For most federal employees, a High Deductible Health Plan (HDHP) or Consumer-Focused Health Plan (CDHP) will be one of the cheapest plans to join next year. Both offer registrants pre-funded savings accounts to pay for free health care expenses and preventative care, and most of them have lower premiums than other FEHB plans.
However, HDHP and CDHP have high deductibles where registrants pay the full cost of health care expenses before the deductible is reached, and a coinsurance percentage for services once the deductible is reached.
Adding to their mystery, insurers do not advertise authorized charges for medical services. Before the deductible, registrants will wonder what the total amount will be to see a doctor or visit an emergency care clinic, and after the deductible, they will wonder how much of the final bill they will have to pay.
For these reasons, many federal employees see these plans as too scary, too complicated, or both. However, a workaround exists for the cost transparency issue, there are significant overall cost savings over other popular HMOs and PPOs, and many miss the investment potential of an HDHP with an account. health savings plan (HSA). We encourage you to find out more about how they work and take another look at these plan options this FEHB open season.
One of the infuriating things about HDHP / CDHP is the lack of transparency about the cost of something. Keep in mind that members will pay the full amount of the allowable plan fees before the deductible and a coinsurance percentage after the deductible, for example 20% or 30% for medical expenses, depending on the plan. How much will it cost to see your GP or go to emergency care? 20% of what? You will not find this information in the plan brochure, plan website, or other plan marketing materials.
Although impractical, there is a solution to this problem. If you call the plan and ask them directly what charges are allowed for a primary care visit, emergency care visit, emergency room visit, etc., they will give you that information over the phone.
Once you have that, you’ll have a better idea of what to expect for the predictable health services you use, and you can see how far the plan’s savings account takes you over the next year.
How CDHPs Work
Type of savings account
CDHPs offer registrants a Health Reimbursement Account (HRA) or Personal Care Account (PCA). These are just two different names for essentially the same type of account.
It is important to note that the Medicare plan owns and manages the savings account and has no portability. This means that if you exit a CDHP plan or quit federal service and the FEHB program, you lose all unused funds in your HRA.
CDHPs will pre-fund the HRA at the start of the plan year with the full amount of the contribution. Plan contributions vary from $ 1,000 to $ 1,200 per year for individual registrations and from $ 1,800 to $ 2,400 per year for individual and individual and family registrations. You cannot contribute additional funds to an HRA or invest HRA funds.
Eligible medical expenses are automatically deducted by the HRA plan. Once the HRA is exhausted, you will pay the health expenses out of pocket. You cannot use your HRA for non-medical expenses.
Unused funds will be carried over to the following year. However, there is a working cap with HRAs. You can only carry forward up to $ 5,000 for individual registration or $ 10,000 for stand-alone and individual and family registrations.
How HDHP Work
Type of savings account
HDHPs offer registrants an HSA. Unlike an HRA in a CDHP, the plan holder owns the account and the HSA is fully transferable and will stay with you if you change plans. A financial services company manages the account and the plan participant decides how to invest the HSA funds.
HDHP funds the HSA through a pay period premium transfer, which means that the full amount of the plan contribution in the HSA is not available at the start of a plan year.
Plan contributions vary from $ 750 to $ 1,200 per year for individual registrations and from $ 1,500 to $ 2,400 per year for individual and individual and family registrations. You can make additional contributions to your HSA during the year, either as a lump sum or during a pay period. The total annual contributions, of the plan and of the member, cannot exceed $ 3,650 for individual registrations and $ 7,300 for individual and individual registrations and individual and family registrations.
There is also an additional “catch-up” contribution of $ 1,000 per year allowed for registrants over 55 years of age. For most federal employees, this means that taxes are reduced by at least 20%, and often by 30% or more, of the amount invested.
You don’t have to use your HSA to pay for your healthcare expenses. Of course, you can use the HSA if you want to, but unlike HRAs, the plan does not automatically deduct expenses from your HSA.
You can use your HSA for non-medical expenses. However, if you are under 65, you will pay a 20% tax penalty plus your normal tax obligations. If you are over 65, you only pay the normal tax obligations.
