Considering HDHPs

By Tammy Flanagan

October 24, 2008

The annual federal health benefits open season is right around the corner. This year, it runs from Nov. 10 to Dec. 8. Federal employees and retirees will be able to select new health, dental and vision plans, as well as set flexible spending account allotments for 2009.

If you want to take advantage of all the benefit choices available to you and your family, you have much to think about. This week, I'll focus on a relatively new type of health insurance called a high-deductible health plan, which includes participation in a health savings account or health reimbursement arrangement.

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. Is this type of arrangement suitable for you? To figure that out, you should ask yourself a series of questions.

Are you looking for a way to lower your health insurance premiums but maintain the freedom to choose your own doctors and health care providers?

Premiums for HDHP plans are generally less expensive than the premiums for high or standard option preferred provider organization or health maintenance organization plans. What contributes to the value of this type of insurance is you will receive a contribution to an HSA or an HRA to help you meet your deductible and other out-of-pocket expenses during the year.

If you could reduce your taxable income by up to $6,950 in 2009, would you take advantage of the opportunity?

For 2009, the maximum annual HSA contribution for an eligible individual with self-only coverage is $3,000. For family coverage, the maximum annual HSA contribution is $5,950. Catch-up contributions for people 55 and older will increased by statute to $1,000 for 2009 and all years going forward.

Are you in generally good health?

The out-of-pocket limit on your expenses is higher for HDHP plans than for traditional PPOs and HMOs. After you have fully funded your HSA, you will have funds available for future out-of-pocket health care needs. In the first few years of enrollment, you will be contributing to your HSA and receiving health plan contributions that can accumulate for future expenses.

Preventive care is covered 100 percent in HDHP plans without a deductible or co-payment, so it's possible for healthy people to keep a balance in their HSA account from year to year and allow the funds to grow. For 2009, the maximum annual out-of-pocket amounts for HDHP self-only coverage will increase to $5,800 and family coverage will go up to $11,600.

Are you willing to spend the funds in your HSA if you need medical care?

Keep in mind that they call these "high-deductible" plans for a reason. If you need care, whether from a specialist, in an emergency room, or filling a prescription at the pharmacy, you will have to spend your HSA dollars first up to the deductible before you begin to benefit from the insurance coverage. For 2009, the minimum deductible for HDHPs increases to $1,150 for self-only coverage and $2,300 for family coverage. Remember, if you have previously funded your HSA, these deductible dollars will be available without spending your current year income.

Are you covered under any other health plan besides the Federal Employees Health Benefit Plan?

You cannot have an HSA if you have Medicare or other health plan coverage, such as being covered under a spouse's HMO. You can have an HRA, but tax-deductible deposits are not allowed under such accounts.

Are you willing to change your current health plan coverage to receive this benefit?

To contribute pretax dollars to an HSA, you must join an HDHP. There are high-deductible choices in FEHBP via national plans such as GEHA and Mail Handlers. Aetna also offers an HDHP plan in 38 states and the District of Columbia, and other HDHP plans are offered in certain states. To see which plans are available near you, enter your ZIP code at this Office of Personnel Management site (2009 information will be available by Nov. 3).

Do you like the idea of having a flexible spending account, but don't like the fact that if you don't use the funds, you will lose them?

Unused funds in your HSA account carry over to future years. If you change jobs or leave the HDHP health plan, you can keep your HSA at the HSA bank that maintains your account or transfer it to another institution. You can take the HSA with you if you leave the federal government.

Distributions from your HSA are tax-free for qualified medical expenses for you, your spouse and your dependents, even if they are not covered by an HDHP.

You can get a Limited Expense Health Care Flexible Spending Account to cover dental and vision care expenses so you won't need to exhaust your HSA for these out-of-pocket health care needs. You can set aside anywhere from a minimum of $250 up to $5,000 per benefit period.

Do you want to learn more about this type of health insurance?

If so, you can:

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 live on Monday mornings at 10 a.m. ET on or on WFED AM 1500 in the Washington metro area.

By Tammy Flanagan

October 24, 2008