Walton Francis is a self-employed economist and policy analyst, expert in the analysis and evaluation of public programs. He has written on a wide range of subjects including program evaluation, statistical analysis, managed health care, and retirement benefits. His education includes Master’s degrees from Yale and Harvard universities. He developed regulatory, budgetary, and legislative reforms for many policies and programs while working at the Office of Management and Budget and in the Office of the Secretary at the Department of Health and Human Services. He pioneered the systematic comparison of health insurance plans from a consumer perspective, starting with the 1979 edition of this Guide. He has published articles and testified several times before Congress on the Federal Employees Health Benefits and Medicare programs. He evaluated both program’s performance in Putting Medicare Consumers in Charge: Lessons from the FEHBP.
CHECKBOOK is a magazine published by the nonprofit Center for the Study of Services. CHECKBOOK rates the quality and prices of consumer services, ranging from auto repair shops to home improvement firms to banks in seven metropolitan areas: Washington, Boston, Chicago, Philadelphia, San Francisco, Seattle, and Minneapolis-St. Paul. In the health care field, CHECKBOOK rates hospitals, dentists, HMOs, and doctors. The Center has a health care survey research arm that, in addition to conducting surveys for the Center’s own publications, routinely conducts surveys under contract for government agencies, employer coalitions, and health plans, including many of the health plans evaluated in this book. The Center also publishes nationally distributed books including Consumers’ Guide to Top Doctors and Consumers’ Guide to Hospitals.
CHECKBOOK’s Guide to Health Plans for Federal
Employees gives you vital insurance information that you cannot get from
any other source. It tells you how much money you can save by changing—or by
staying in—your health insurance plan. It summarizes thousands of facts about
the plans to simplify your choice. The Guide comes in both print and
Internet versions. They are almost identical but the print version is more
convenient for many, and the online version allows more depth and details. The
online version is particularly useful for Federal agencies that subscribe for
all their employees, giving the employees invaluable money-saving advice while
saving the agencies money as well, since they pay most of the premium cost. We
show employees how to save thousands of dollars in unnecessary costs. Federal
agencies also save, over a thousand dollars on average, for every employee who
switches to a lower-cost plan using our advice. In both versions:
- We rate all of over 200 health insurance plans available
to Federal employees and retirees, including a dozen national plans, almost 200
health maintenance organization (HMO) options, and over a dozen Consumer-Driven
and High Deductible plan options. Whether you live in Washington, the Midwest,
or New England, we rate all the plans in your community.
- Our ratings of plan costs take into account premiums,
catastrophic limits, and estimates of likely out-of-pocket costs for medical
expenses of every kind.
- We compare plans for insurance value in dealing with
unforeseen medical expenses, not just for the routine costs you can predict.
- We compare limits on out-of-pocket costs based on the
actual coverage allowed by each plan, not just what the plan seems to say
before you read the fine print.
- We rate plans for each coverage group—employees in all pay
systems, annuitants with or without Medicare, former spouses, families of
various sizes, children at age 22, part-time employees, and former employees.
- We rate plans according to how well each covers low, average,
or high medical expenses, analyzing coverage of all major types of cost.
- We adjust our estimates for the tax advantages that reduce
the after-tax premium cost to most employees (but not retirees) by about one
- We provide information on coinsurance, copays and other cost
sharing, so you can quickly determine whether a plan pays well for a
benefit you need.
- We provide accurate estimates of potential exposure to
catastrophic expense by adjusting plans’ claimed limits on out-of-pocket
expenses so they don’t omit important categories of cost.
- We give you data on coverage features of each plan,
including skilled nursing, dental, and hearing aid coverage.
- We address plan quality, and provide data on enrollee
satisfaction with each plan’s service. We provide in-depth results from an
annual survey in which plan members rate their plans on ease of getting needed
care, customer service, claims processing, and other factors.
- We rate dental and vision plans as well. We provide dollar
estimates of likely dental costs, taking into account both premiums and
out-of-pocket expense, not just descriptions. We compare dental coverage in all
plans, not just standalone plans.
- We provide up-to-date information on changes in the FEHBP
program, including the effects of health reform.
- We provide detailed consumer advice on which plan options
work best in different situations, on plan advantages you may not have thought
about, and on mistakes to avoid.
As a result, the Guide gives you a solid basis
for selecting the best health or dental plan for you and your family. Hundreds
of thousands of employees and annuitants have followed our advice over the
years, and many of them have saved thousands of dollars a year by finding
better coverage for lower premiums. There is no other source of plan
comparisons or Open Season advice that provides even half of these features.
Every Federal employee and annuitant can choose from a dozen
or more insurance plan options and most can choose from twenty or more plans.
Choices include well-known national plans, such as Blue Cross/Blue Shield;
local plans available in many areas, such as the Aetna, Humana, and Kaiser
plans; and plans sponsored by unions and employee associations, such as the
American Postal Workers Union (APWU) and the Government Employees Health
Association (GEHA). You are free to join most union and association plans,
regardless of your employing agency and whether you are an employee or
annuitant. At most you must pay annual dues, which are generally near $30.
However, a few plans restrict enrollment. For example, two plans are open only
to those involved in foreign affairs, intelligence, or defense—a pool, however,
that is very large and covers many agencies.
You can switch plans for the coming year during the annual
Open Season, scheduled from November 14 through December 12, 2011. You are also
free to switch among plans at certain other times—for instance, if you marry.
You are allowed to switch from plan to plan regardless of preexisting
conditions, even if you are in the hospital when the new plan enrollment year
Hundreds of thousands of employees and annuitants are still
enrolled in plans that are much more expensive than average, and that give them
no needed extra benefits. In Open Season almost all of these persons will be
able to reduce premium costs greatly while maintaining or even improving
As always, this year’s Guide reflects changes as plan
options have been added or dropped, benefits modified, and premiums gone up in
some plans and down in others. For newly hired employees, and those who can
change plans after Open Season, the information in the Guide applies
throughout the year.
Whether your family’s circumstances are “average” or
unusual, most HMOs—or preferred providers in plans such as Blue Cross Basic and
GEHA Standard options and a number of High-Deductible plans—offer big savings
compared to traditional plans. To help decide which is best, we estimate
likely, and not so likely, costs to you under each plan, and compare coverage
features of the plans and several aspects of customer service. In addition to
dollar costs, customer service is an important element of plan choice,
particularly for HMOs. We present customer survey data on plan satisfaction,
data on which plans are least likely to have claims disputes, and data on
Our tables rate each plan on total expenses—including
premium and out-of-pocket costs. The tables show what each plan will cost you
in an “average” year and in years when your medical costs are much higher or
lower than average. As our tables show, likely savings available to most
employees and annuitants range from hundreds to thousands of dollars a year.
You should not pick a plan on the basis of its premium,
benefit coverage, or catastrophic guarantee alone. We help you avoid these
traps by including all of these complex factors in our ratings.
The information we give you is especially important if you
expect a major change in your medical or financial situation. If you plan to
have a baby next year, or face heavy dental bills, the plan that was best for
you last year may not be best this year. Also, if you will retire, divorce,
leave Federal employment, or join Medicare, you should review your choices very
Even if your plan satisfies you, why not consider switching
to another? Those who switch in Open Season save hundreds of millions of
dollars every year for themselves and their employing agencies, through
migration to lower-cost plans that offer better value. You, too, can share in
Consider the following examples. If you are a single
employee in the Washington, DC area, our estimates show that you are likely to
save over $1,000 by joining the Kaiser HMO Standard Option instead of the Blue
Cross Standard Option, the most popular plan. If you are unwilling to make such
a drastic departure from fee-for-service medicine, a single employee can save
about $700, and a GS family of three over $1,500, by enrolling in the Blue
Cross Basic plan rather than the Standard Option. For more money-saving
choices, we rate a half dozen Consumer-Driven (CD) and High Deductible (HD)
options as equal to or better than even Blue Cross Basic for most enrollees.
All of these estimates include your premium cost, your savings from tax
preferences you may even realize you have, and your likelihood of a range of
expenses up to and including a catastrophically expensive illness.
Perhaps you are a retired couple with Medicare parts A and
B. The great majority of such retirees select the Blue Cross Standard Option.
But we rate the GEHA Standard Option and the Kaiser Standard Option plan as
likely to save you $2,000 or more. Other plans, including Blue Cross Basic, APWU,
SAMBA Standard Option, NALC, and Compass Rose (formerly called Association) are
likely to save you about $1,500 compared to Blue Cross Standard Option. Why?
These plans, like Blue Cross Standard Option, guarantee that you pay nothing
for hospital and physician charges when you have Medicare. In some of them
(NALC being a notable exception) their prescription drug coverage is not quite
as good, but their premiums are far lower. So you start the year with major
savings in hand. Another good alternative is the APWU Consumer-Driven plan. Its
premium for a retired couple is more than $2,500 lower and one of its main
features is a $2,400 dollar “Personal Care Account” that you can spend on
dental costs and drugs that Medicare doesn’t cover. While it does not waive
copayments for people with Medicare like most of the other national plans,
Medicare and this plan together will cover any major hospital or doctor bills.
Again, you start the year with guaranteed savings. In the APWU and Aetna Consumer-Driven
plans, and all High Deductible plans, you have the potential for even larger
savings in future years if you build up your Personal Care Account. These comparisons
show that even the most popular plans may not be the best buys.
We prepared the Guide because we know that choosing
the right plan can be difficult, even if you have time to read hundreds of
pages in plan brochures. The coverage details are hard to understand, and
trying to compare multiple benefit details simultaneously is very difficult. As
a result, it is often hard to determine which plan is best for you. Many
employees depend on advice from their friends, or stick with a “name brand” or
the plan sponsored by their own union. However, that choice can waste hundreds
or thousands of dollars.
The Office of Personnel Management (OPM), which administers
the program, sets standards for plan benefits and for information in plan brochures.
OPM also prepares a useful book for each Open Season, the Guide to Federal
Benefits. This book covers not only health plans, but also other fringe
benefits such as life insurance and long term care insurance. It compares health
plans for selected coverage and copayment features and presents quality
ratings, but does not estimate the overall cost or insurance value of plans.
The complexity of comparing plans is substantial. We have
studied and restudied each plan and have checked many details with plan
officials. But we have undoubtedly missed a few limitations or special
coverages. So, before making a final choice, you should read the brochures of
several plans. Never join, or stay in, a plan without reading the current
We structure the Guide‘s advice and
information as follows:
- You are reading the Introduction and Basics.
- Summary Ratings and Cost Comparisons explains and provides our
cost ratings for each plan, organized separately for each eligibility group. It
covers both fee-for-service plans and HMOs.
- Cost Sharing provides basic information on plan benefits for
hospital, medical, and prescription drug expenses.
- Coverage Features explains and addresses features such as skilled
nursing and mental health coverage.
- Dental and Vision compares standalone plans with each other and
with the dental and vision coverage in the health insurance plans.
- Plan Types and Flexibility explains the various types of plans
and how they affect your ability to use the provider of your choice and to
achieve additional savings.
- Quality and Service describes several measures of quality of plan
service, and presents results for all plans.
- Cost and Taxes explains how premiums and out of pocket spending
can be tax advantaged and how much employees can save.
- Key Tips and Final Plan Selection reminds you of factors vital to
you and gives advice on making a final decision among plans.
- Methods and Data Sources explains the information we use to
create our ratings.
We rate health plans by their likely cost to you,
taking into account your pay system, employment or retirement status, family
size, age, health status, location, and other factors. For example, we present
information on premium cost to employees using the “premium conversion”
tax-advantaged basis available to employees, but not retirees. Online Guide
users reach the table applicable to them by answering questions regarding
family size, age, retirement status, health status, zip code, pay system, and
several other factors. They see a summary ratings table for their area and then
have the option to choose whether to look at tables providing cost comparisons,
cost sharing, coverage features, plan flexibility, or plan quality for plans in
their area. Readers of the print Guide turn to applicable cost
comparison and other tables within each of the book chapters. Information on
the cost, coverage, and features for local plans in all States is available
online simply by entering your zip code, and provided in summary in a table at
the end of the “Key Tips and Final Plan Selection” section of the print Guide.
The information contained in our print and online versions
is almost identical. Both versions allow users to compare plans based on their
pay system, age, family size, and health status. Many people prefer to use
paper copies. However, the online Guide makes the customization,
selection, and presentation of comparative information exceptionally fast and
convenient, and you can print out plan comparisons customized to your needs. Of
course, not everyone uses the Internet, so we publish both versions and let
individual purchasers decide which they want. In addition, many Federal
Departments and agencies purchase special access to the online version for all
their employees, throughout the country and the world.
The Federal Employees Health Benefits Program (FEHBP) is an
unconventional government program. Instead of giving you one “take it or leave
it” choice, the government authorizes plans to compete for your premium dollar.
It pays most of the premium cost—up to 75 percent for annuitants and most
employees, and even more for Postal and FDIC employees—for any health plan you
choose whose costs are near average. Taking into account tax advantages, the
government pays between 80 and 90 percent of premium costs for most plans.
Nationally, over 200 plan options are offered, with most employees and retirees
eligible to join 20 or more. You decide which plan you want to join. If you are
not satisfied, you can switch in the next Open Season.
The FEHBP enrolls about 8 million persons. Enrollees spend
about $50 billion a year through their health plans. About five percent of enrollees
will switch among plans in Open Season, based on past trends. Until the
Medicare Advantage program, which was modeled on the FEHBP, it was the largest “managed
competition” system for harnessing consumer choices to contain health insurance
costs. Studies have shown that it outperforms both Original Medicare and
private employer plans in coverage, cost control, and consumer satisfaction.
OPM sets minimum financial, administrative, and
benefit terms and conditions for every plan participating in the program.
Insurance companies and OPM agree each year on contracts setting forth both
benefits and costs. A few key points about the FEHBP are:
- All employees and annuitants can enroll in whatever plan they
choose, or not enroll at all.
- Everyone can change plans once per year in Open Season. You also
may switch plans or options in circumstances such as marriage, birth of a
child, or geographic transfer. If you belong to an HMO and move out of its
service area, you may enroll in a new plan.
- A family enrollment covers only immediate family members: your
spouse and children. Coverage for children now lasts until they reach age 26,
unless they are severely handicapped. In that case they may be eligible at any
- Plans cannot exclude coverage for any preexisting conditions
or illnesses your family may have when you switch plans. You may switch to
gain the best coverage for your condition, and use the new plan without
- Plans must publish brochures in a common format that provides a
clear explanation of their benefits and your cost for covered services, how you
access plan services, how you get approvals, and your rights in disputes.
- Each plan must pay for the medical and related costs explained in
its brochure, and only that—no more and no less. Some brochures use open-ended
language such as “including, but not limited to,” and sometimes cover more than
they list in a particular category. But if a brochure says that a particular
category of service is limited or excluded, believe it.
- Plan brochures may word the same benefits differently. Sometimes
the wording used is not clear to a layperson. However, you can often figure
out what specific benefit language really means by comparing two or three
brochures to see how they differ.
OPM’s annual Guide to Federal Benefits includes plan
comparison charts that summarize coverages, provide employee survey results,
and give plan phone numbers and premiums. It is available in most personnel
offices and on the OPM Web site, and can be accessed and printed at most
libraries if you do not have other Internet access.
Most personnel offices have at least one brochure for each
plan that is available in their area. Three additional ways to get brochures
are to attend health fairs, to call the plan(s), or to use the Internet.
