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Health Insurance Choices, Part Two

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Last week, we began a discussion aimed at clarifying your health insurance choices during the Federal Employees Health Benefits Program open season that runs from Nov. 13 to Dec. 11. The first part covered traditional fee-for-service health insurance, which is by far the most popular type of coverage.

This week, we'll look at the other end of the spectrum, high-deductible health plans and the health savings accounts that accompany them. These are the newest and least understood of the federal health care choices. Currently, fewer than 24,000 employees and retirees have chosen the high-deductible option.

Proponents of these new kinds of plans say they give individuals more control over their health care choices. Earlier this year, at a forum on health care at the Department of Health and Human Services, President Bush said, "The key thing in a health savings account is you actually put a patient in charge of his or her decisions, which we think is a vital aspect of making sure the health care system is not only modern but a health care system in which costs are not running out of control. When you go buy a car, you know, you're able to shop and compare. And yet in health care, that's just not happening in America today."

Bush noted that after fast-food company Wendy's offered its employees an HSA option, medical claims decreased by 17 percent, and the company's overall health care costs rose by only 1 percent last year. But Wendy's employees aren't the only ones with access to HSAs. Federal employees can use them, too. Learn the Terminology

Here are the key terms to understand in order to evaluate the latest health insurance options:

  • High-Deductible Health Plan: Health insurance designed to cover large medical bills. In many respects, these plans function like traditional fee-for-service coverage, but with lower premiums and higher deductibles.
  • Health Savings Account: An investment account from which you can withdraw money tax-free for medical care. Such accounts are available to people who are enrolled in an HDHP, not covered under someone else's health plan, not enrolled in Medicare and not claimed as a dependent on someone else's tax return.

    The HDHP credits a portion of your premium to the HSA. You have the option to make tax-free contributions to the account up to the established limits for the plan. These accounts earn interest and roll over any remaining balance from year to year. The funds are yours to keep whether you change plans, leave federal service or retire. A big difference between HSAs and the better-known health care flexible spending accounts is that unused HSA funds can be rolled over to the next year's account.

  • Health Reimbursement Arrangement: If you're not eligible for an HSA, you will need what is known as a health reimbursement arrangement to cover the out-of-pocket expenses of the HDHP. Under an HRA arrangement, the health plan credits a portion of your premium to an account that can be used to pay for qualified medical expenses or Medicare premiums. You cannot make additional tax-free contributions to these accounts. You may carry over unused credits from year to year, but they do not earn interest. Credits are forfeited if you switch health plans or leave federal service other than by retiring.
HDHPs are intended to cover serious injury or illness and include benefits for preventive care. With the exception of such care, the plan deductible must be met before benefits are paid. The minimum deductible is $1,050 for self-only coverage and $2,100 for family coverage. The maximum in-network out-of-pocket limits for this type of coverage are $5,000 for self-only plans and $10,000 for self and family plans. Pros and Cons

Here are some reasons why you might choose an HDHP plan:

  • You get to choose your own doctors.
  • No referrals are needed to see a specialist.
  • Contributions to an HSA lower your taxable income.
  • HSA and HRA accounts can accumulate from year to year for use on future health care needs.
  • By spending your own money and being discriminating about the costs of health care, you're helping to promote competition in the health care industry, and thus contain costs.
  • You can use this type of coverage all over the world.
  • Most HDHP plans offer preferred provider organizations, although some work more like health maintenance organizations, with a network of participating doctors.
  • In most plans, mail-order drug programs help control the cost of prescriptions.
  • The plans offer comprehensive coverage for basic medical needs as well as high-cost illnesses and injuries.
  • There are limits on catastrophic out-of-pocket expenses.
  • Preventative care is covered without having to meet the deductible.
  • The plans are well-suited for those who are in good health and have the ability to save their HSA and HRA dollars for several years before incurring heavy medical expenses.
Here are some potential downsides to the HDHP approach:
  • As their name indicates, the plans feature high deductibles.
  • Deductibles and co-payments are not waived for Medicare beneficiaries.
  • Co-payments vary from 10 percent to 30 percent, depending on the plan and whether or not a PPO is used.
  • If your doctor is not a member of a PPO, you may have to submit a claim to receive benefits.
  • This type of insurance is new and relatively untested over the long term.
  • Those with chronic illnesses may find they will not be able to build up a reserve of health care dollars in their HSA or HRA accounts.
  • If you are not eligible for an HSA, there is no tax advantage to using this type of plan.
Resources Program Note

For further information on FEHBP open season options, tune in to "For Your Benefit," presented by the National Institute of Transition Planning on Saturdays at 10 a.m. Eastern on Federal News Radio. In the Washington area, you can tune into the show at 1050 on the AM dial. Or you can listen to live or archived shows online at www.federalnewsradio.com.

Representatives of several health plans will be featured on upcoming shows:

  • Oct. 14: United Concordia (dental plan carrier for the new Federal Employees Dental and Vision Insurance Program)
  • Oct. 21: Kaiser Permanente (HMO)
  • Oct. 28: Aetna (HMO Open Access and HDHP and consumer-driven plans)
  • Nov. 4: GEHA (Fee-for-service and HDHP plans)
  • Nov. 11: MetLife (Dental plan carrier for FEDVIP)
  • Nov. 18: Walton Francis (Checkbook Guide to Federal Health Plans)
  • Nov. 25: Spectera Vision (Vision plan carrier for FEDVIP)
  • Dec. 2: CompBenefits (Dental plan carrier for FEDVIP)
  • Dec. 9: Vision Services Plan (Vision plan carrier for FEDVIP)
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.

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.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Federal News Radio on Mondays at 10 a.m. ET on WFED AM 1500 in the Washington-metro area. Archived shows are available on NITPInc.com.

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