Unused funds will be carried over to the following year. There is no rollover cap for HSAs, which allows your account to grow from year to year.
Health insurance retirees
Once you are retired and have Medicare, you can no longer make voluntary contributions to an HSA, but you can stay in the HDHP if you wish. HDHPs who would normally have an HSA offer retirees an HRA instead. You keep your HSA and it can grow through your returns on investment, while your new HRA is used for medical expenses.
How to Maximize Your HSA
HDHPs with an HSA have several advantages over CDHPs: full portability of the savings account, no rollover limit, the ability to invest your account in stocks and bonds, and the ability to make additional contributions into the account.
Voluntary contributions to the HSA benefit from a triple tax advantage; they enter the account tax-free, grow tax-free, and, if used for qualifying medical expenses, exit tax-free.
To maximize the full potential of the HSA, you’ll want to try and preserve the plan contribution in the account, add contributions to the plan over the coming years, and grow your account tax-free year by year. .
Here are two important ways to help you preserve the plan’s HSA contribution:
Premium difference contribution
If you switch from a more expensive PPO plan to an HDHP, it’s tempting to pocket the premium difference. Instead, since you’ve already budgeted for a higher premium, contribute the premium difference in the HSA. The total contributions to an HSA for 2022 cannot exceed $ 3,650 for individual registrations or $ 7,300 for stand-alone plus one registrations or individual and family registrations. By contributing additional funds to your HSA, you will be able to use voluntary contributions for personal expenses without touching either the automatic contribution paid from your plan’s premium or your existing HSA balance.
FSA Low Cost Health Care (LEXHCFSA)
If you’re enrolled in an HDHP, you can’t have a General Purpose Flexible Expense Account (FSA), a limit on the total amount you can exempt from tax. However, you can sign up for a LEXHCFSA for qualifying dental and vision expenses, which will allow you to pay for these services without touching your HSA.
The Checkbook Guide to Health Plans for Federal Employees takes each plan’s assured expenses (premium) plus the expected out-of-pocket expenses of the registrant and adds factors that influence health spending (age, family size , planned use of health care) to produce an annual cost estimate for each FEHB plan.
HDHPs and CDHPs have some of the lowest estimated total costs. A family of four in the Washington, DC area could save around $ 3,500 next year (and most likely in the years to come) by switching from Blue Cross Standard to GEHA HDHP or NALC CDHP.
Who shouldn’t be in a CDHP / HDHP?
If a $ 1,000 to $ 2,000 health bill is causing you financial hardship, a CDHP / HDHP might not be the best plan for you.
There will always be a gap between the plan contribution on the savings account and the plan deductible. In the most extreme case, this difference is $ 2,000. If you had an unforeseen accident at the start of the plan year before collecting the deductible, you will pay the full cost of this expense.
While there is always a risk with any FEHB plan of having the worst year and paying the maximum, not having traditional insurance immediately at the start of the year with a CDHP / HDHP increases this risk somewhat.
Both of these types of plans work best for registrants whose usual expenses are low (no expensive maintenance medications, for example), with most fund balances held in reserve and fund levels increasing each year.
The last word
Taken strictly as a medicare decision, CDHPs are one of the cheapest plan options available to federal employees. However, HDHPs with an HSA are more than just health insurance; they constitute a tax-advantaged investment vehicle. The power of combining returns on investment and time can provide you with a big nest egg for any unforeseen health expenses you might face along the way or just as income for any expense once you retire. Some HDHP registrants have accumulated HSA balances of $ 50,000 or more by making additional tax-advantaged contributions over several years.
Kevin Moss is Editor-in-Chief at Consumers’ Checkbook. Checkbook’s 2022 Guide to Health Plans for Federal Employees is available free to many federal employees, check here to see if your agency provides access. The Guide is also available for purchase and FedSmith readers can save 20% by entering the FedSmith promo code at checkout.
© 2021 Kevin Moss. All rights reserved. This article may not be reproduced without the express written consent of Kevin Moss.