OPM has a Web site with plan brochures and other useful
information at www.opm.gov/insure. A special annuitant Web site is also
available at www.opm.gov/retire/fehb. Annuitants will need their
retirement number in order to use this Web site for plan enrollment decisions.
You can access these sites at most libraries if you do not use the Internet in
your home or office. Unlike many government Web sites, OPM’s are user friendly
and easy to navigate.
You change plans by filling out OPM’s form SF 2809 or an
online equivalent. Personnel offices have copies and will give you form SF 2809
if you decide to change your enrollment. In many agencies, an online service
such as “Employee Express” can be used to change plans. Annuitants are mailed
only abbreviated information and should use the Internet to get more details. A
special OPM procedure provides an easy way for annuitants to order paper copies
of plan brochures.
If you have a problem getting information from these normal
channels, you can call OPM for help. There is an automated phone system, called
“Open Season Express” at 800-332-9798 to help annuitants get brochures, change
plans, or get other help. In addition, the retirement information office number
is 1-888-767-6738 (use 202-606-0500 from the DC area). This office can answer
many questions, and help you with enrolling in a Medicare-participating HMO.
For persons who are deaf, 1-800-878-5707 is the TDD line.
Of course, CHECKBOOK provides information on
contacting each plan directly, including its telephone number and Web address,
along with information on enrollment limitations. On our Web site at www.guidetohealthplans.org
you can download plan brochures and access the provider list and drug formulary
for each plan. On our Web site you can also purchase online access to the Guide,
and obtain other consumer information, including national ratings of hospitals
and doctors in Consumers’ Guide to Hospitals and Consumers’ Guide to
Top Doctors, as well as online articles rating physicians, dentists, and
other health care providers for quality and price.
Many plans are open to all employees. However, HMOs require
that you live in a particular area, and a few plans require that you work for a
particular agency or join a specific union. Most of the union plans allow any
Federal employee to join. This generally means that you can enroll in the plan
no matter what agency you work for, but you may have to pay annual dues and
become an “associate” member of the union. These dues are modest, and our cost
tables include them. Some plans are restricted to particular agencies or
categories of employees. For example, the Foreign Service and Compass Rose
plans enroll employees who serve in foreign affairs, defense, or intelligence
functions (both plans interpret these limitations broadly, but they differ in
details as explained in their brochures). The SAMBA plans used to be limited to
the FBI, but are now open to all employees and retirees.
Plan brochures are both necessary and sufficient to
determine what benefits each plan covers, or does not cover. In some cases a
plan does not mention a service at all in its brochure, but has assured us that
its claims manual (which is not available to employees) says the service is
covered. You cannot fully rely on this, however, since OPM has stated that the
brochure “is the only official description of the benefits provided by each
plan. Do not rely on statements not contained in the brochure. Study the
brochures carefully.” We agree, and endorse OPM efforts to assure that
brochures are consistently and clearly written. Indeed, compared to most public
and private insurance, the FEHBP brochures are models of clarity. They are
particularly well designed to facilitate comparisons among plans by consumers.
Unfortunately, health plan brochures have mushroomed in
length. In 1990 the average national plan had a brochure 29 pages in length; by
2001 the average grew to 77 pages. For local plans, brochures grew over the
same period from 16 to 65 pages, on average. Some of the increase represents
increased clarity through “plain English,” some is due to increased complexity
in plan benefits, and some is due to unnecessary detail. Nonetheless,
downloading brochures as PDF files either from our Web site or from OPM’s is
easily accomplished, and vital to final plan selection.
The General Schedule (GS) employee and retiree share of the
annual premium varies widely among plans. In national plans, in 2012 it will
range from about $1,000 to over $3,000 for individuals, and from about $2,500
to almost $8,000 for families. What explains these vast premium differences?
First, plans vary in the kinds of enrollees they attract.
Some plans attract families who expect higher expenses. Some have a
disproportionate share of high-cost annuitants who joined when premiums were
lower and do not realize that their plan is no longer a good buy. Unfortunately,
Federal agencies all too often neglect serious encouragement of sensible Open
Season choices, and employees and retirees are all too often dilatory about
looking for savings. Despite repeated urging over the years, the Congress has
failed to address this problem, which could easily be accomplished by a
technique called “risk adjustment” and long used by Medicare. Plans that face
higher costs have to cover those costs through higher premiums. Premiums in
such plans far exceed the fair value of their benefits.
Second, plans differ in the generosity of benefits they
offer. Variations include coverage of different expenses; coinsurance, the
percentage of each expense you pay; and deductibles, the amount you have to pay
before the plan will reimburse any expenses for a service. Plans with higher
cost sharing can charge lower premiums. This is one reason the new
Consumer-driven plans have such low premiums.
Third, plans vary in how well they manage costs. A well-run
HMO can reduce hospital costs by 25 percent or more compared to traditional
insurance through case management. Fee-for-service plans review utilization and
use panels of preferred providers. “Disease management” techniques are powerful
tools to contain costs.
Fourth, cost sharing creates incentives for doctors and
patients to be less wasteful. High deductibles discourage unnecessary visits,
while 100 percent reimbursement of psychiatric or laboratory and imaging costs
encourages overuse of these “free” services. High Deductible and Consumer-Driven
plans’ premiums benefit somewhat from slightly younger and healthier enrollees,
but far more from their incentives to reduce unnecessary care. Also, plans with
deductibles achieve a saving because the time and trouble to file claims for
expenses slightly above the deductible may discourage you from applying for
Fifth, the formula for sharing premium costs magnifies the
differences in what you pay. For GS employees and annuitants, the government
pays 75 percent of the overall cost of each plan, up to a maximum amount. This
varies each year according to a complex formula. The maximum contribution in
2012 for GS employees and annuitants is about $4,800 for singles, and $10,800
for families. There are separate formulas for postal employees and for Federal
Deposit Insurance Corporation (FDIC) employees, with higher government shares.
A few types of enrollees, such as former employees, get no government
contribution and must pay the full premium. In 2011, the average full premium
for FEHBP plans is about $6,700 for singles, and $14,900 for families.
Employees pay the entire premium amount above the
government’s share. This employee share is far higher for the more expensive
plans because the government contribution is capped by an all-plan average. For
example, the total premium cost of the GEHA High option for self-only is about
$7,000. The government pays the maximum contribution of about $4,800 for GS
employees and you pay the extra $2,200. In contrast, under the GEHA Standard
option and some HMO plans, you pay about $1,100 after the government
contribution, a premium saving of about half.
In summary, you pay modestly for insurance from a well-run
plan, but you pay more for a plan’s inefficiencies, its unusually generous
benefits, or its disproportionate share of high-cost enrollees. Your ability to
switch among plans during Open Season gives you a major tool for obtaining the
The chart “Comparison of Total Cost, Enrollee Cost, and
Government Share” shows how the employee’s premium, the total premium (employee
and government share), and the employee’s out-of-pocket costs compare for a
family of four under several family plans. All these factors contribute to
premium differences, and explain why some plans are such bargains. Of course,
some of the differences are offset by what you may have to spend out-of-pocket
if you pick a plan with less comprehensive benefits. That is why our ratings
tables include both the cost of insurance and the cost of medical bills that
are not covered. It would be foolish to select a plan just because it has the
lowest premium. It would be equally foolish to pick a plan just because it
seems to have the best benefits if you wind up paying more in premiums than
those extra benefits are worth to you.
For 2012, year, many plans’ premiums are about the same as
this year and a few are lower, but premiums in several plans have risen
dramatically. Many plans have changed benefits. Opportunities for big savings
by switching plans are as significant as they have ever been.
Under health reform, what changes are likely to affect the
FEHBP and its enrollees? In assessing these, it is important to differentiate
among short, medium, and long run effects, and direct and indirect effects.
OPM has long encouraged FEHBP plans to provide preventive
health benefits such as physical examinations and vaccinations for both
childhood and most adult illnesses, and to do so with minimal cost sharing.
FEHBP plans have been in the forefront of such coverage. New Affordable Care
Act rules issued in 2010 ban any cost sharing for these benefits, and expand
the list of covered vaccines, for plans that are not “grandfathered” by keeping
benefits and cost sharing essentially unchanged. Most FEHBP plans were exempt
from these rules but OPM nonetheless decided to move ahead of the legal schedule
and told plans it expected them to eliminate all cost sharing for preventive
benefits. As a result, Federal employees and annuitants saw copayments and
deductibles for prevention services disappear in 2011. Although OPM accelerated
this reform, it would have occurred over the next several years as individual
plans lost “grandfathered” status by making benefit and cost sharing changes.
The effect on plan premiums is generally small, because coverage was already so
good in the program.
The short-term change that has been by far the most
publicized is the expansion of the coverage of adult children until age 26. That
change was effective at the beginning of 2011 for the FEHBP as well as almost
all private employer plans. These children can be covered under their parental
plans just the same a younger children. One effect of this change was to raise
slightly the cost of FEHBP premiums in 2011, probably by about one percentage
point more than they would otherwise have increased. OPM determined that only
age, not eligibility for other insurance, college attendance, or dependency
status, would determine coverage of these children through their parents’ self
and family FEHBP enrollments. Importantly, adult children enrolled in their
parents’ FEHBP plans will also benefit from future eligibility for temporary
continuation of coverage for three years after they turn age 26. Of course,
this only benefits a small fraction of Federal employee and retiree families,
and then only if they pay for a self and family plan option. For single
parents, it will in most cases be far less expensive for the adult child to
enroll in his or her own employer’s plan, if available.
There are a number of smaller short-run changes. For
example, anyone using a tanning salon is now subject to a new tax. Flexible
Spending Accounts and Health Savings Accounts will no longer be allowed to
cover over-the-counter drugs, unless ordered through a physician prescription.
Withdrawals from Health Savings Accounts for non-medical expenses will now be
subject to a penalty of 20% rather than 10%. Medicare Part D premiums will now
be “income-tested,” similar to Part B premiums. This will affect higher income
retirees who use Part D to strengthen their prescription drug coverage under
In the medium term, between now and 2018, the main effects
of health reform on the FEHBP will mostly be indirect. For example, OPM administers
a contract under which GEHA runs the Federal government’s “high risk pool” plan
for persons who have preexisting conditions and therefore cannot qualify for
private insurance. This plan is operating in almost half the states and will
spend several billion dollars over the next four years. It is segregated in
financing and operation from GEHA’s FEHBP plans, but could impinge on
managerial time and resources in both OPM and GEHA. Another change requires OPM
to offer enrollment in FEHBP plans to employees of Indian tribes, as if they
were Federal employees. Implementing this change is also likely to prove
managerially difficult. Yet another provision of the Affordable Care Act
requires OPM to contract with at least two insurance carriers to offer
multi-state (presumably national) plans in health exchanges around the country,
starting in 2014. OPM is required to use FEHBP-like methods of administering
this program. The risk pool and financing will be segregated so that adverse
cross-subsidies will not be allowed to impinge on Federal employees, and the
law does not allow OPM to divert existing personnel resources to this program.
It is hard to believe, however, that there will not be an adverse effect on
FEHBP management without substantial augmentation of OPM resources. Yet another
change will directly affect some employees because contributions to Flexible
Spending Accounts will be limited to $2,500 in 2013.
In the longer run there will be additional effects. Both
private and public employees will be subject to a legal obligation to enroll in
health plans starting in 2014. At present, a substantial number of Federal
employees, possibly several hundred thousand, are uninsured. Interestingly,
they are probably disproportionately younger and healthier, and over time their
participation in the FEHBP would tend to lower premiums. Another and
potentially offsetting effect arises because starting in 2014 health reform
creates substantial incentives for employees, whether private or public, to “game
the system” by dropping insurance until or unless illness strikes, and only
then become insured. Such employees will not have to wait for Open Season to
join plans in state exchanges, and there will be no restrictions on preexisting
conditions. Also, there will be incentives for lower income employees (again, whether
private or public) to enroll in Medicaid or insurance exchanges to obtain even
better premium support than from their employers.
An excise tax of 40% on health plan premiums in “high cost”
plans above a certain amount (not on the entire cost of the plan) is scheduled
to take effect in 2018. This is also known as the “Cadillac plan” tax. The
amount of premium excluded from the tax will not grow as fast as health care
costs, so this will create major incentives for plans to take cost reducing
steps to avoid the excise tax. Some of those steps may be positive (e.g., using
“Accountable Care” Organizations” for better disease management to reduce
unnecessary care and increase quality of care) but plans will also likely
increase enrollee cost sharing over time. The entire country will benefit from
the pressure that the excise tax puts on the health care system to reduce
wasteful spending. But some enrollees in some plans will pay more. (FEHBP
enrollees will be able to use Open Season to switch to lower cost plans not yet
subject to the tax, thereby postponing any adverse effects.) This tax will also
put potential political pressures on future OPM decisions, because by law the
level of premium excluded is tied to cost growth under the Blue Cross standard
option plan from 2010 to 2018—higher Blue Cross costs will lower the impact of
the tax on all health plans, while raising premium costs to Blue Cross
enrollees in the FEHBP. Hence, the FEHBP’s traditional “good government”
immunity from political pressures may be hard to sustain.
There will be other future effects that may indirectly
affect Federal employees. For example, the increases in insurance coverage
under health reform are financed in part by scheduled reductions in Medicare
payments to hospitals that the Board of Trustees for the Medicare program has
stated cannot be sustained over time. Planned spending levels under both
Medicare and health reform are therefore arguably unsustainable absent future
tax increases, again affecting both public and private employees.
These longer-term effects are impossible to predict with
precision, and by definition do not affect individual enrollee decisions today.
This leads to an immediate conclusion. For the current Open Season and at least
the 2012 plan year the effects of health reform are both minor and positive for
most Federal employees and retirees, with only minimal effects on premium costs.
Our advice is to focus on making wise Open Season choices, and to put aside
concerns over future effects of health reform, whether known or speculative.
Our estimates and advice in the chapters that follow reflect changes that apply
We rate health plans by their likely cost to you, taking
into account your pay system, employment or retirement status, family size,
age, health status, location, and other factors. Very importantly, we rate
plans based on varying premium levels and tax situations faced by different
eligibility groups. Full time employees pay lower premiums than annuitants
because of tax advantages, and far lower premiums than part-time employees and
those who must pay the entire premium. Postal and Federal Deposit Insurance
Corporation (FDIC) employees are further advantaged because the government pays
a higher share than for GS employees and annuitants. Annuitants and those who
pay full premiums do not obtain “Premium Conversion” tax advantages. Resulting
premium cost differences can reach thousands of dollars a year. We provide
separate ratings for each group.
Online Guide users see a summary rating table for
their group, and then have the option to look at tables providing more detailed
cost comparisons. Readers of the printed Guide see both summary and
detailed cost comparison information for their group in one set of tables for
all national plans and local plans available in the DC area, and summary cost
comparison information on all local plans in a table covering all states at the
end of the “Key Tips and Final Plan Selection” section.
Under the Flexible Spending Account (FSA) program, employees
(but not annuitants) may also shelter out-of-pocket spending from counting as
taxable income. This lets you reduce your costs for copayments, deductibles,
and non-covered services by about one-third, depending on your tax bracket. For
example, if your plan doesn’t cover chiropractic care or dental care, you can
establish an FSA to reduce the cost of these expenses. An FSA can also be used
for over-the-counter drugs and other costs that health plans rarely pay, and to
pay your deductibles and coinsurance. See our discussion of “Cost and Taxes”
for more details. In the online Guide we provide cost comparisons for
employees who have established FSAs.
