Are High Deductible Health Plans the right FEHB plan for you?

High Deductible Health Plans have much higher deductibles than traditional HMO and PPO plans in the FEHB program. Depending on the HDHP, the deductible ranges from $1,600 to $2,000 for self-only coverage and $3,200 to $4,000 for self-plus-one or self-&-family coverage. Before you meet the deductible, you’ll pay the full allowed charge for a medical service. After, you’ll pay a percentage of the service, or a coinsurance amount. This varies by plan but is generally around 5-20%.

While having a higher deductible can lead to more out-of-pocket costs, keep in mind the following: 

• HDHPs tend to have lower premiums than other FEHB plans.
• All preventive care is free, before and after the deductible. This includes annual physicals, well-child visits, immunizations, mammograms, and more. 
• HDHPs fund a savings account that helps you pay for out-of-pocket costs. 

The combination of lower premiums and the savings account contribution makes HDHPs one of the cheapest plan types available to federal employees and annuitants.

How Health Savings Accounts Work

HDHPs fund a Health Savings Account in equal monthly installments as premium pass-throughs. The total contribution varies by plan and ranges from $750 to $1,200 for self-only coverage and $1,500 to $2,400 for self-plus-one or self-&-family coverage.

Each HDHP chooses a financial services company to manage the HSA. You can invest your funds, but if you want to pay for a qualified medical expense with your HSA, you’ll need to draw from funds not invested. 

You can contribute more to an HSA. Between what the plan puts in and your own voluntary contributions, HSA deposits cannot exceed $4,150 a year for self-only enrollments or $8,300 for self-plus-one and self-&-family enrollments. Individuals aged 55 or older qualify for an additional $1,000 per year catch-up contribution. Any unused funds roll over into the following year, and there is no cap on how high your HSA balance can grow.

Voluntary HSA contributions are triple tax-advantaged: 

1. You can contribute to your HSA as a payroll deduction or as a one-time lump sum deposit. Payroll deductions happen pre-tax, lowering your taxable income. Lump sum deposits can be claimed when you file your taxes.
2. If you choose to invest, any interest or earnings is tax-free.
3. Withdrawals are tax-free when used for qualified healthcare expenses.

Non-medical distributions are allowed with an HSA, but if you’re under 65 you’ll pay a 20% income tax penalty plus your normal tax obligations. If you’re over 65, you would just pay your normal tax obligations without penalty. 

For those thinking about retirement, the HSA can be considered as a flexible retirement account that can be used anytime to pay for healthcare expenses tax-free, or as another stream of income in retirement to be used on anything, taxed at your normal rate.

Finally, HSAs are fully portable. If you enroll in an HDHP and later decide to switch to a different plan, you’ll retain ownership of your HSA account and can still use funds to pay for qualified healthcare expenses.

How to Maximize Your HSA

If you’re enrolled in an HDHP with an HSA, you can’t have a healthcare Flexible Spending Account. However, we recommend signing up for a Limited Expense Health Care Flexible Spending Account, which can only be used for qualified dental and vision expenses. This will help preserve your HSA balance.

If you switch from a more expensive plan to an HDHP, it might be tempting to pocket the premium difference. Instead, contribute it into the HSA. By doing so, you can use the voluntary contributions for out-of-pocket healthcare expenses without having to touch the plan contributions.

Federal employees are on borrowed time. Once you retire and have Medicare, you can no longer make voluntary contributions into the HSA. HDHPs that typically have an HSA will offer annuitants a Health Reimbursement Account instead.

The Final Word

HDHPs are one of the lowest cost FEHB plan types for federal employees. Before deciding to enroll in one, carefully consider your predicted healthcare expenses and make sure to check the provider directory found on the plan website to see if your current doctors will be in-network. 

The HSA can help you pay for healthcare expenses today, tomorrow, and well into the future. Federal employees can start saving for the unexpected now with an HDHP plan and HSA.

Kevin Moss is a senior editor with Consumers’ Checkbook. Watch more of his free advice and check if the Guide to Health Plans for Federal Employees is available for free from your agency. You can also purchase the Guide and save 20% with promo code GOVEXEC.