53 percent employees. For 2007, the Mail Handlers high option fee-for-service plan will cost $172.06 biweekly for self-only coverage and $340.36 for family coverage. Blue Cross Blue Shield's equivalent standard option will have premiums of $57.30 for self-only coverage and $134.30 for family coverage.

That exciting time of year is upon us. Not the beautiful fall colors, not the crisp cool air, not the festive holidays. No, I'm talking about open season for the Federal Employees Health Benefits Program. Open season doesn't officially begin until Nov. 13, but it's not too early to start thinking about it.

Last week, Government Executive's Pay and Benefits Watch columnist, Karen Rutzick, noted that there will be 284 plans to choose from -- the most ever -- when open season begins. Luckily, no one person actually has to choose from that many plans. Many are regional and not available outside of a limited service area.

For an individual, it helps to simplify the health insurance decision by breaking it down to three basic choices:

Traditional fee-for-service coverage (either high or low option).
One of the new high-deductible health plans.
A health maintenance organization.

In preparation for open season, I'm kicking off a three-part series on the choices available to federal employees and retirees. This week will be dedicated to a general explanation of the options and a look at the oldest type of insurance available: traditional fee-for-service coverage. Next week, we'll delve into the new high-deductible health plans with health savings accounts or health reimbursement arrangements. The last installment in the series will focus on HMOs.

Common Characteristics

There are several things that all FEHBP plans have in common:

No waiting periods. As soon as your coverage is effective, you may begin receiving benefits. If you change from one health plan to another, there are no restrictions based on pre-existing conditions.
Choice of coverage. You can choose coverage just for yourself, or family coverage that also includes your spouse and unmarried dependent children under 22. Under certain circumstances, your FEHBP enrollment may cover disabled children 22 or older who are incapable of supporting themselves.
Government contribution.Uncle Sam pays 72 percent of the average premium toward the total cost of your premium, but not more than 75 percent of the total premium for any plan.
Salary deduction. You pay your share of the premium through a payroll deduction and have the choice of doing so using pretax dollars. Retirees do not have this option.
Annual enrollment opportunities. Each year during open season you can enroll in a new plan or change your current enrollment. This year, open season runs from Nov. 13 through Dec. 11. Other events in your life allow for certain types of changes throughout the year; see your human resources office for details.
Continued group coverage. FEHBP offers coverage for you and your family when you retire from federal service; for your former spouse if you divorce and he or she has a qualifying court order; for your family if you die; and for you and your family when you move, transfer, go on leave without pay or enter military service.
Coverage after FEHBP ends.The program offers either temporary continuation of coverage or conversion to private coverage for you and your family if you leave federal service (including when you can't carry FEHBP into retirement); for your covered dependent child if he or she marries or turns age 22, and for your former spouse if you divorce and he or she does not have a qualifying court order.

Fee-For Service Plans

Traditional fee-for-service plans are the mainstay of FEHBP. Here are some reasons why such plans might be attractive.

You can choose your own doctors.
No referral is needed to see a specialist.
You can use this type of coverage all over the world -- great for people who live in more than one location during the year.
Most plans offer Preferred Provider Organization arrangements.
Most plans include mail order drug programs which help control the cost of prescriptions.
The plans provide comprehensive coverage for both basic medical needs and high-cost illnesses and injuries.
There are limits on out-of-pocket expenses in the event of catastrophe.
Some preventative care is covered without meeting the deductible.
The plans tend to waive deductibles and co-payments when Medicare is the primary insurance.
Employees can use a flexible spending account to cover out-of-pocket health care expenses with tax-free dollars.

Higher premiums, unless you choose basic or low option coverage.
An annual deductible must be paid before coverage kicks in.
Co-payments vary from 10 percent to 30 percent depending on the plan, whether or not a PPO is used and whether you are enrolled in high or low option.
If your doctor is not a member of a PPO, you may have to submit a claim to receive benefits.

How to Choose

If you decide that fee-for-service coverage is for you, then choosing a plan involves selecting between high and low option coverage and picking a plan within one of those categories that makes the most sense.

If you are likely to need hospital care, ongoing physical therapy, drug treatment or other kinds of chronic care, you most likely will want to look at the high-option health plans, which provide fuller coverage with higher premiums. If you need high option coverage, compare the plan brochures for coverage on the type of care that you normally use. For example, if you use a lot of prescriptions, check out the plan's mail order drug program to learn about the deductibles and coverage for name brand and generic drugs. Look at the formulary for the type of drugs that you are using to make sure they are covered.

Then look at the premiums. Sometimes the least expensive plan offers all the coverage you are looking for. If you are in good health and do not have many recurring medical expenses, your best choice may be the standard or basic option. (Be careful, though. In some cases -- as in the Blue Cross Blue Shield example above -- "standard" is the name for the high-coverage option.) If you have Medicare or other health insurance, look at the plan brochure for coordinating this coverage. Sometimes even those with chronic health problems may choose the low option, if Medicare or other health insurance is the primary payer.

Most FEHBP fee-for-service plans offer Preferred Provider Organization arrangements. Your health plan will have a list of PPO doctors and facilities available on their Web sites or you may request a catalog of members by contacting your health plan. Two advantages of using a PPO are that it reduces your out-of-pocket expenses, and providers will generally file your claims for you. Read your plan's FEHBP brochure carefully to find out about other benefits. Resources

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

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