Most of us buy various kinds of insurance: automobile, life,
fire, and health. We purchase insurance policies to protect ourselves from
catastrophic financial harm from rare events. No one buys “food insurance”
because food costs, though large, are unavoidable and predictable. Why pay a middleman
overhead costs to reimburse us for our grocery bills? Nor do we buy rent
insurance, or clothes insurance.
We buy life insurance during our working years, because
death is very unlikely but financially ruinous to our families if it occurs.
For a few hundred dollars a year we can buy support for our families worth
hundreds of thousands of dollars if we die. We buy automobile liability
insurance because we can protect ourselves from losing huge amounts if we cause
True health insurance is just like life insurance—it
protects our families from ruinous costs of illness. Like most employers, the
Federal Government does not offer employees this kind of insurance alone.
Instead, it offers various combinations of true insurance and “prepaid” health
care. The part of your premium that prepays health care by making advance
payment for routine bills will generally equal about what we would have spent
by paying the bills directly. Prepaid health care is greatly advantaged by the
tax subsidies for employee health insurance created by the Internal Revenue
Code. Most employees save about one-third of their health care costs because of
these subsidies (among other necessities, mortgages get a similar tax subsidy,
but rents, clothing, heating, and food do not).
However, prepaid health care creates incentives for
enrollees to waste money because the insurance company pays the bill. Prepaid health
care may be the single largest cause of wasteful health care spending which,
according to some estimates, may be as high as one third of all health care
expenditures. There are two major ways to reduce waste. First, HMOs and other
managed care arrangements create incentives for doctors and hospitals to
contain costs. Second, High Deductible plans with savings accounts create
incentives for enrollees to save costs through prudent shopping and decisions.
We analyze the advantages and disadvantages of these plans in our analysis of “Plan
Types and Flexibility.”
How much and what kind of coverage is true insurance? How
much is prepaid health care? These questions have no simple answer. A policy
protecting against catastrophic medical expense for one family is simply a
prepaid health care policy for another family. To a GS-5 with three dependents,
$5,000 is a hardship, and $20,000 a heavy burden. To a GS-15 with no
dependents, $5,000 means far less, and even $20,000 may not be a hardship.
Since you do not know in advance how high your medical bills
will be, there is no way to know which plan will leave you with the lowest
total costs. You have to gamble just as you do with any insurance, or indeed
with many other choices you make. On sunny mornings you may not take an
umbrella to work, and sometimes you get wet. In a good year the best policy, in
hindsight, would have been no policy, and your total costs would have been
zero. In an expensive year, the best policy would have been one that covered
every dollar. In that year, your total costs would be a high insurance premium.
But we usually don’t know whether we’ll have a good year or a bad year, which
is precisely why we buy insurance. No one but you can decide how much risk you
want to bear. Our cost comparisons give you a menu of risk as well as plan
choices. They help you think about the level of risk each plan involves, and
how much that will cost or save you.
Do not pick a plan either because it has the lowest premium
(a seeming best buy) or the highest premium (a seeming set of terrific
benefits). As our ratings show, a low premium may hide major coverage gaps, and
a high premium may simply reflect expensive enrollees rather than the best
benefits. Only some plans have both low premiums and excellent coverage. Pick
one of these based on our ratings, which combine both premium and coverage in
determining the best buys.
Also, do not pick a plan because it has a lower deductible
despite a higher coinsurance amount, or vice versa, and do not try to compare
these benefits directly. We developed our computer programs to perform these
calculations for you, and there are many complexities that cannot be factored
into separable comparisons. For example, whether a low deductible or a low coinsurance
rate is better for you depends on the amount of your expenses.
Our cost comparisons cover medical, hospital, dental,
and prescription drug costs. They show how you are likely to fare under every
national and local plan available to Federal employees. We show how each plan
handles various levels of financial risk for you. We compare plans in three
separate categories, reflecting very different plan designs:
- Local HMO plans (only a few of which cover out network care);
- Consumer-Driven and High Deductible plans (some national and some
- National PPO plans (all but one of which also provide out of
network fee-for-service benefit).
Historically, fee-for-service and HMO plans are
distinct approaches. The decision as to which type to join involves service
delivery as well as financial factors. The preferred provider or PPO approach
now central to most fee-for-service plans goes part way toward the HMO model by
reducing your cost if you restrict yourself to a smaller panel of providers. A
few HMOs offer “Point-of-Service” or POS benefits under which you may go to any
doctor or hospital if you pay more coinsurance. Similarly, when you join a
fee-for-service plan you can use “preferred” providers (the “network”) for most
services but, if you want, go to a non-preferred physician and pay a
considerable financial penalty. One national plan, the Blue Cross Basic option,
is like most HMOs in denying all benefits if you use out-of-network providers.
The High Deductible plans follow the PPO and fee-for-service model of the
national plans, even when they are local. Thus, the differences among plan
types are blurring.
Our cost ratings tell you how much you are likely to
pay for premiums and out-of-pocket (unreimbursed) medical expenses added together.
Our tables cover routine expenses and most of what people think of as
catastrophically large bills. The tables assume that your bills may be for
almost any type or size of expense, including:
- hospital room and board for surgical or medical care for any
- other types of hospital services (operating room, anesthesia);
- surgery, in or out of a hospital;
- diagnostic tests, X-rays, and lab tests in or out of a hospital;
- doctor visits in or out of a hospital when you are ill;
- mental health treatment, outpatient and inpatient;
- mammograms, Pap smears, and routine immunizations;
- maternity, even if you are in a self-only plan;
- emergency care in or out of a hospital;
- prescription drugs, including insulin and syringes for diabetics;
- nursing care after an illness;
- renal dialysis for kidney failure;
- chemotherapy and radiation therapy;
- physical and rehabilitation therapy;
- cosmetic (“plastic”) surgery or oral surgery—only after an
- dental care;
- preventive care including physical examinations and vaccines; and
- all of these expenses are covered even if you have a
preexisting condition or are hospitalized on the date when your enrollment
With rare exceptions, no plan will pay for any of
the following expenses and we do not cover them in our comparisons (however,
some of these expenses are covered by Flexible Spending Accounts and Health
- cosmetic or plastic surgery, except after accidents or a
- custodial nursing home care, or any kind of rest care;
- personal comfort items such as telephone or television while in
- non-prescription, over the counter drugs, such as aspirin;
- care that is fully paid by another insurance provider;
- care that is not medically necessary;
- experimental care (in some plans clinical trials are excepted);
- charges that are higher than the plan “allowance” or what the
plan has determined to be “reasonable;” and
- expenses incurred before joining or after leaving a plan.
All plans cover most routine exams, starting in 2011
without deductibles or copayments. Only some plans cover dental care. And some
plans have significant loopholes, such as not covering all prescription drug
charges. Even among plans that cover all services generously, however, there
are always some limitations, such as coinsurance and deductibles. Our tables
take the major benefit limitations such as these into account in estimating
costs. However, we cannot deal with every single coverage nuance or difference
(such as which organs are eligible for transplantation, which models of
particular medical devices are covered, or which specific vaccinations are
covered). Nor can we assure that all plans will make identical medical
necessity decisions in close cases—and they won’t. Nor can we reflect extra
benefits the plan may provide if, for example, it can save money by giving you
more home nursing than its normal limitation on this benefit.
Hence, all of our calculations should be considered
approximations that will be broadly accurate in the great majority of
situations but that cannot provide precise predictions that cover every
possible situation. What our calculations can do, and you cannot do for yourself
even if you try to predict your costs, is take into account the risks of
ruinously high health care costs from an unexpected illness or accident.
There are many separate sets of comparisons, one for
each major group facing different premiums, coverage, or likely medical costs.
We generally provide comparisons for self-only and families of sizes two
through five. However, we limit certain tables to conserve space and because
some situations are very uncommon: for older employees, annuitants, part-time
employees, and several small enrollment groups we present only self-only and
families of two or three rather than larger family sizes. In all these cases
the rankings would not change substantially with an additional child.
- Employees who pay GS premiums (e.g., General Schedule,
special rate, Congressional, and Foreign Service employees).
- Employees who pay lower premiums, including postal and FDIC
- Older employees, whose costs are much higher on average.
- For part-time employees, we cover half-time workers and
employees who work four days out of five. In almost all agencies, these
employees pay part of the “employer share” as well as the regular employee
- Former spouses, children turning age 22, and other persons who
pay full premiums (both employer and employee share). These persons are not
eligible for tax sheltering, and we do not reduce premiums from the nominal
- Annuitants without Medicare. Again, there are no tax
savings in premium rates.
- Annuitants with Medicare Parts A and B. These tables
include not only the FEHBP premium, but also the Part B Medicare premium. No
tax savings are available.
- Finally, we present tables for annuitants who have only Part A
of Medicare, the hospital benefit. You can compare these with the preceding
ratings to see how much you gain, or in most cases lose, by paying the Part B
premium. Of course, there are no tax savings.
We do not present separate tables for annuitants with Medicare
Part D prescription drug benefits, partly because most annuitants should not
enroll in Part D, and partly because there are many Part D plan choices you can
tailor to your needs.
There are many comparisons, but only one cost comparison
table applies to you. Each cost comparison table presents several columns
of cost data. Each column except the one for published premium assumes a
different level and mix of medical bills, described in the heading. These
columns show what your likely costs will be under each plan, including both
premium costs and out-of-pocket costs not paid by the plan.
By looking at the different columns in a table, you
can find how you will come out under each plan. The columns display:
- The “Published premium” (including when applicable the Medicare
Part B premium) that you will pay biweekly or monthly, expressed as an annual
- The actual premium you will pay when you incur “No costs” for
health care. This takes into account savings from premium conversion for
employees, offsetting savings from money the plan puts in your Health Savings
Account or Health Reimbursement Arrangement, and any dues;
- Your premium and out of pocket costs at “Low costs” usage with
bills of about $1,000 (self-only) or $2,500 (families);
- Costs for “Average” usage with medical and dental bills averaged
over a wide range of expense taking into account the likelihood of costs at
- Costs for “High” usage with bills of about $25,000; and
- The yearly “Limit to you” showing the maximum you will ever be
expected to pay for medical (but not dental) bills, also reflecting both
premium and out of pocket costs.
We present two different premium columns to reduce
confusion over two issues. First, many employees do not understand Premium
Conversion. No document they receive from the government actually shows how
much they save through a reduction in the amount of income reported to the IRS
as taxable. For almost all employees, this represents about a one-third saving.
Your average tax rate is much lower, but for those “marginal” income dollars
most employees pay about 33 percent, including Federal income tax, State income
tax, and Social Security and Medicare taxes. We present these numbers based on
the assumption that, if you are eligible for Premium Conversion, you will take
advantage of this tax benefit. For example, if your published premium is about
$3,000, with a marginal tax rate of about 33 percent you actually pay only
Second, many persons find High Deductible plans hard to
understand. We believe that the best way to analyze them is to consider the
Health Savings Account (HSA) as the equivalent of a reduction in premium. If
you don’t spend that account at the end of the year you will have a bank
balance in that amount. It is therefore entirely possible for you to have “free”
health insurance in a High Deductible or Consumer-Driven plan. If your
published premium is about $2,100 you actually pay only about $1,400 after
Premium Conversion. However, the plan provides you with a savings account that
is in your name. If that account is $2,000 you actually come out ahead by $600
if you have no medical expenses. In fact, since these plans all provide a free
physical exam and routine vaccinations, you come out ahead this much even after
your preventive care. The HSA is your money and can earn interest and grow like
any other savings account (in this case, grow tax-free). Since you are certain
to incur health care expenses at some point in your life that are not paid by
insurance, and would otherwise have to spend other funds, this money represents
real savings to you. In fact, you don’t have to spend the HSA even if you incur
expenses. You can save the HSA as an investment, augment it by additional
contributions, and use those to pay the bills. Or you can pay the bills
If you join a Consumer-Driven plan with a Health
Reimbursable Arrangement (HRA), the account belongs to the plan, and must be
spent rather than saved if you incur expense, but still has the effect of
reducing your “up front and for sure” premium cost. In cases like these where
you come out money ahead, we show this in our tables with a negative number in
the “Net Premium” column. All HDHP and CDHP plans offer similar net savings, or
greatly reduced premiums paid. Even retirees get an offset from HRA savings
accounts if they join one of these plans.
Therefore, the “No costs” column includes your yearly
premium adjusted, as pertinent, for Premium Conversion, HSA or HRA account, and
any membership dues. These will be your only out-of-pocket costs if you have no
We also indicate the percentage chance that you and your
family will have bills that are “Low” or “High”—for instance, how likely you
are to have bills of about $2,500 or less, or $25,000 or more.
We rank the plans in order of average cost to emphasize the
importance of each plan’s treatment of “average” expenses for a family of a
particular size and type. Most families fall below the average in most years,
but very expensive cases pull the average up. Because almost all plans
reimburse 80 percent or more of average or high expenses, the premium counts
for most of this average cost, regardless of medical expenses. Very
importantly, the “average” includes costs for the entirely unexpected medical
problems that can affect any family, such as a heart attack, automobile
accident, or onset of an expensive disease. Moreover, the “High costs” and “Limit
to you” columns portray directly the insurance value of these plans. You should
not select a plan based primarily on the relatively low costs that most of us
Before you use these comparisons, be sure they apply to your
situation. For example, the comparisons don’t account for coverage from a
spouse’s private insurance.
If our comparisons do apply, as they will for almost all
enrollees, you begin by making profile choices to find the one table that relates
to families of your age, premium category, and size. Assuming that you
don’t know something to the contrary, you should expect average expenses in the
coming year. The plans that are likely to cost families the least have the
lowest dollar figures in this column. Our cost comparisons assume that you
use preferred, network providers exclusively. You should select a plan
primarily based on using network providers, and plan to use non-network
providers only in rare instances. You can see the financial consequences of
using non-network providers in the online Guide, and in our table on “Coverages
But do not choose the highest-ranked plan until you consider
whether there is some reason the average column does not apply to you or your
First, consider your particular health situation.
Medical problems are mostly a matter of good or bad luck. However, some people
are much more likely than others to have high expenses. In these cases you
should compare plans using the “High cost” or “Limit to you” column. A family
that will have a new baby is going to have a large expense. A diabetic may have
several expensive ailments. A history of cancer or heart disease worsens your
odds. Heavy smokers and drinkers are much worse risks than average after middle
age. You can use the $2,500 (“Low”) and $25,000 (“High”) cost comparisons if
you have information that suggests you are much likely to face much lower or higher
health expenses than others of your age and family size.
Second, consider your attitude about risk. If you are
willing to spend a few hundred dollars extra to be sure you will not have heavy
out-of-pocket expenses, you may want to pick one of the plans that is lowest
cost for a person with high medical bills. However, all plans have such good
coverage that you are well protected from most catastrophic expenses. Most
have a dollar limit on the annual hospital, doctor, and prescription drug
expenses you must pay—as noted under the heading “Limit to you.” Even where
there is a gap, the effect of the generous benefit structure is to create a de
In your cost table you will notice that differences among
closely ranked plans are often very small. Differences of $100 or less are not
important. A different mix of bills from those we use to compare plans could
overcome these. Differences of several hundred dollars, however, reflect
significant variations in how expensively the plans handle most cases.
