Federal employment has an added benefit hidden in plain sight, but it is often overlooked. The Federal Employee Health Benefits Program offers many different types of plans, but one provides federal employees with an additional way to save money for retirement. Contributions to health savings accounts offered by high-deductible health insurance plans are initially tax-free, grow tax-free, and can be used for medical expenses while you work as well as after retirement. They can also be used for non-medical expenses after age 65 without penalty, except for the same tax liabilities that apply to withdrawals from other retirement accounts, such as those from the Thrift Savings Plan.
Here are the basics of high-deductible health plans, the savings you can potentially make by switching to a plan, and how to save for your retirement and future health care expenses with an HSA.
How High Deductible Health Plans Work
HDHPs encourage plan members to be conscious healthcare consumers because of their high deductibles. Before the deductible, you will pay the full amount allowed by the plan for health services, and after the deductible, like all health insurance plans, you will typically pay a percentage of billed expenses, typically 5% to 20% depending on plan it.
To help you before the deductible is reached, all HDHPs provide free preventative care within the plan’s network, which includes annual physicals, mammograms, healthy child visits, and vaccinations.
All HDHPs for federal employees also fund an HSA to help with out-of-pocket expenses, either as they are incurred or to be used for future reimbursement. The amount of the contribution varies by plan and type of registration and ranges from $750 to $1,200 per year for individual registration and from $1,500 to $2,400 per year for self-contained plus one and self-family registrations. . The plan’s contributions to your CGS are spread over the year and are deposited monthly in your CGS.
You can make additional voluntary contributions to your HSA, but Internal Revenue Service limits are in place. In 2022, for a personal membership, the combined plan and member contributions cannot exceed $3,650. For self-plus-one and self-family registrations, the combined contributions cannot exceed $7,300. These limits are set by the Treasury Department and are increased each year based on inflation. Voluntary contributions can be made as payroll deductions or as a lump sum to the account.
The HSA will be managed by a financial services company, and you will have the same investment options as with an Individual Retirement Account and many more options than you would have for the Thrift Savings Plan. Any unused funds in your account will roll over to the next year, and there is no rollover limit. Your HSA belongs to you, the registrant, which means it is fully portable and if you leave federal service or change FEHBP plans, you will still have access to your HSA.
Cost of health care services in a high deductible health plan
HDHPs do not provide pre-deductible health care service cost information in official plan brochures or other marketing materials, leaving federal employees wondering what the total allowable amount of a deductible is. service and how to calculate a percentage of the amount after the deductible if the service does not have a fixed co-payment. Of course, this lack of information ends when the services are provided and you receive the invoice. But advance information will often be very important for financial planning or even deciding whether you want to incur the cost of a particular procedure.
Although impractical, there are two workarounds that can reduce this problem: call the plan or call the provider. If you call the plan and ask how much it costs for a primary care visit or an urgent care visit, the plan will provide that information, allowing you to better predict the expenses you will have to pay. Also, the doctor, or staff, will likely know how much the cost will be and should know what other expenses may be needed before or after the procedure (x-rays, medications, follow-up visits, etc.).
High-deductible health plans available for federal employees
There are a handful of high-deductible health plans available nationwide – GEHA HDHP, MHBP HDHP, and Aetna HealthFund HDHP. In the Washington, DC area, you will also be able to enroll in CareFirst HDHP, HealthKeepers HDHP (VA only), and United HDHP. Outside of the DC area, you’ll find the Humana HDHP available in many parts of the country.
The plan websites do a great job describing how HDHPs work and you can read more about the available HDHPs at consumer checkbook Guide to Health Plans for Federal Employees and the Office of Personnel Management Plan Comparison Tool.
How much money can you save by switching to an HDHP?
Most federal employees will save money by switching from their current health insurance plan to an HDHP. Although they have high deductibles, HDHPs generally have lower premiums than non-HDHPs, plus they have the added benefit of HSA plan contributions.
Check To guide provides an estimate of the total cost for each FEHB plan, which is the combination of certain expenses (premiums) and likely out-of-pocket costs you will incur based on your age, family size, and expected health care utilization .
In 2022, a family of four in the Washington DC area with average healthcare expenses could save about $3,500 per year by upgrading from Blue Cross Standard or GEHA High to GEHA HDHP.
The full potential of HSA
To realize the full potential of your CGS, you will want to try to preserve the plan contribution and, if you can afford it, make additional voluntary contributions. Any additional contributions you make will receive a triple tax benefit – they enter tax-free, grow tax-free, and leave tax-free if used for eligible medical expenses.
Here are two things you can do to help preserve the HSA plan contribution:
- If you upgrade to an HDHP from a more expensive plan, pay the premium difference into your HSA. Since you are already used to paying a higher premium, this move will be budget neutral. You’ll have additional funds in your HSA that can be used for health care costs, increasing your chances of keeping the HSA plan contribution invested and growing over time.
- Consider signing up for a Limited Spending Flexible Spending Account (LEXHCFSA). The IRS does not allow someone to have both an HSA and a general purpose FSA. However, you are allowed to have a LEXHCFSA with an HSA, but it can only be used for qualified dental and vision expenses. With the LEXHCFSA, you won’t have to use your HSA for these expenses, which will help you save it for other medical expenses or keep the HSA plan contribution intact.
Save for your retirement with an HSA
As you approach retirement, you have the opportunity to contribute even more to your HSA. Once you reach age 55, you can contribute an additional $1,000 per year as a “catch-up” contribution on top of the normal contribution maximum.
Once you turn 65, a big change with your HSA takes place: you are allowed to take non-medical distributions and only pay your normal tax obligations. Prior to age 65, non-medical distributions would create a 20% penalty tax on top of your normal taxes. This change gives you more flexibility in how you use your HSA funds, including as supplemental retirement income.
Of course, there are other eligible expenses you can choose to use your HSA for in retirement and pay no tax. The long-term care insurance premium, which pays for nursing homes and assisted living facilities, is an eligible expense, as are Medicare Part B and Part D premiums for you and your spouse.
The last word
For most federal employees, an HDHP will be the lowest cost plan option available, especially when considered a long-term option. The HSA that accompanies the plan helps pay for personal health care expenses now and in the future. If you are able to preserve the plan contribution and make additional contributions to the account, the HSA can grow very quickly. We have heard from many federal employees who have HSAs with a balance of $50,000 or more because they have been enrolled in an HDHP for many years and have contributed the maximum each year. And, when you hit 65, the HSA becomes an all-purpose super weapon that can help pay for almost any health care expense you’ll face or be used as a source of extra income.
However, federal employees are on borrowed time to maximize the advantageous tax benefits of an HSA. Once you retire and are on Medicare, you are no longer eligible to receive an HSA from an HDHP and you can no longer make voluntary contributions to your HSA.
New hires and employees with eligible life events that allow switching plans outside of the open season would be advised to consider an HDHP in 2022, and all federal employees should consider one during the 2023 open season at the end of the year.
Kevin Moss is an editor at Consumers’ Checkbook. Health Plans Checkbook Guide for Federal Employees is available free of charge to many federal employees; Check here to see if your agency provides access. the To guide is also available for purchase and government executive readers can save 20% by entering promo code GOVEXEC at checkout.
Comments are closed.