October 31, 2008Happy Halloween! Are you haunted by the looming Federal Employee Health Benefits Program open season? Stick with me during the next few weeks, and I'll provide resources and information to help you make decisions on your health, dental and vision coverage, and flexible spending account contributions.
Last week's column on high-deductible health plans generated a lot of response, so I thought I'd go another round on the subject and address readers' comments and questions. I'll focus on the three largest HDHP options in FEHBP: Those offered by the Mail Handlers, Aetna and GEHA.
Some federal employees already are familiar with HDHP coverage, and I want to include their comments so you will know the good, the bad and the ugly. Many of those who commented used the Blue Cross Blue Shield standard option plan as a point of comparison, which I think is fair since it has by far the largest enrollment of all FEHBP plans.
First, here's one reader's endorsement of the HDHP approach: If you are considering the new HDHP type of health insurance, the first question you should ask yourself (if you are in a preferred provider organization plan) is: Do you reach the yearly deductible? If the answer to that is "no," or "usually not," then you might benefit from an HDHP with a health savings account.
Even if you do reach your deductible I can easily argue that an HDHP with an HSA will still save you thousands. I can attest to this because this year my wife had knee surgery and we hit our $3,000 HDHP deductible in January. Even so, I still saved big time over the most popular FEHBP PPO standard option plan.
Our HDHP gives you $1,500 (called a premium pass-through) toward your $3,000 deductible, so basically your out-of-pocket risk is $1,500. A traditional PPO has its own deductible, plus the PPO plan would have cost me much more in premiums. In addition, the tax advantages of the HDHP with a health savings account are unbelievable. In 2009, those eligible for an HSA may contribute up to $5,950 minus their plan's contribution. In addition, those over age 55 can contribute an additional $1,000. If you want to fund a separate limited expense flexible spending account (LEXFSA) to cover dental and vision expenses, this can be funded up to $5,000 -- all tax free.
The contribution from the HDHP plan to my HSA, plus what I contribute, is mine forever -- even if I leave the plan or leave the government. If you fund a LEXFSA, these funds have to be used within a limited time or forfeited.
All preventive care for you and your eligible family members is covered at 100 percent with HDHP coverage. The deductible does not apply to well care or preventive care doctor visits.
Other readers addressed the issue of contributions to flexible spending accounts under HDHPs. For example, one wrote: I am a former HDHP enrollee. My experience was this: the GEHA plan did not pay their contribution to the FSA upfront. So if you have early expenses, you are in the hole.
That has changed for 2009. Here's what GEHA's new brochure states: "We automatically pass through a portion of the total health plan premium to your HSA or credit an equal amount to your HRA based upon your eligibility. However, GEHA will make the full annual contribution early in the year for your convenience. For members eligible for an HSA and enrolling during open season, our full contribution will be made by February 15th. For members enrolling at other times throughout the year, the contribution will be prorated from your effective date to the end of the plan year and available by the 15th of the month following your first month of enrollment. For HRA members, your full annual HRA credit will be available on your effective date of enrollment."
The Mail Handlers Benefit Plan HDHP option appears still to be making monthly contributions to HSAs or HRAs for 2009, but you can fund your HSA with tax-free contributions early in the year. Likewise, the Aetna HDHP also does monthly HSA and HRA contributions.
Take It to the Bank
One reader commented about wanting to use a different bank than the one offered through the HDHP to manage health savings account funds. Here's the word from the Office of Personnel Management on that issue:
"All plans offering an HDHP are required to have a financial trustee who can administer the HSA. However, you can decide which company will administer your HSA and what type of investments you can make with your account once it is established. Any investment allowed for IRAs is allowed for HSAs, but you need to verify the financial institution of your choice offers HSAs. A federally chartered credit union qualifies under Treasury regulations as a trustee/custodian. However, you will need to check with your specific credit union."
Long-Term Care Insurance
One reader had a specific question about HDHPs and long-term care:
OK Tammy, the HDHP sounds good, but what about long-term care insurance? It is my understanding that you can use the HDHP to pay for the yearly cost. Is it better to do this, or just write the amount off on your taxes when you pay it yourself?
I spoke with Cindy Butler, one of GEHA's HSA experts, and she confirmed that the Internal Revenue Service has been very clear that HSA dollars can be used to pay for long-term care insurance premiums. Here are two IRS publications that will help you understand the tax rules:
Retirees and Medicare
Another reader asked:
What do you mean when you say, "You cannot have an HSA if you have Medicare?" Can I spend my HSA when I turn 65 and join Medicare? I understood HSAs were not available to retirees.
Retirees who are not enrolled in Medicare or other health insurance besides their HDHPs can have an HSA. By law, HSAs are available to members who enroll in an HDHP, are not Medicare-enrolled, are not covered by another health plan, or are not claimed as a dependent on someone else's federal tax return. You can enroll in an HDHP and have Medicare, but instead of an HSA, you would have a health reimbursement arrangement. You would not be able to contribute to the HRA, but you would receive the premium pass-through (that is, the contributions by the plan). Also, if you had an HSA prior to Medicare, its funds would be available to you. Spend or Save?
Finally, a reader noted:
I've been in a HDHP-HSA program for a year and so far, really like it, even though we had a lot of medical expenses this year. But I haven't had to spend my HSA dollars to meet my deductible, as you say in the article. We spent our own dollars and left the HSA to build. Am I missing something here? The other benefit is you can do a one-time contribution from a traditional IRA into your HSA, thus reducing your taxable income when you start tapping into your pretax retirement money.
You are right. You can choose not to use your tax-free money to pay your out-of-pocket medical expenses if you like. This allows tax-free dollars to grow since there is interest payable on the account and the money stays tax free until you decide to use it.
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 Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.
October 31, 2008