Notice that most of the higher-ranked plans will save you
money in every year—whether your expenses are high or low—compared to the plans
ranked lower in each group on your comparison. You can also see that most HMOs
and CDHP and HDHP plans will save you hundreds of dollars compared to national PPO
plans, even using preferred providers exclusively, but not all HMOs offer
substantial savings over the national plans. Within each group, the differences
between high- and low-ranked plans are dramatic.
We rate plans based on the assumption that you will always
or almost always want to use preferred providers, also known as “staying in the
network”. Your cost is always lower, usually far lower, when you do. However,
all but one of the national PPO plans and all CDHP and HDHP plans allow you to
obtain care out of network. This can sometimes be a valuable flexibility. But
you face not only a higher copayment, but also an additional risk. The plans
set limits on the fee they will recognize. For example, the plan may charge a
flat amount of $20 to PPO users. For doctors outside the PPO, the plan may pay
70 percent of the cost up to $80 for a particular procedure, but if the
physician charges $100 you will pay $30 plus the extra $20, or half the total
bill compared to only $20 if you use the preferred provider. You can sometimes
negotiate fees down, and we urge this strategy for non-preferred providers.
This problem goes away if you have Medicare Parts A and B, since most of the
national plans waive most doctor and hospital cost-sharing whether you obtain
care in or out of the network. Therefore, for retirees who participate in
Medicare Parts A and B preferred provider restrictions largely disappear when
enrolled in most national plans. You can go to any hospital and almost any
doctor without penalty. Moreover, persons over age 65 who are in any plan are
by law guaranteed a Medicare rate and can use all doctors who have not opted
out of Medicare with substantial protection, even if cost sharing is not
The most important reason for buying health insurance is to
protect you against financial catastrophe. You may, therefore, wish to approach
plan selection by comparing plans on the basis of potential financial risk,
rather than average cost. To facilitate this, our cost comparisons include a “Limit
to you” column.
Our “Limit” calculation includes both the annual premium and
the claimed guarantee provided by each plan for hospital, medical, and
prescription drug expenses. We combine these two types of expenses because you
are sure to incur premium costs and there is little point in picking a plan
with $1,000 less in claimed limit if its premium is $2,000 higher. However, no
plan includes dental expenses in its guarantee. The “Limits” column, therefore,
cannot include these costs. Our figures use a 33 percent premium reduction for
tax savings for employees under Premium Conversion (but not for retirees or
those paying full premiums, who are ineligible). We also take account of the
ability of enrollees in High Deductible plans to reduce costs by using
tax-preferred savings accounts. We have not, however, included estimates for
additional tax savings from funding high expenses through additional
contributions to HSA accounts (see Cost and Taxes). Therefore, these are
conservative estimates for High Deductible plans.
Because most plans present catastrophic limits in
inconsistent ways, and some in confusing ways, we attempt to make our limit
calculations comparable among plans. For example, we take account of
deductibles if these are not included in the claimed limit. Many plans exclude
prescription drug payments from limits and we adjust for this exclusion.
Because plans calculate limits differently, you cannot rely on the dollar
numbers published in each brochure to be comparable as presented (the number in
the plan’s “Summary of Benefits” does not reflect the loopholes and exclusions
listed under “Your cost for covered services”). The adjustments we make are
necessary to make comparisons that are not inaccurate “apples to oranges.” For
plans that do not include certain hospital, doctor, or drug copayments in the
limit we have assumed three hospital stays and 50 (single) or 100 (family)
prescriptions or doctor visits, and presented the limit on this basis. There
are very few catastrophic guarantees that are completely free of loopholes.
However, both Blue Cross options and all High Deductible plans are essentially
Although we included dental costs in most columns, we had to
leave dental costs out of the “Limits” column. This is why the “Limits” column
can be lower than the “High” or $25,000 cost estimate.
Most HMOs have a limit and cover nearly all hospital,
medical, and prescription drug expenses. To compare HMOs to national plans, our
estimates are based on the same number of hospital stays, doctor visits, and
prescriptions as for national plans to make the figures comparable. However,
the figures we present are not necessarily an actual guarantee by the plan.
The cost tables can be used to find those plans that provide
you with an acceptable limit. From this group, you can select plans with lower
average costs. Or you might wish to select one of the plans with the best
catastrophic coverage and accept somewhat higher out-of-pocket costs as the
price of that guarantee.
|Illustrative Example Plans in 2012
||Brand X HDHP
||Brand Y High Option Plan
|Limit Stated in Plan's Summary of Benefits
| Hospital Copays*
| Prescription Copays*
| Specialty Drug Limit
| Physician Copays*
|Health Savings Acct.
|Total "Limit to You"
* We assume three hospital stays at $300, 50 prescriptions at $20, and 50 physician visits at $30; typical values in many plans.
For a husband and wife who are both employed by the Federal
Government and without dependent children, it is possible to save on premium
costs by enrolling separately as singles rather than as a family. The premium
for a single person is usually less than half the family premium. In the
particular case of couples with one Federal annuitant and one still Federally
employed, it can be very attractive to consider two self-only enrollments so
that one premium can get the Premium Conversion tax reduction.
Be very cautious, however, because each person will have to meet
a separate catastrophic limit rather than the single limit that applies to a
family. Most Consumer-Driven and High Deductible plans and most HMOs do not
increase your risk very much. While you are still technically subject to
meeting two catastrophic limits if you both enroll self-only, the fee structure
of most HMOs makes it almost impossible to reach those limits if your costs are
limited to hospitals, doctors, and drugs. Therefore, if you and your spouse are
willing HMO enrollees, give consideration to using two self-only HMO
Couples who both retired as Federal annuitants can also use
this strategy, provided that each of them either has Medicare Parts A and B, or
is willing to join an HMO. In this situation there is virtually no exposure to
catastrophic expense. However, this is only allowed if each spouse has his or
her own Federal annuity.
You cannot use our cost rankings directly if you have health
insurance coverage from another source. The best FEHBP plan for you depends on
the cost and benefit structure of the other plan, though your best choice will
almost always be a low premium plan to minimize unnecessary premium payments.
But do not assume that you should not enroll in the FEHBP just because you have
If your spouse has a low-cost health plan through a private
employer, or you have a health plan from prior employment, check to be sure
that it covers you and your children, and has a benefit package as good as the
Federal plans. The other plan may not cover more than 30 days in a hospital,
may not cover preexisting illnesses, or may have other limitations. If your
spouse’s plan coverage is not good, you will do well to join one of the FEHBP
Even if your spouse’s plan is every bit as good as any of
the Federal plans, consider the cost of this coverage compared to some of the
lower-premium Federal plans. Remember that you must be covered under the FEHBP
continuously for the five years preceding retirement to be eligible for
enrollment after retirement (there are some very rare exceptions, such as
certain agency downsizing situations). You don’t have to be in the same plan in
each year, but you must be covered continuously by some FEHBP plan or, in the
special case of military dependents, TRICARE.
Most importantly, if you should die while you are not
enrolled in the FEHBP in a family plan, your spouse will lose eligibility for
the program. Since most employers do not continue coverage past retirement, or
cannot be counted on to do so, your only guarantee that your spouse can keep
this entitlement is to be continuously enrolled. There are two excellent
strategies for doing so at minimum cost. First, the new Mail Handlers Value
Option has a published family premium of only about $2,000, which costs you
less than $1,400 after Premium Conversion. Also, all of the plans showing a
negative number in the “No Costs” column are Consumer-Driven or High Deductible
plans that give you a savings account larger than the premium. With double
coverage you will probably not ever reach the high deductible and will realize
this saving in most circumstances. In other words, these plans really are
almost “free” if they supplement other coverage from your spouse.
Many career Federal employees work part-time schedules. In
these cases, the government does not pay its regular share of the premium.
Instead, employees receive a pro rata amount based on their work
schedules. For example, an employee scheduled to work 40 hours per biweekly pay
period receives only one half of the regular government contribution and must
pay the regular employee contribution plus the extra one half, or about two
thirds of the total premium cost for the plan. There are many possible
part-time schedules. We present comparisons on the basis of 50 percent and 80
percent of the regular work schedule. Almost all part-time employees are
reasonably close to one of these scenarios.
We present these estimates only for employees who pay
General Schedule premium rates because the Postal Service and FDIC do not
require their career employees to pay an additional premium share if they work
part time. Part-time employees in those agencies should use our regular
comparisons as if they were full-time employees.
The FEHBP also provides coverage for former spouses, former
employees, children turning age 26 (raised from age 22 starting in 2011, due to
health reform), and others. In each of these cases, the covered enrollee must
pay the full premium without government contribution. This often results,
nonetheless, in a better price than is available for non-group insurance
purchased individually, which is the only other insurance available to many.
Persons eligible for continuing coverage for as long
as needed include:
- Those former spouses who have a qualifying court order and
meet other conditions. They may enroll in any plan on the same basis as
employees and annuitants, except for premiums.
- Temporary employees who have worked for one full year also
may enroll on the same basis as employees, except for premium cost. (Such
employees should switch to permanent employment if at all possible to reduce
premium costs by three-fourths.)
Time-limited coverage is also available for
several categories of persons. They pay a small surcharge—two percent of the
premium—and are eligible only for a limited time:
- Employees separating from Federal service for any reason
may continue their coverage for 18 months.
- Children reaching age 26 are, unless severely handicapped,
no longer eligible for coverage under their parents’ family plan. They may obtain
coverage in their own name for 36 months.
- Former spouses without a qualifying court order also may
enroll for 36 months.
For all purposes except premium contribution, tax
shelter, and time limit, a temporary enrollee is treated like a regular
enrollee. For example, there is no disqualification for preexisting conditions.
There is a 60-day time limit for applying after the qualifying event, but once
enrolled a person may switch plans in the next Open Season just like any employee
or annuitant. At the end of the temporary period, these persons may switch to a
“conversion” plan that is not part of the FEHB program and is sold at
individual rather than group rates. However, the costs and coverages of these
conversion plans are generally far worse than one can get by shopping on the
private market. Some young adults will not have a parent with a family plan, or
will become ineligible for family coverage upon reaching age 26. Young
adults in good health usually can get better prices from private plans than
they would from paying full premiums for the regular FEHBP plans. Many HMOs
offer community rates and full coverage. Therefore, any person with a
preexisting condition and no other source of group health insurance should, if
the plan promises a low future group rate, enroll in an HMO during the
temporary period, and continue in that HMO afterwards. This advice will
change after 2014, when many provisions of health reform are first scheduled to
take effect, but represents an interim strategy that will work for many.
For persons who pay full premiums, we compare plans based on
their paying both the government and employee share. Although some of these
persons must pay a two percent surcharge, we have omitted this factor to avoid
the need for extra tables. Under any of the less-costly plans, the surcharge
would be under $100 per year for singles and $200 per year for families. These
tables do not include premium tax savings because persons who are not current
employees are not eligible for this benefit.
Older persons, on average, incur much higher expenses than
do younger persons. Children’s expenses average about $1,800 a year, and those
of an adult below 55 years of age about $5,000 per year. Expenses for people age
65 and older average about $15,000 per year. Of course, most enrollees have
much lower bills. The average cost is pulled up by a small fraction that has
much higher bills, a fraction that rises sharply with age. To reflect these
large differences, our cost tables for annuitants compare plans on the basis of
expenses faced by older persons. We provide separate results for annuitants age
55 to 64, and over age 65, as their expense profiles are quite different. In
either age group, the plans with better coverage tend to rank higher despite
bigger premiums. A safe approach for couples in which only one member has
Medicare coverage is to use the cost comparisons for retirees without Medicare.
Once you reach age 65, a special rule applies whether or not
you enroll in Medicare. It is illegal for doctors who have not opted out
entirely from Medicare to charge patients covered by Medicare more than a “limiting
charge.” This restriction applies to all FEHBP annuitants over age 65, whether
or not they have Medicare. While the details are complicated, the effect is
simple: you will not be exposed to high charges that neither Medicare nor your
FEHBP plan recognizes as reasonable. You do not have to sign up for Medicare
Part B to get this guarantee. Therefore, unlike employees, if you are over 65
you can use non-preferred providers without fear of being charged substantially
more than the plan will recognize as reasonable. You do, of course, have to pay
higher deductibles and coinsurance if the provider is not in the network, and
you should check to be sure that the physician participates in Medicare.
Obviously, if Medicare covers you, the rankings in our
regular cost comparisons do not apply, since Medicare is “primary” for retirees
and will pay most expenses. Therefore, we present tables for single persons and
couples with either both Part A and Part B of Medicare, or Part A only.
Although these tables are presented in terms of preferred providers, it is
important to understand that the main advantage of preferred providers, guaranteed
low rates, is available from almost any doctor you use whether or not you have
Medicare Part B.
You should not drop out of the FEHBP just because Medicare
covers you. Medicare has filled its largest coverage gap, since it now covers
prescription drugs for an extra Part D premium. However, it requires you to pay
20 percent of the cost of doctors’ fees, and deductibles. In 2012 the Medicare
Part A hospital deductible is almost $1,200 and the Part B medical deductible
is $140. To obtain Medicare coverage roughly comparable to FEHBP plans you
would have to pay a Part B premium of at least $99.90 a month, or about $1,200
for the year (some pay more), and a Part D premium of about $40 a month and $480
for the year (there is a wide range of prescription drug premiums, some lower
and some higher). The total premium cost of over $1,600 a person is higher than
in most FEHBP plans and the coverage inferior to most. Therefore, if paying
both FEHBP and Medicare premiums presses you financially, and you are not sure
which program to retain, the FEHBP alone is a better bargain than Medicare
alone. Moreover, almost all Federal annuitants over age 65 have
premium-free Medicare Part A, and in combination with almost all FEHBP plans
will never have to pay for any hospital costs. Finally, FEHBP plans, unlike
Medicare (except in parts of Canada and Mexico), cover you if you travel or
There are advantages to enrolling in Part B as a complement
to the FEHBP (technically, Medicare is “primary” and pays first). Almost all of
the national PPO/fee-for-service plans waive their hospital and medical
deductibles and coinsurance for members enrolled in both Medicare Part A
(hospital) and Part B (medical). HMOs generally have only nominal deductibles
or copayments and most of them do not provide such waivers. However, some do.
For example, in the Washington, DC area M.D. IPA provides waivers to retirees
with both parts of Medicare. At worst, with Medicare Parts A and B and most
national Federal plans, you will have close to 100 percent coverage of medical
bills. Coverage for dental and prescription drug expenses will still differ
depending on which plan you choose.
However, Medicare Part B will rarely save you nearly as much
money as you spend on the Part B premium. This is because the cost sharing for physician
visits and tests in almost all FEHBP plans is already so low.
We present cost comparisons for those with Medicare
Part A only, and for those with both Parts A and B. (The online Guide
also presents a comparison for couples in which one spouse does not have
Medicare and the other has both Parts A and B.) Each comparison takes into
- premium costs for the FEHBP plan and, in the “both Part A and B”
tables, for Medicare Part B (Part A has no premium);
- each plan’s coverage for services, such as dental, that are not
covered by Medicare; and
- the waivers of copayments or deductibles offered by each plan for
Medicare Part A and B enrollees.
