For you procrastinators out there, here's a quick look at your options for one of the most important decisions you face: Choosing a health plan. Types of Plans
For an individual, it helps to simplify the health insurance decision by breaking it down to three basic choices:
- Traditional fee-for-service coverage with a preferred provider option (either high or low option).
- A health maintenance organization.
- One of the new high-deductible health plans.
Once you choose one of these basic styles, you'll have fewer than 10 available plans to pick from -- and some Federal Employees Health Benefits Program participants will only have two basic choices, because the HMO option isn't available everywhere.
The Office of Personnel Management Web site provides a good overview of your health plan choices.
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.) Mail Handlers is changing its plans this year by removing the high option and offering a standard option and a new value option. (Mail Handlers also offers a high-deductible health plan).
If you have Medicare or other health insurance, look at the plan brochure for coordinating this coverage. Many fee-for-service plans will waive most of your deductibles and co-payments when Medicare becomes your primary coverage (usually after you are 65 and retired). Since most fee-for-service plans waive out-of-pocket expenses when Medicare pays first, sometimes even individuals with chronic health problems may want to choose the lower option health plan.
If you have Medicare and decide to drop to a lower cost FEHBP plan, be sure to look at the prescription benefits. Medicare Parts A&B do not cover outpatient prescriptions. Medicare Part D offers many prescription drug choices, but is generally not necessary if you choose your FEHBP coverage by carefully reviewing the prescription benefits of your health plan.
Most FEHBP fee-for-service plans offer preferred provider organization arrangements. Health plans have lists of participating PPO doctors and facilities on their Web sites. Two advantages of using a PPO are that it reduces your out-of-pocket expenses, and that providers generally will file your claims for you. Read your plan's FEHBP brochure carefully to find out about other benefits.
OPM provides a direct link to fee-for-service plans nationwide, along with their rates for 2008.
Health Maintenance Organizations
Health maintenance organizations involve contracts between insurance companies and doctors (or other providers). Unlike traditional fee-for-service insurance, care provided in an HMO generally follows a set of guidelines provided through the HMO's network of providers. They contract with an HMO to receive patients and in return usually agree to provide services at a discount. This arrangement allows the HMO to charge lower monthly premiums.
HMOs also try to gain an advantage over other insurance plans by managing their patients' care and reducing unnecessary services. To achieve this, most HMOs require members to select a primary care physician -- a doctor who acts as a gatekeeper, authorizing referrals to specialists or other doctors if deemed necessary. (Emergency medical care does not require such authorization.)
HMOs also manage care through something called "utilization review." Under this approach, the HMO makes recommendations on the amount of services to be provided by each doctor or health care provider. The idea is to ensure that unnecessary treatments are not being prescribed and that preventive care is being offered. Costly forms of care, diagnosis or treatment may not be covered. Experimental treatments and elective services that are not medically necessary are almost never covered.
Here are some advantages to HMOs:
- The premiums under such managed care plans are sometimes lower than traditional health insurance.
- HMOs do not require that you pay for your medical care up front, so there are no claim forms to fill out or waiting periods for repayment.
- Many HMOs require only a small co-payment of $10 to $30 for a visit to the doctor, hospital stay or prescription. This is far less expensive than the usual 20 percent co-pay of traditional health insurance.
Disadvantages to HMOs include:
- The requirement that you use only doctors and hospitals that are part of the HMO plan.
- The concept of capitation: HMOs receive a flat fee each month for each person they cover. While this creates a good mechanism for cost control, it can lead to restrictive practices such as difficulty in seeing specialists or getting approval for special drugs. If you need a specialist's care, an HMO will require that you first get approval from your primary care physician, which can be time-consuming and difficult.
- Limited locations: Some states do not have any HMO plans that participate in FEHBP. Others have a few, but the doctors may be concentrated in large metropolitan areas. If you plan to move away from a big city when you retire, you may also be moving away from areas serviced by HMOs.
Some HMO plans offer "open access," meaning that you won't need a referral to see a specialist and you can go outside of the plan network and receive benefits. Using the network doctors and providers will always save money, but sometimes you may wish to go outside of the network even though you may incur a higher out-of-pocket expense.
To find out if you have an HMO available in your area, enter your ZIP code into this OPM search tool.
High-Deductible Health Plans
Still new on the FEHBP scene, high-deductible health plans 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 deductibles are high: $1,500-$2,000 for self-only coverage and $3,000-$5,000 for family. The maximum in-network out-of-pocket limits for this type of coverage are as much as $5,000 for self-only plans and $10,000 for self and family plans.
Here are some reasons why you might choose an HDHP plan:
- You get to choose your own doctors.
- Most plans provide a premium "pass-through" where your health plan deposits a percentage (sometimes significant) of your regular health plan premium into a Health Savings Account or Health Reimbursement Account each month.
- 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 HMOs, 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.
For more information, see the HDHP section of OPM's Web site.
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.