Our table on the “Extra Cost of Paying for Both
Medicare and an FEHBP Plan” shows that in DC area HMOs and national plans you
are likely to spend several hundred dollars a year more for this combination
than by retaining the FEHBP plan alone. (The same result is true for HMOs
around the country.) Simply put, Medicare Part B is of limited value to someone
already covered by a good health plan. If you join an HMO, the Medicare
premium gains you very little in dollar benefits. If you are willing to use
preferred providers in national plans, or to join an HMO and use its network,
you can save several hundred dollars per year or more by dropping Medicare Part
B. Even if you do not use preferred providers, you will do almost as well
without Medicare Part B, because of the special rate ceiling discussed above.
||Average cost for self only ($)
||Average cost for couple ($)
|With Medicare A only
||With Medicare A & B
||Extra cost after buying Medicare B
||With Medicare A only
||With Medicare A & B
||Extra cost after buying Medicare B
|Selected Local HMO Plans in the DC Area When You Use Preferred Providers
|Selected CDHP and HDHP Plans When You Use Preferred Providers
||Aetna HealthFund CDHP
|Selected National Plans When You Use Preferred Providers
However, Part B does have some advantages. It provides
modest extra benefits in a few categories, such as physical therapy and home
health care. In addition, it covers more of the costs of prostheses and durable
medical equipment than most HMOs. Therefore, dropping Medicare Part B is not a
guaranteed cost saver. For those plans that waive copayments for services
covered by Part B, it will likely save you several hundred dollars a year (but
nowhere near the “for sure” premium cost) in copayments.
There is, however, a very important advantage of Part B for
persons enrolled in all FEHBP plans, not just HMOs. Part B gives you the
freedom to go outside the plan’s network. For example, for access to a
specialist at the Mayo Clinic, without the HMO plan’s permission, you could
simply go the specialist and charge the visit to Part B.
Also importantly, Part B gives you the option of joining a
Medicare Advantage plan—either PPO or HMO—through Medicare and suspending your
FEHBP enrollment and premium payment, as discussed below.
For everyone, enrollment in Part B gives you some “political
insurance” against the possibility that the Congress would enact some major
detrimental change to retirement coverage in the FEHBP.
If you do decide to drop (or not start) Part B you can join
it later. But there is a 10 percent a year penalty if you later decide to join
or rejoin. As a financial matter, however many years you elect to do without
Part B, you will be money ahead for approximately the first five or six years
after joining or rejoining. After that, the penalty will outweigh your earlier
savings. If you never join or rejoin, you will (on average) save annually
roughly the amounts indicated in the table. Thus, dropping Part B is not an
irrevocable decision, and later rejoining Part need not be highly costly.
There are some circumstances to which the conclusions
above do not apply:
- Working employees over age 65 with Medicare Parts A and B
coverage face a slightly different situation. The special waivers of
deductibles and coinsurance do not apply, because Medicare is by law the
secondary rather than primary payer. Your best choice is to stay in your
preferred FEHBP plan, and postpone joining Medicare Part B until you
actually retire. There is no penalty for joining after age 65 if you were
working and covered by employer insurance.
- A few people over age 65 did not earn Medicare Part A and can
join by paying a very substantial premium—over $5,000 a year. We recommend strongly
against this purchase. Almost all FEHBP plans charge you at most a few hundred
dollars for hospital admissions, far less than the Part A premium.
- If you have Part B but not Part A coverage, consider a plan
with particularly good hospital and prescription drug coverage, such as Blue
Cross Basic or NALC, or almost any HMO.
Historically, the taxpayer has funded three-fourths of the
Medicare Part B premium and the enrollee has paid only one fourth of the cost.
However, in order to reduce the future costs of Medicare, the law now provides
that some higher income enrollees in Medicare Part B pay more than the
traditional one-fourth share.
This provision only affects individuals with Adjusted Gross
Income (AGI) of $85,000 or more, and married couples filing jointly with income
of $170,000. These thresholds are no longer adjusted for inflation. The actual
calculation includes adding some forms of income, such as tax-exempt interest
income, to AGI. The resulting annual Part B premium is about $1,700 for
individual AGI of $85,000 to $107,000; $2,400 for income of $107,000 to
$160,000; $3,100 for income of $160,000 to $213,000; and $3,800 for income of
more than $213,000. The corresponding amounts for married couples filing
jointly are twice as high.
There are additional details about the income-related
premium that may determine whether it affects you. For example, if you marry or
divorce or suffer a casualty loss you may become exempt. If your income
fluctuates from year to year you may be subject to the increase one year but
not the next (generally, the calculation is based on your AGI two years
However, the “bottom line” is that if your income is above
these thresholds and is likely to remain there, the case for enrolling in both
the FEHBP and Medicare Part B becomes far weaker. The sensible solution will be
to drop out of Medicare Part B and rely on your FEHBP plan—either that same
plan that worked so well before you turned age 65, or one that better meets
your needs today. Why pay $1,700 or more in premium for a benefit that is
generally worth well under $1,000 in reduced cost sharing?
Dropping Part B will not affect your continued premium-free
enrollment in Part A. The most sensible financial strategy is to drop Part B if
you will be subject to the income-related premium penalty for many years to
come. You can always rejoin if your income drops, subject to the 10 percent-a-year
penalty. But you will have saved so much money in premium penalty that after two
or three years you will almost certainly always be ahead if you drop Part B
now, over any reasonably projected life span.
About one-fourth of Medicare beneficiaries now enroll in a
Medicare Advantage plan, rather than sticking with Original Medicare. Medicare
Advantage (MA) is a program designed to be very similar in operation to the
FEHBP. Retirees can choose from a wide range of fee-for-service, PPO, and HMO
plans in an annual Open Season. These plans’ premiums are paid mainly through
the Medicare Part A and B payments (with some adjustments) that the government
would otherwise have paid in direct benefits. The enrollees continue to pay
their Part B premium. Almost all of these plans include prescription drug
coverage and various improvements over the original Medicare structure. For
example, they almost always eliminate most of the hospital deductible. In many
cases, these plans charge no extra premium for drug coverage and other benefits.
Very importantly, all of these plans now provide protection against
catastrophic costs. The MA program is thoroughly described in the Medicare
& You brochure mailed to all Medicare participants. The Medicare web
site at www.medicare.gov contains additional information and contains MA
plan comparison tools that include many of the same features as the online Guide,
including comparison of costs in low, average, and high cost years.
This is important to Federal retirees because there is a
little known option under the FEHBP. You are allowed to temporarily suspend
your FEHBP enrollment and stop paying two sets of premiums. Under this “suspend”
option you pay only the Part B premium and sometimes an extra premium charge
(usually only a few hundred dollars per year and often nothing at all) that the
Medicare Advantage plan charges Medicare enrollees for additional benefits such
as prescription drug coverage. You can later switch out of Medicare Advantage
and rejoin the FEHBP as if you had never left. But you can rejoin the FEHBP
only during the next Open Season—do not leave your Medicare Advantage plan
prematurely. This works equally well for a couple when both spouses are
enrolled in Medicare, or if they are willing to pursue separate health
Suspending your FEHBP enrollment generates substantial
savings because you will pay one premium instead of two. How much you will save
depends on the precise benefits the MA plan offers to Medicare enrollees and
whether or how much it charges in extra premium. Most MA plans are comparable
to FEHBP plans in hospital and medical benefits, but the prescription drug
benefits will not be as good as in the FEHBP because the plans have a “coverage
gap” where you are responsible for all or most drug costs until you reach a
catastrophic limit. Assuming you join a plan with no extra premium, you would
pay only the Part B premium, at an annual cost of $1,200.
It is also possible to join a Medicare Advantage plan
directly through Medicare, but continue to enroll in an inexpensive FEHBP
national plan. This would fill some benefit holes and help if you want to use
particular doctors who are preferred in one plan but not the other. Under this
approach, you pay both Medicare and FEHBP premiums, for a total premium
generally of about $2,400 for a self-only enrollment ($1,200 for the Medicare
Advantage plan, plus as little as $1,200 more for some FEHBP plans). Two plans also
help fill any coverage weaknesses.
The least expensive choice, taking into account both premium
and out-of-pocket costs, is to enroll in one of the better Medicare Advantage plans
and suspend the FEHBP enrollment. The second least expensive choice is to stay
in an FEHBP plan with rich benefits such as APWU, NALC, Blue Cross Basic, or an
HMO, and drop Medicare Part B. As a third choice, there are several flexible
options that offer good compromises and generally save almost as much. You can
enroll in a low-premium HMO or national plan like GEHA Standard option or Blue
Cross Basic, and use Part B to fill holes and get services outside the plan’s
network. Or you can enroll in a low-premium Consumer-Driven or High Deductible
plan and get the benefits of a savings account while using Medicare to cover
you once you reach the high deductible level. You get these gains only by
paying for two premiums, but as our comparisons show the savings can be very
The Medicare Part D prescription drug program is benefiting
many millions of low-income elderly with premium-free drug coverage and
extremely low cost sharing. It is benefiting millions of others who would
otherwise obtain prescription drugs through Medigap plans. These persons are
saving at least $1,000 a year, and often much more, by joining a Part D or
Medicare Advantage plan instead of a Medigap plan. And it is benefiting
millions more who simply need affordable coverage and the protection against
catastrophically high drug spending guaranteed under Part D. But it will rarely
benefit those, like Federal retirees, who have good drug coverage from their
Accordingly, the vast majority of Federal retirees should
not consider joining a Part D plan. A typical Part D plan will cost four or
five hundred dollars (in some plans even more) in premium and provide little
improved benefit for most. Furthermore, in sharp contrast to Part B there is no
penalty for joining Part D at a later time if you have current “creditable”
coverage as good or better than Part D. This test is met by all FEHBP plans.
There are two exceptions to this advice. First, a few
Federal annuitants have incomes and liquid assets low enough to qualify for
special help. For example, a divorced former spouse may receive so little in
pension that he or she qualifies for low-income assistance (the income cutoff
is approximately $16,000, depending on state of residence). In such a case, for
low or no premium the annuitant may be able to reduce drug costs to almost
nothing. Anyone close to this income level should apply to the Social Security
Administration to obtain an official decision.
Second, Part D premiums are so low that the Part D benefit
can offer savings to annuitants in plans with relatively weak prescription drug
coverage, like GEHA Standard option. This GEHA plan only reimburses half the
cost of name brand drugs. An enrollee with a drug costing at retail $2,000 a
year would be out of pocket $1,000 under GEHA. Many Part D plans would pay most
of this cost for a premium of $500 a year or less, and GEHA would pay half of
the remainder. The Medicare Prescription Drug Plan Finder tool at www.medicare.gov
provides a precise calculation of cost for the drugs you use under each Part D
plan, and could help you to decide whether possible savings are worth the
trouble and expense of having two drug plans. (However, neither that tool nor
any other calculates how Medicare will interact with any FEHBP plan.) Put
another way, combining a low-premium plan like GEHA Standard option with a low-premium
Part D plan may be a way to save substantially in overall costs compared to
other FEHBP choices if your drug costs are unusually high.
However, the national plans are not offering extra benefits
such as copay waivers to those who join Part D, unlike their improved coverage
for those with Parts A or B. They simply promise to “consider” paying part of
your Part D costs, whatever that means. And having two drug plans can involve a
lot of paperwork. Hence, only if you can achieve substantial savings for your
particular drugs is it worthwhile to join Part D.
Also, before enrolling in Part D be sure to check whether or
not you are subject to income-related premiums. The law now subjects Part D
enrollees to the same income-tested levels as under Part B. If your adjusted
gross income in 2009 was $85,000 or more for single people, or $170,000 or more
for couples, you would have to pay a premium surcharge for Part D.
No health insurance plan pays 100 percent of all
health-related expenses. Every plan limits coverages in various ways. For
example, no plan pays for elective cosmetic surgery. Most plans pay little or
nothing towards expensive dental procedures. All plans charge something—usually
$20 to $30—for physician visits. Most plans charge more for name brand drugs
than for generic drugs. Many plans charge deductibles, either before
reimbursing any expenses or before reimbursing particular categories of
expenses, such as hospital or prescription drugs. These and other payment
limitations are complicated and vary from plan to plan. Taken together, they
dictate what you will pay out-of-pocket at various levels and mixes of health
care expenses. We estimate these out-of-pocket costs for you, but in some cases
you may want to focus on particular coverages and copayments of concern to you.
Importantly, if you set up a Flexible Spending Account, you
can fill in gaps by created by deductibles, coinsurance, or copayments, as well
as cover over-the-counter drugs and some other expenses that plans do not
You can use cost sharing details to assist you in choosing a
plan by pinpointing strengths and weaknesses for cost items of particular
concern to you. If you are especially concerned about a broad area of coverage,
such as reimbursement for prescription drugs, copayment information can
identify plans that are most acceptable to you for that feature, and be used
together with the cost rankings to narrow your choice. Our comparisons of
deductibles, coinsurance, and copays displays many—but by no means all—of the
cost sharing provisions taken into account in our overall cost comparisons. (In
the printed Guide we present a cost-sharing table for national plans and
DC area local plans, but not for local plans in other parts of the country.)
For example, in recent years prescription drug copayments
have become increasingly complex. Plans require you to pay more for “name brand”
drugs than for “generic” drugs. Name brand drugs, once past their patent
protection period, are usually met with competition from generic drugs that the
Food and Drug Administration has determined to be therapeutically identical. As
a result, generic drugs tend to be much less expensive, and it is in the
financial interest of both you and the plan that you select them. Most plans
now use at least a six-tier reimbursement structure for prescription drugs:
generic, preferred name brand, and non-formulary name brand at the local
pharmacy for a one-month supply; and the same three categories for a
three-month supply by mail order (multi-thousand dollar “specialty drugs” are
often yet another tier).
You should not rely primarily on cost sharing information to
select a plan. Choosing a plan with the best rate for a particular benefit
without taking into account its premium and all its other benefits would be a
mistake. You could try to compare key factors two or three at a time, but this
approach necessarily either omits other key factors or requires so many
oversimplified comparisons as to become meaningless. For example, whether or
not and how much a separate hospital deductible matters compared to premium
dollars depends on a key unknown: your likelihood of a hospital stay. With few
exceptions (e.g., routine visits and maintenance prescription drugs) you cannot
forecast just what medical expenses of each type you will incur next year, and
even if you could it is very complex to make all the interactive calculations
involved. Furthermore, cost sharing can be and often is expressed in annual,
monthly, biweekly, per dollar spent, and per service unit for different
benefits in the same plan. It can be expressed as the dollar amount you pay,
the dollar amount the plan pays, the percent you pay, or the percent the plan
pays. Converting all these disparate measures to the common metric of annual
cost is essential to making comparisons. Otherwise, you are comparing apples to
oranges—how much biweekly premium increase equals how many annual physician
visit copayments or what coinsurance percent for name brand prescriptions? We
not only handle these messy computations for you, but also use actuarial
information on the probability of different kinds and amounts of costs.
Each of the table entries for costs of various types shows
the dollar copayment or coinsurance percentage you must pay for bills of each
type. In some cases a plan uses both methods of payment for the same benefit,
or a different amount depending on which type of provider or prescription drug
is involved. These amounts and percentages do not take into account
deductibles, and can be very misleading. A plan that pays all expenses in
excess of a deductible of $250 pays none of your bills in a year when your
costs are less than $250, and only half in a year in which your costs reach
$500. In most cases, the entries are the same as those given in the plan
Unfortunately, the reimbursement structure for many plans is
so complicated that there is no simple way to present or compare these
payments, even organized by type of expense. For example, some plans vary your
hospital copayment based on how many days you stay as a patient, and though
some use dollar copayments others use percentage coinsurance. Therefore, unless
you are quite confident as to a high level of spending in a particular
category, and are willing to compare several plan brochures carefully, do not
rely on cost sharing details to inform your decision.
The High Deductible and other Consumer-Driven plans’ copayments
are particularly subject to confusion because they change by expenditure level.
You start the year with a savings account you can use for any physician,
dental, drug, or other expense. In addition, you get complete coverage of an
annual physical that may cost hundreds of dollars. Your copayment for these
expenses is zero. If and when you exhaust the savings account, you pay a
substantial deductible. After that, you pay a small proportion of hospital and
physician costs until you reach the catastrophic limit. So your coinsurance
ranges from zero, to 100 percent, to 10 or 15 percent and, once you reach the
catastrophic limit, back to zero. The purpose of this is to give you incentives
for careful decisions on medical spending. However, these plans’ structures
make it very difficult to estimate how much a particular level of spending will
You face far higher costs if you use non-preferred
providers. Plans not only charge you more for deductibles, copayments, and
coinsurance, but also require you to pay the entire cost above the rate the
plan sets as its allowance for a particular procedure. In general, we advise
you to stay with preferred providers whenever possible. Remember that these
alternative cost-sharing provisions are valid ONLY if the non-preferred
provider accepts the plan’s allowance. In most cases this will not be true
unless you bargain.
Using the Guide‘s cost
comparisons, you should first select several plans for which your costs are
likely to be relatively low. The second step in selecting a plan is to focus on
any special needs or circumstances that the cost tables do not fully reflect.
The third step is to consider how important it is to you to retain a particular
doctor(s) and, if necessary, to find out whether your doctor belongs to
particular plans. The best way to do this is simply to call the doctor’s office
and ask. You can also go to the plan’s Web site, or get a provider list at a
health fair, but those provider lists are sometimes out of date. You can
reverse the order of these steps, but it never makes sense to pay an extra
$1,000 in premium if the most you will spend on a particular physician or
service is a few hundred dollars. You should save the “for sure” premium cost
and if necessary pay for a particular visit directly, without using your
Even if you know you are
going to use a particular service, you can enroll in a plan that costs less
overall but doesn’t necessary have a particularly good benefit in that area.
Use the savings to establish a Flexible Spending Account and focus that
spending on that special need. Flexible Spending Accounts give employees (but
not retirees) a way to reduce foreseeable costs substantially. If you
anticipate, for example, having substantial dental or talk therapy expenses, or
will need a hearing aid or eye glasses, you can set aside up to $5,000 in a
health care FSA account ($10,000 for a couple) and that income will not be
subject of Federal and State income taxes, or to Social Security taxes. For
most, this has the effect of reducing the amount you actually pay by about one
third. You estimate your likely spending and set up this account during the
same Open Season used for selecting health plans. You have to be careful
because any unspent amount you set aside will be forfeited, but an FSA is
perfect way to get about a one-third discount on a benefit for which your plan
Still, it is best to choose
the low cost plan that best covers an expense you can predict. Our Coverage
Features analysis and tables focus on benefit categories that vary widely
across plans, such as non-network psychiatric care. Online our tables show Coverage
Features for all plans in the program, nationwide. In the printed Guide
we present these detailed tables only for national plans and DC area local
plans, and very selectively for plans in other States in the “Cost and Coverage
Features of Local Plans” table at the end of the “Key Tips and Final Plan
We have worded the comparison
headings to allow standard entries, such as “Yes,” “Some,” or “No.” A “Yes”
always means broader coverage and a “No” always means narrower coverage.
However, even though a number of plans are rated “Yes,” this does not mean that
the benefits are identical. You need to compare brochures.
Very importantly, if you know
that you will need some specific and expensive type of care, whether or not it
is in our tables, and whether or not the brochure seems clear, it is always a
sensible strategy to talk to at least one potential provider and ask the simple
question “Which plans pay best for the care I need?” You can also talk to a
plan representative, but the information you get is not always reliable and
carries no guarantee. The actual providers (or their office staff) know which
plans pay best in the real world. Explore especially carefully if the service
is near some boundary of coverage. For example, some hospitals provide regular
hospital care, skilled nursing care, and custodial care in the same facility.
You need to be sure that whichever level of service you get will be billed and
paid under a category paid by your plan.
There are four kinds of nursing
care: skilled care while in a hospital, skilled care in a special “extended” or
“skilled” care facility, care in your own home by visiting nurses, and “custodial”
care either in your own home or in a “nursing home.”
No health insurance plan will
pay for custodial care, the kind where your principal needs are to be fed,
bathed, and clothed and where you need help with ordinary life tasks rather
than to recover. At the other extreme, all plans pay for necessary care by
nurses while you are in the hospital. Similarly, all plans cover some form of
home health care, usually with at least 90 days or visits.
Plans differ in their
coverage of care in an “extended” or “skilled” nursing care facility. Most
national plans offer no coverage; but a few cover 60 or 90 days per
confinement, usually at the same cost to you as hospital treatment. Most HMOs,
however, cover skilled nursing care, usually 90 or 100 days.
We did not reflect the value
of skilled care in a facility in our cost tables. Since very few younger persons
ever need such care, the plan rankings would not have changed much if we had
taken into account the statistical probabilities. Virtually all retirees over
age 65 have a substantial Medicare Part A benefit for skilled nursing care.
Nonetheless, stays in skilled
nursing care facilities cost about half as much as in hospitals. This is one of
the potentially substantial expenses to which some plans leave you exposed. If
you think you are likely to need more than a month of this care, we recommend
careful attention to brochure language in relation to your particular needs.
Remember, moreover, that these stays are subject to plan approval and must
involve rehabilitative needs, not simply help with daily living.
For custodial care, either in
your own home or a nursing home, OPM sponsors a Long Term Care insurance
program, separate from the FEHBP. This program pays for long term care services
if you can’t take care of yourself because of an extended illness, such as
Alzheimer’s disease. The program covers both institutional and home care.
Premiums are substantial, and there is no government contribution. You can find
out more about it at www.opm.gov/insure/ltc. Similar insurance can be
purchased individually from the same companies that underwrite the OPM program.
If your retirement income and assets are relatively low, and you otherwise
cannot afford needed custodial care, you can ultimately rely on the
Federal/State Medicaid program.
OPM has long required that
plans pay the same benefits for physician visits or hospital stays whether due
to either physical or mental illness. This requirement is called “parity,” and,
at face value, seems to eliminate any distinction between physical and mental
health benefits. It represented a significant advance in covering clinically
necessary hospital stays for mental illness. In 2010 the government issued
regulations requiring all employer-sponsored health plans to meet an even
stricter version of parity. Under these regulations, plans are no longer
allowed even to charge separate deductibles for physical and mental health or
substance abuse services. In theory, all FEHBP plans will now pay for unlimited
mental health services without even such a small difference in cost sharing.
The catch is that almost all
health plans now limit mental health services to those that are determined to
be “clinically appropriate” or “medically necessary” and that are approved as
part of a “treatment plan” using network providers. Many plans use a “behavioral
management” company that must pre-approve all mental health services and that
will devise a treatment plan restricted to visit limits it sets using
professionals from the plan’s preferred provider list. This means that for
clinically diagnosed bipolar disorder (manic-depression), schizophrenia,
depression, or other serious mental illnesses, the plans will usually pay for
necessary services. It also means that plans will usually not pay for
substantial “talk therapy” even if both patient and psychiatrist believe that
it is necessary. Nor will plans pay for services provided by a psychiatrist of
your choosing. Instead, they provide a limited number of plan-affiliated
psychiatrists, and often rely mainly on the services of clinical psychologists,
clinical social workers, and other non-M.D. staff. In other words, even under
mental health parity your treatment choices are likely to be circumscribed.
The reason plans impose such limits
is that people who expect to use mental health services naturally gravitate to
the plans with the least restricted coverage, causing a big cost increase for
these plans. Furthermore, “talk therapy” attracts some patients who willingly
undergo once- or twice-weekly therapy sessions for year after year. In response
to such cases many plans restrict physician visits.
Few of the HMO plans offer
any mental health services outside of the plan network, or outside of
pre-approved treatment plans. The major exceptions are the HMOs with an Opt-Out
or “Point of Service” provision. In contrast, all of the national
fee-for-service plans except Blue Cross Basic offer a relatively unconstrained
out-of-network benefit, as do Consumer-Driven and High Deductible plans.
We indicate the presence of
non-network benefits in our coverage features comparisons. Plans will not,
however, cover those (or any other) services nearly as generously
out-of-network. If you expect to use non-covered psychiatric services, or an out
of network provider, consider setting up a Flexible Spending Account during
Open Season. If you are enrolled in Medicare Part B, recent legislation will in
future years put outpatient mental health visits on the same coinsurance basis
as other physician care, and you will only have to pay 20 percent of charges to
use any Medicare-participating psychiatrist. However, the improved payment
rates do not take full effect until 2014.
Most plans limit
reimbursement for most the following services. Current employees can cover any
of them through a Flexible Spending Account.
We indicate which health
insurance plans pay for routine and accidental dental expenses, and show the better
benefits with a “Yes.” Our separate chapter on “Dental, Vision and Hearing”
provides dollar ratings of these plans along with the standalone dental plans.
Those plans charge a premium, but offer stronger benefits.
All plans pay for medically
necessary care of your eyes, such as cataract surgery. No national plans pay
for eyeglasses or contact lenses, although several of them have arranged for
discounts at some chains. A few pay for examinations to determine the
prescription you need. Among HMOs, many pay just for an “Exam,” and some for
most of the cost of glasses or contact lenses (“Yes” in our tables). You may
want to join one of the vision plans described in our chapter on “Dental, Vision
and Hearing,” but a combination of prudent shopping and Flexible Spending
Account will often match the value of the standalone vision plans.
Most national plans and a
smaller but increasing proportion of HMO plans reimburse some chiropractic
services. The medical establishment has traditionally viewed chiropractors
unfavorably because chiropractors are not trained as medical doctors. However,
chiropractic services have been proven useful in treating some problems of the
muscles, back, and joints.
Acupuncture is another non-traditional
treatment that an increasing number of plans reimburse, often for a dozen or
Most plans pay for diagnostic
hearing tests performed by a physician or audiologist, and all pay for
medically necessary treatment for hearing problems. At OPM urging, most plans
now pay for hearing aids for both adults and children, and others for hearing
aids for children only. In our table, a “Yes” indicates both a relatively
generous allowance, and coverage of both children and adults. The “Dental,
Vision and Hearing” chapter provides detailed comparisons.
Very few plans pay for the
costs of in vitro fertilization or for the most advanced and expensive
infertility treatments such as assisted reproductive technology procedures.
However, many plans pay for fertility drugs or for treatments such as
artificial insemination. Generosity varies so you should compare brochures or
consult providers before choosing a plan.
Some plans cover drugs but do
not cover the cost of syringes and/or special testing supplies and kits needed
by diabetics. Even for the plans listed as “Yes,” a diabetic should check the
brochures to determine the precise coverage the plans provide.
All national plans pay for
prostheses, or artificial limbs. Some plans limit such coverage. Some plans
also fail to pay for the purchase or rental costs of hospital beds, walkers,
and other equipment you may need while recuperating from surgery or illness. Others
pay only a limited benefit, such as 50 percent of the cost. This is another
area to compare brochures and consult providers.
Most plans let you call an
expert nurse advisory service to discuss medical problems that confuse you.
Nurse advisory services can greatly assist you in deciding, for example,
whether to call a doctor and, if so, which specialty you need. Nurses can also
advise you on handling minor medical problems of all kinds. For plans that
offer this, we enter the telephone number of the advisory service.
The Federal government offers standalone “FEDVIP” dental and
vision plans, separate and distinct from the FEHBP. These plans share the same
Open Season dates as the health insurance plans, but you join them separately.
To enroll, you can use the special OPM Web site at www.benefeds.com, or
call 1-877-888-3337. In sharp contrast to regular health insurance benefits,
there is no direct Federal government contribution to the cost of the premium.
You pay it all, though with substantial tax savings to employees.
While these plans do have an element of insurance, in that
they protect you against some unforeseen dental or vision expenses, they are
best thought of as primarily pre-paid care. Most people enroll in these kinds
of plans because they know roughly what kinds of expenses to expect, and plan
to do a little better than breaking even. In effect, you pay for those new
contact lenses or your recurring dental expenses on the biweekly or monthly
installment plan, with protection against some unanticipated expense.
The dental and vision plans save you money in two ways.
First, they use affiliated providers who provide discounts because of the
increased business the plans attract. Second, because employees (but not
retirees) pay the premiums with “pre-tax” dollars, you save approximately
one-third of the premium cost. As explained in our analysis of “Costs and Taxes”
almost all Federal employees face a marginal tax rate close to or above 33
percent, taking into account Federal income tax, State income tax, the Medicare
tax and, for FERS employees, the Social Security tax. Any money you spend on
dental or vision insurance is not subject to these taxes and you get what
amounts to a one-third discount on your premium and on the services it pays
On the other hand, these plans charge a premium, averaging
about $250 a year for self-only dental and about $100 a year for self-only
vision, with family premiums about three times as high. Also, the companies
that underwrite these plans know that they will attract persons who are heavy
users of these services. This means that the premiums have to be higher than
would otherwise be the case.
Virtually all FEHBP health insurance plans provide insurance
coverage for accidental dental or vision injuries. Typical brochure language says,
“We cover services and supplies necessary to promptly repair sound natural
teeth” when services are needed due to an “accidental injury.” For vision
services, typical brochure language says the plan will cover testing and
evaluation and fitting for implanted ocular lenses or contact lenses when the
impairment is “caused by accident or illness.” More importantly, most FEHBP
plans have some dental and vision benefits. These are often substantial
benefits (though never as good as in these supplemental plans). By joining a
health insurance plan with better than average dental or vision benefits, you
can eliminate much of the need for a supplemental plan. As an example, the
Aetna Consumer-Driven plan offers a special $300 fund for self-only enrollees
(and double that for families) that covers dental costs.
You can also use a Flexible Spending Account to provide
prepaid dental or vision care. By earmarking several hundred or even several
thousand dollars of your salary, you avoid paying taxes on that income and
effectively gain the same one-third discount that the FEDVIP plans provide. To
set up an FSA, you estimate your likely spending for dental, vision, or other
anticipated out of pocket expenses. You create an FSA during the same Open
Season used for selecting health plans and FEDVIP plans. The Web site is www.fsafeds.com
and the toll-free number 877-372-3337. (To learn more, read our analysis of “Costs
and Taxes,” or the description in all FEHBP brochures.) Unlike FEHBP and FEDVIP
plans, you can use FSA dollars for any provider—rather than a selected list of
You can use all three approaches simultaneously. For
example, suppose you enroll in a health insurance plan that pays for preventive
dental care and an annual eye exam. You can also enroll in a supplemental
vision or dental plan, or both. The health insurance plan will be “primary” and
pay first, and the FEDVIPs plan pay second. You can then use your FSA account
to pay the residual that the first two sources do not cover. This three-part
approach may, of course, require more planning and more paperwork than you are
willing to tolerate. There is the further complication that your favorite
provider may not be a plan participant under either the FEHBP or FEDVIP plan.
But it does give you maximum wrap-around coverage.
Annuitants do not get the same tax advantages as employees.
They may sign up for supplemental dental or vision plans, but do not get the
pre-tax “discount.” They are not allowed to create FSAs. However, annuitants do
get the government contribution towards their FEHBP health insurance plans,
which averages about 70 percent. A health insurance plan with a good dental
benefit may be an excellent choice for retirees with low to moderate dental or
vision expenses, and with heavy anticipated expenses a FEDVIP plan is a
sensible choice even without the taxpayer subsidy.
Consumer-Driven and High Deductible health plans are
particularly flexible and comprehensive options for funding dental and vision
expenses. These plans allow you to shelter from taxes a personal savings
account that you can use for dental and vision expenses, and carry over from
year to year. Several of them have special dental funds, and all of them allow
employees (but not annuitants) to augment savings accounts during the year if
unanticipated expenses arise. These accounts may be used for dental or vision
expenses quite apart from those expenses that the plan normally covers, and
without restrictions on provider choice (though you may lose discounts if you use
non-plan providers). If you already know your dental expenses will be high next
year, you can even set up a special account called a Limited Expense Health
Care FSA (LEX HCFSA) during Open Season. This will provide dental and vision
funding over and above the normal limits on your tax-free contributions to
personal savings accounts.
Dental and vision benefits are areas in which you can plan,
and in which it pays to plan. Unlike true insurance, where your main need is to
guard against large and unpredictable expenses, you probably have a pretty good
idea what you are likely to spend on dental and eye care expenses. You can
structure your decision around those predictable costs, keeping in mind of
course that a tooth, crown, or bridge can break unexpectedly, or some other
dental emergency arise. Be careful to read the fine print of the plan brochures
carefully, however. The plan may be unlikely to pay for a denture if the need
arose before you joined the plan, for example.
Unlike health plans, the dental and vision plans offer a
three-part premium structure—self only, couple or family of two, and family of
three or more. The premiums for families of two or three are almost always
about double or triple the self-only premium. If you have a family of three (or
more) you may enroll as a family of two and designate which two persons will be
eligible for benefits.
Plans’ dental benefits differ widely in details, and many of
the brochures use technical terminology such as “gingival” (gum, in English), “alveolar”
(the part of the jawbone that holds teeth in place), and “amalgam restorations”
(filling cavities). Moreover, many plans use schedules of allowances so you
don’t know if the full charge will be paid (usually not). Since most of the
plans limit coverage to the items listed in the schedule of allowances, the
particular problem you have may not be covered at all. Worst of all, no plans
offer a catastrophic dental benefit that would cover you if, for example, you
developed a chronic infection of the jaw and required dental procedures costing
thousands of dollars. If you are not sure that a plan adequately covers the
particular dental problems of your family, or to be sure you get the network
discount, you should talk to your dentist before choosing that plan.
In recent years OPM has not allowed most health plans to
expand dental benefits. However, OPM has allowed plans to offer “non-FEHBP”
benefits to plan members, as shown on a special page in brochures. In many
cases, extra dental benefits are offered (usually through a panel of dentists
who provide discounts for the extra business the plan brings). When these do
not involve an extra premium, and represent a significant benefit that can be
determined from the brochure, we have included their value in our ratings and
tables. While they are not part of the OPM contract and will not be enforced by
OPM, they are nonetheless plan commitments to you.
The new standalone dental plans give you a good deal more
advance assurance about what is covered and how much you are likely to pay than
most of the health plans. However, they necessarily use the same technical
vocabulary in order to be precise in their benefit descriptions.
How much each plan will cover depends importantly on whether
your expenses are mainly for children or for adults, and whether for preventive
and diagnostic services, or for more expensive restorative services (including
surgical, endodontic, prosthodontic, etc.).
Our dental benefit tables help you sort this out. First, we
provide estimates of the cost to you under each plan that provides dental
benefits, organized by type of plan. There are no extra premiums under the
health plans, but there are for the standalone dental plans and we show the
annual premium cost together with the likely out of pocket cost under low,
average, and high usage scenarios. Because the premium cost is a “for sure”
expense we include it in each column.
We also show which plans cover roughly how much on average
for child preventive, child restorative, adult preventive, and adult
restorative services. These estimates are based on a market basket of dental
procedures that are among the most common in each category. For example, we
assume that children receive the following preventive and diagnostic services
through an annual visit: periodic examination, prophylaxis, bitewing x-rays,
and fluoride treatment. For adult restorative services, our index includes
fillings, extractions, crowns, root canal treatment, periodontal treatment, and
dentures. We also provide estimates for some individual procedures. Although
the tables show specific percentages, these are rough estimates, based on
national average prices. Your dentist may charge more or less. Also, we had to
translate varied plan reimbursement approaches into the “percent you pay,” and
sometimes this is only an approximation. However, these data can steer you
towards particular plans’ brochures if there are particular benefits you want
to check out in detail for the best coverage.
We also show you the maximum benefit levels (if any) of each
plan. As an example, the APWU Consumer-Driven plan pays 100 percent of your
dental costs through your Personal Care Account, but only up to $400 a year per
person and $800 per family. One crown would more than use up the entire dental
allowance, particularly if you assume, as we have, that some of that $400 is
first spent on preventive services. Most health plans do not have maximums
because their benefits are low enough that they do not face substantial cost
exposure. However, almost all of the standalone plans impose maximum ceilings
on what they will pay. This effectively limits the amount of benefits you can
obtain from these plans, in some cases to $1,200 per person. Humana Dental is a
significant exception, and you pay only an average premium for its $10,000 a
person maximum benefit.
Orthodontic coverage is important to some. A few health
plans cover one-fourth or more of orthodontic costs, including some local
plans, and the Foreign Service and SAMBA national plans. All of the standalone
dental plans have a substantial orthodontic benefit. The coverage terms vary,
so you should compare them carefully. Metlife Dental High option will reimburse
up to $3,500, double the maximum in most other plans. Especially importantly,
the dental plans try to discourage you from joining at the last minute to take
advantage of these benefits, usually by imposing 24 month waiting periods on
eligibility (our tables indicate “Wait” when such a waiting period applies). Humana
Dental, however, imposes no waiting period and uses a schedule of benefits
without any limit on overall spending. Orthodontics is the perfect dental
expense for combining a dental plan with an FSA account for expenses the plan
doesn’t cover. It is also an area where it makes sense to talk to providers
about getting the lowest cost, taking into account which networks and plans
they have joined.
You need to be cautious about preexisting conditions. Buried
in the fine print of these plans are a few limitations, such as no provision of
dentures for persons who lost their teeth before joining the plan. You should
check the brochure carefully if you have preexisting problems.
In sum, even if you and your family do not need substantial
dental work, one of the health plans may be worth several hundred dollars per
year, or more, a benefit that costs you no additional premium. The standalone
dental plans provide a distinctly better benefit than almost all health plans,
but at a premium cost that largely offsets their better benefits. The dental plans
make the most sense for persons who are sure they will have moderately high
dental expenses, want some protection against an unexpected expense, and like
the predictability of paying a regular premium and reducing wide fluctuations
from month to month in what they may pay. Again, a Flexible Spending Account or
LEX HCFSA provides a way to obtain roughly a one third saving on whatever you
anticipate spending on dental care that is not covered by the plan you join.
Before selecting a dental plan, be sure to check with your
family dentist as to which, if any, plan he or she affiliates with. Our
estimates are based on the assumption that you use network providers. As our
tables show, most dental plans do provide out of network coverage. But that
coverage is either lower, or loses you the network discount, or both. These
plans are good buys only when you use network providers.
All FEHBP plans pay for medically necessary care of your
eyes, such as cataract surgery. Many pay for annual refractive examinations to
determine your prescription for eye glasses or contact lens, and some pay for
part of the cost for the lens and frame, or arrange for a discount at
plan-affiliated providers (this is often stated as an unofficial non-FEHBP
benefit in brochures.) Our Cost and Coverage Features table indicates which
health plans pay the most toward vision services. In addition, some of the new
FEDVIP dental plans, including Aetna and GEHA, provide discounts for lens and
frames as “unofficial” benefits.
The nation-wide standalone FEDVIP vision plans provide
tax-advantaged premiums for employees (but not retirees), and use the
purchasing power of their enrollees to obtain discounts for all enrollees. They
are not true insurance plans, and will pay neither for lost or broken glasses
nor for medical or surgical care. Instead, they are a way to prepay your
anticipated and routine costs for refractive eye examination, glasses and
frames, contact lenses, and related services and supplies. If you plan to
purchase unusually expensive frames, or multiple pairs of glasses, you will
need to rely on discounts rather than direct plan benefits.
Unfortunately, the vision plan brochures do not present
benefits in a consistent format, making them very hard to compare. We have
attempted to capture most of the important features of the plans in our table
on “National Vision Plans” to help you decide whether, and which, plans you may
want to examine in depth. In general, their benefits and premiums are similar,
but United Healthcare Vision offers distinctly lower premiums. If you have a
preferred optician or eyewear outlet you should ask which plan(s) if any it
affiliates with in order to inform your decision.
You have several alternatives to enrolling in these plans.
You can simply decide to pay for your predictable dental and vision expenses
without the bother of using a plan, or being restricted to its providers. If
you combine this with prudent shopping, you can achieve substantial savings.
For example, Washington Consumers’ CHECKBOOK magazine has rated dozens
of DC area providers for optical services and found that prices one-fourth or
more below (or above) the average for glasses or contact lenses were not
You have two other major alternatives for vision care. As
for other categories of expense, employees (but not retirees) can establish a
Flexible Spending Account that covers vision as well as other expenses. Or you
can join a Consumer-Driven or High Deductible plan and use its savings account
feature to pay for vision costs. You can even supplement a High Deductible
plan’s savings account with a LEX HCFSA. Either of these options gives
employees the same tax advantage—about a one third saving—as a separate vision
plan. If you use any FEHBP health insurance plan, of course, the government
pays most of the premium.
The primary advantages of joining a vision plan are that it
enables you to lock in a provider discount as well as a tax saving while
budgeting for your eye wear. You pay roughly $10, $20, or $30 a month
(depending on your family size and which plan you select) knowing that each
covered family member will be able to get a good deal on a refractive
examination and one good set of eyewear equipment.
All plans cover medical problems, such as infections, that
affecting any part of your body, including your ears. All plans cover routine
hearing testing for children. Almost all will pay most of the cost for
hearing-related medical procedures, such as cochlear implants. But only in
recent years have plans begun to cover the cost of hearing aids to compensate
for deafness. Coverages vary widely, with some plans covering only children,
ages of child coverage varying, frequency of replacement varying, and big
differences in the cost amount the plan will cover. Many allowances are well
below the cost of the more advanced hearing aids available. We compare these
coverages in our table on hearing aid benefits. Before selecting a plan on this
basis, it is worth checking to see with providers for special discounts, some
tailored to specific plans.
All FEHBP plans impose significant restraints on provider
choice, as a key strategy to hold down premium costs. The only significant
exception to this pattern is for retirees with Medicare Parts A and B, who in
most national plans and some HMOs can go to almost any hospital or physician at
no cost. This flexibility is allowed because Medicare pays first for these
enrollees, and the Federal government uses its legal power to force
Medicare-participating providers to accept government fee limitations regardless
of their actual costs.
Although all plans, not just HMOs, now provide significantly
reduced benefits if you do not use “preferred” providers, there remain
significant differences between national PPO plans, local HMOs, and the
Consumer-Driven and High Deductible plans.
We have grouped local and national plans separately in our
comparisons, because despite the blurring of boundaries and growth of
exceptions, these types of plans still tend to have distinctly different
coverage features, as well as different degrees of provider choice. In national
plans you generally get a much larger selection of preferred providers, locally
as well as nationally. In addition, in all these plans except for Blue Cross
Basic you can go to virtually any doctor or hospital you choose—provided you
are willing to pay much more (sometimes half or more) of the bill. Under this
fee-for-service option for providers outside the network, you are covered if
you choose to use the staff of a world-famous facility, such as the Mayo
Clinic, even if it is not a preferred provides. This flexibility gives you
maximum freedom of choice, but involves paperwork, imposes higher cost sharing,
and puts the burden of finding doctors on you. The national plans offering
broad PPO networks and fee-for-service usually but not always charge higher
premiums than most local HMOs, although the gap has narrowed in recent years.
(When they charge lower premiums it is invariably because they have
significantly higher cost sharing.) Local Consumer-Driven and High Deductible
plans also provide this flexibility, usually at much lower premiums than
Most HMO plans are quite different. They operate through a
relatively limited group or network of physicians who share your fees,
regardless of which doctor you use. Our analysis below on “Joining an HMO”
presents their important advantages and disadvantages in detail. Although cost
and benefit comparisons are the key considerations in assessing most plans,
other factors are important in deciding whether to enroll in an HMO plan and,
if so, which one. Most HMOs will not cover you at all outside of their provider
network except in emergencies, but some offer fee-for-service coverage for
non-network providers, similar to the national plans. For HMOs, this is called
POS. Others offer non-emergency out of area benefits to students or, in some
cases, to your whole family.
High Deductible health plans (HDHP) present yet another
dimension of choice. These plans provide incentives to you to hold costs down
by prudent shopping. The plans provide savings accounts, which, if not fully
used, roll over their balances so they can be used in future years. In fact, in
many of these plans the amount in your savings account at the end of the year
will exceed what you paid in premium (after Premium Conversion savings), if
your usage is low. However, once the savings account is used up, you face a
high deductible before complete health insurance kicks in. Thus, these plans
seemingly present more risk than traditional PPO or HMO plans, as described
below in “Joining a High Deductible Plan.” However, they have significant tax
advantages that largely negate their seemingly higher risk, and their
catastrophic cost protection is generally as good or better than in other plans.
Plans engage in many forms of cost control. All plans now
use preferred providers, who agree to accept lower fees and avoid unnecessary
utilization. All plans also engage in other measures, such as second opinions
before surgery, penalties for non-emergency hospital admissions without a “preadmission
certification,” and case management. Some cost control measures, such as second
opinions before elective surgery, are good for both you and the plan since
neither wants you to have an unnecessary operation. Others pose problems if you
are not careful.
In the national PPO and fee-for-service plans, there is a
$500 penalty for any non-emergency hospital admission without a “preadmission
certification.” HMOs can refuse to pay for unauthorized admissions. This means
that you must obtain permission from the plan, not just your doctor, before you
enter a hospital. Likewise, with the major exceptions of routine visits and
emergencies, some HMOs do not pay for care that is not arranged through, or
approved by, the plan. In recent years most plans have begun to actively
supervise certain kinds of extraordinarily expensive treatments, such as “specialty”
drugs for cancer or other diseases.
Plans also use “case management” to reduce expenses in
costly cases. For example, if you have a stroke, the plan may authorize extra
home health benefits in lieu of prolonged hospitalization. This can benefit you
as well as the plan, but you must use the procedure specified by the plan.
All national plans now contract with hospitals, doctors, and
pharmacies to obtain reduced rates from “preferred providers,” operating as PPO
plans. You share savings through elimination of deductibles or lower copayments
if you use one of these preferred providers. These providers also guarantee
that their fee will be accepted by the plan. Such PPO plans are similar in some
ways to HMOs. The main difference is that the number of preferred providers in
a community is usually much larger. At any time, you can switch to a provider
of your choice rather than a preferred provider. However, you get the low
copayments only from preferred providers, and the plans will not recognize
costs above their fee schedule.
Each national plan, except Blue Cross Basic, allows you to
use non-preferred providers on a fee-for-service basis, but limits
reimbursement for doctors who are not preferred to a schedule of charges. These
schedules often reflect usual rates (or less), but never allow higher rates.
The problem is that your doctor may be one who charges much more than the plan
will allow. Moreover, in recent years most plans have reduced the generosity of
the fee schedules they use with non-participating doctors. You should never
use a non-preferred provider without first checking to be sure that the
provider will accept the plan’s payment level, including your coinsurance, as
payment in full. The way to find out is simple: BEFORE incurring an
expensive procedure, ask the provider point blank if he or she will accept your
plan’s payment level. Do not accept an equivocal answer—they know what the
plans pay. Moreover, you can bargain for a network or Medicare rate. (Retirees
over age 65 face little such risk, since by law almost all physicians must give
them a Medicare rate.)
For provider choice, the value of the PPO benefit depends in
part on how many doctors and hospitals participate. Blue Cross has agreements
with about half of all physicians and most hospitals to be preferred providers.
Most other plans also offer you a wide choice. For example, GEHA has an almost
equally wide network. However, it is prudent to check provider lists,
particularly if you live in a rural area. The best way to check for overall
choices is to use plan Web sites. For a specific provider, simply call the
office and check not only whether he or she is currently participating, but
also whether he or she intends to continue with the plan.
Some HMOs provide a POS option under which you may, by
paying a deductible and coinsurance, use any doctor or hospital. Our
comparisons indicate which HMO plans offer this. In effect, these HMOs operate
as dual plans, in which you can go to any doctor of your choice if you pay a
deductible and coinsurance. In most cases the deductible is $250 or $300 and
you pay coinsurance of 25 or 30 percent. These arrangements allow you to join
an HMO, get most of your health care with little out-of-pocket cost, but
preserve the ability to go out of plan “just in case” you want a doctor not
participating in the plan. In other words, if you join an HMO with a POS
benefit, you get essentially the same choices as if you join a national plan
with both PPO and fee-for-service benefits. Some HMOs offer this benefit
limited to college students while away from home.
HMO plans provide not just insurance, but also a different
approach to health care delivery from traditional fee-for-service medicine.
Therefore, although cost and benefit comparisons are the key considerations in
assessing most plans, other factors are important in deciding whether to enroll
in an HMO plan and, if so, which one.
There are two main types of HMO plans. One is the
facility-based group practice where enrollees agree to receive their health
care from a group of doctors working together at the plan’s facilities and at
hospitals chosen by the plan. The doctors usually are on salary or in a form of
partnership. They generally are paid no more if their patients receive more
extensive surgery or other medical treatment, thus, their incentives are different
from those of doctors working in the traditional fee-for-service system, who
can increase their incomes by increasing the amount of care. The Kaiser plans
are the largest of this type.
A much more common type of HMO plan is the individual
practice association (IPA). In IPAs, physicians agree to share costs and
premium income. Each physician continues to practice in his or her own office
and continues to serve some patients who are not plan members. All IPAs have a
system to assure that physicians do not give costly, excessive service. In a
typical system each physician negotiates a fee schedule with the plan. After
seeing a patient, the physician bills the plan for the agreed fee, but the plan
pays only 80 percent. The remaining 20 percent is kept in a reserve. If costs
are held down, the plan will later distribute the reserve to the physicians. To
protect against physicians who might deliver excessive services, a committee of
physicians regularly reviews treatment practices of each physician.
Joining an individual practice association plan is a more
modest departure from the fee-for-service system than joining a group practice
plan. Some mixed model plans contract with a number of separate group
practices, or have both group and individual physicians. Each HMO brochure
describes which of these models it uses, and how you get service.
Some features of HMO plans considered desirable by
many consumers are:
- They generally have systems for doctors to review each other’s
- They tend to stress preventive exams and health education.
- They eliminate the inconvenience of submitting claims for costs
- They assure you access to a group of doctors.
- They prevent a doctor charging more than the plan will reimburse
for a procedure.
Some features of HMO plans considered undesirable
by many consumers are:
- The IPA plans often have many participating physicians and
hospitals, but rarely a majority of those in the community, and rarely
prestigious facilities in other states, such as the Lombardi Center or Mayo
Clinic. In contrast, the preferred provider panels offered by the national
plans are generally far broader, and cover many facilities around the country.
- The group plans require you to go to one of their office
locations except in emergencies. Some group plans have only a few locations.
They limit your choice of doctor even further: to those who work for the plan.
You will have to give up your existing doctors when you join a group plan. (In
contrast, IPA plans use doctors in private practice and your physician may well
- Both types of plan impose barriers to obtaining care as rapidly
as you might like, such as waits for the next available appointment for “non-urgent”
visits or obtaining the approval of a “gatekeeper” primary care physician in
order to see a specialist.
- Some HMOs rely very heavily on mid-level professionals such as
nurse practitioners and physicians’ assistants.
- HMOs generally put patients in hospitals less frequently and keep
them there for a shorter time than fee-for-service physicians. This is the
major reason HMOs usually have lower costs. A number of studies have found no
overall difference in medical outcomes between HMOs and traditional practice.
On the other hand, if you want quick surgery to relieve a painful but not
life-threatening problem, you may not want to wait while an HMO tries more
- Few HMOs offer the extra benefits to Medicare enrollees that are
found in most national plans.
Several national plans and a number of companies offering
local HMO plans now offer High Deductible or Consumer-Driven plans. Aetna offers
such plans in most areas of the country. These plans differ in details, but all
share two main features. First, they provide some form of savings account for
health care expenses, financed on a tax-free basis through the premium paid to
the plan and, in some cases, additional contributions. This account is
typically about $750 to $1,000 for a self-only enrollment, and twice as much
for a family enrollment, although a few are higher. During the year, you can
use this account to pay for any of your qualified health care expenses,
including expenses that the plan does not otherwise cover, such as a hearing
aid. Second, if you use up the account on other expenses (or decide to save it
rather than use it), you face a high deductible, usually about $1,000 to $1,500
for a self-only enrollment and about twice as much for a family enrollment.
Thereafter, you typically pay 10 or 15 percent of expenses, up to an
out-of-pocket spending limit, though some plans pay everything above the
deductible. The main focus of these plans is to encourage you to be a prudent
purchaser. If you are relatively healthy and spend wisely, you may avoid any
out of pocket expenses. Furthermore, your unused account balances “roll over”
and you can build up a substantial cushion that even earns interest. Your total
cost under these plans can be LESS than your tax-preferred premium share.
Because of this design, there is no simple answer to “what
is my copayment” or “what is my deductible.” If you stay within your spending
account both are zero. After your account is used up you pay 100 percent, until
you pass your deductible amount. In our tables we provide the percentage that
applies after your deductible and until you hit the catastrophic limit.
Two other important features that these plans share is that
your annual physical does not count against either the spending account or the
deductible, and you have good catastrophic expense protection. Most of these
plans’ limits have none of the loopholes found in other plans.
The High Deductible plans offer two kinds of spending
accounts. Which one you get depends on your eligibility. A “Health Savings
Account” (HSA) not only lets you accumulate funds, but also lets you retain the
savings account when you change plans or retire. Moreover, you can earn
interest, tax-free, for decades to come. The HSA is your property. In contrast,
a “Health Reimbursement Arrangement” (HRA), or “Personal Care Account” as it is
called in some plans, works almost the same but terminates when you change
plans. In that case, the unspent balance remains with the plan. The Consumer-Driven
plans offer only HRAs. Unlike HSAs, HRAs do not let you grow the account
through interest. You can use an HRA, but not an HSA, if you are covered by
other health insurance, such as TRICARE, a spouse’s plan, or a Flexible
Spending Account. To fully understand these complex plans, you should read the
explanations in their brochures and the material on the OPM Web site (www.opm.gov/hsa)
The other important characteristic of an HSA account (in
contrast to an HRA) is that you can make voluntary contributions to it during
the year. This feature comes into play if your expenses are much higher than
you expected, but you can make contributions regardless of your expected
expenses. In an HSA you can make voluntary contributions up to the amount of
the deductible, less the personal account amount funded by the plan. Your
contributions are tax preferred. Thus, if you need to spend an extra thousand
dollars, rather than pay it directly to providers you contribute it to the HSA
account, lower your taxable income by a thousand dollars, and pay providers
from the HSA account. If you are in a 33 percent tax bracket, this saves you
over three hundred dollars compared to traditional health insurance plans. This
is a better arrangement for you than under Flexible Spending Accounts, because
there is no “use or lose” penalty. HSA accounts are sometimes described as “Trifecta”
benefits because the contribution is tax-free, the account grows tax-free, and
disbursements from the account are tax-free when spent for health care.
Annuitants are eligible for these plans, but these plans do
not provide extra benefits for having Medicare Parts A and B. However, these
spending accounts cover many expenses that Medicare does not, and Medicare
protects you from substantial copayment expense. Therefore, they can work well
for retirees with Medicare. Once you have Medicare the law allows you to
contribute only to an HRA, not to an HSA (you can, however, keep an existing
HSA and use it as before, with the added benefit that it can pay your Medicare
Part B premium).
Our comparisons of flexibility capture as best as we can the
features of each plan that affect your ability to select the providers of your
preference. We would like to display the number of affiliated providers in each
local area, but such data are not available for many plans. Of course, staff
model HMOs would always show a relatively low number, because they ordinarily
limit you to primary care providers on their staff.
In our comparisons, we show first which HMOs allow you to
get regular plan benefits from providers located outside the plan’s main
service area. For example, the Kaiser plans allow you to use Kaiser facilities
and providers anywhere they are located. Of course, national plans all cover
the entire nation (and, though we do not show this, the entire world). Second,
we show how plans deal with providers who are not preferred. National plans and
HMOs with a POS or Consumer-driven feature let you use non-preferred providers
with a significantly higher cost sharing. Third, we show which plans allow
women to visit a gynecologist without having to be referred by a primary care
provider. Almost all HMOs now allow self-referral, at least for an annual exam
(those which allow only an examination without referral are marked “Exam”).
Unfortunately, some HMOs do not allow self-referral to other specialists,
though the number that do so is growing.
Our entry for “open formulary” indicates whether the plan
will pay for any name brand drug that your physician prescribes, or just for
those that are on the plan’s list of approved drugs (commonly called a “formulary”).
Most plans will pay for any drug but require higher copays for non-formulary
drugs. We indicate these with a “Pay More” entry.
Finally, we indicate whether each company sponsors a
Medicare Advantage plan, so that Medicare participants can elect to stay with
their health plan while paying only one premium. However, even though we enter “Yes”
you have to check further to see if the Medicare Advantage plan covers the
exact area where you live. Not shown, all Medicare Parts A and B enrollees have
access to at least some MA plans, and most have access to dozens.
In traditional fee-for-service insurance plans, service
quality was not a major issue. The main service concerns were how easily you
could get help from plan representatives regarding coverage questions and how
fairly and promptly claims were paid.
However, even fee-for-service plans now have some
involvement in the quality of your health care. All of these plans require you
to get authorization before hospitalization or surgery. And almost all have
assembled networks of preferred providers and have prescription drug
formularies. By using providers from these networks and preferred drugs in
these formularies, you can save money; so the availability and quality of
preferred providers and the lists of preferred drugs are important to you.
Meanwhile, many prepaid (HMO) plans are available and now
substantial numbers of Federal employees have selected these plans. Your choice
of HMO can have a big effect on the quality of medical care and service you
receive. Not only does an HMO offer you a selected list of providers to choose
among; your HMO may be set up so that your primary care doctor is a
"gatekeeper" who decides whether to authorize you to get specialist, hospital,
and other types of services. In addition, an HMO may be able to manage care so
that members get better service than they would get in a less structured
system. For example, some HMOs have succeeded in reducing asthma problems by
having doctors, nurses, pharmacists, and other HMO staff work together to train
patients and families in self-medication and other self-care techniques.
This Guide’s most important information on quality and
service is the plan-by-plan customer satisfaction ratings shown in the table
beginning on page XX. Ratings of 114 plans come from a February to May 2009
survey in which a standardized questionnaire was sent to a sample of each
The table tells you how respondents answered when asked to
use a 0 to 10 scale to rate their personal doctor, their most frequently seen
specialist, all the health care they received, and the plan overall. For the
overall rating of the plan, the table shows the percentage of respondents who
gave a rating of 10, the combined percentage who gave ratings of 8 to 10, and
the combined percentage who gave ratings of 6 to 10.
In addition, the table shows how plans were rated
across several questions that relate to key aspects of service, for example—
- Getting needed care
- Getting care quickly
- How well doctors communicate
- Plan’s customer service
- Plan’s claim processing
- Shared decision making between patients and
- Health promotion and education
- Coordination of care
- Plan information on costs
For these aspects of care, the table shows the percent
of respondents who gave either the highest possible rating or one of the top
two possible ratings.
Finally, the table shows how plans were rated on more
specific aspects of care and service, for example, "seeing a specialist."
We advise that you keep several points in mind when
using the customer ratings:
- Some of the ratings are based on opinions. Your
opinions might not be the same as those of survey respondents.
- The way enrollees rate their plans can be
affected by their age, education level, state of health, and other
characteristics. For example, older individuals tend to rate their plans
relatively high. If one plan has attracted a large proportion of members over
age 65, its ratings might be high for that reason. The scores reported here
have not been adjusted for member characteristics. Within the group of HMO and
POS plans, it does not appear that such differences in member characteristics
had much effect on scores; very few plans’ overall scores would change by more
than two percentage points if the scores were adjusted for member differences.
But the effects might be greater among fee-for-service plans.
- Since the survey included only a sample of plan
members, it is possible that a plan’s ratings were affected by "the luck of the
draw": a disproportionately large number of satisfied or dissatisfied members
happened to respond.
- Some enrollees did not return the questionnaire.
It is possible that those who responded are more satisfied or less satisfied
than those who did not. Our analysis of these and similar survey data has
indicated that younger members and men are less likely to respond than women
and older members. Young male members also tend to give somewhat lower ratings
than older members of either gender. Fortunately, with roughly 40 percent of
surveyed members responding for most plans, the respondents do at least
represent a substantial portion of members. And we have some evidence from
follow-up survey tests we have done that scores would not have changed much
even if an additional 10 or 15 percent of surveyed members had responded.
In interpreting member ratings, also keep in mind that
comparing across different types of plans is at best imperfect. First,
it is not possible directly to compare regional plans (primarily HMO and POS
plans) to national plans. For example, high or low ratings of "personal
doctors" by enrollees in a national plan don’t tell you how that plan’s members
in a particular region rate their doctors, and yet it is the national plan’s
doctors in that region who should be compared to the doctors of members of
regional plans serving only that region. Second, for the national plans (and
the Blue Cross and Blue Shield Ratings by State), the ratings are only from
FEHBP enrollees, while the ratings for the regional HMO and POS plans include
ratings from non-FEHBP enrollees. Third, the plans for which only ratings from
FEHBP enrollees were included reflect scores given by over-65 annuitants
covered by Medicare while the plans for which ratings from non-FEHBP enrollees
are included generally do not include ratings from enrollees who are over-65
and on Medicare. It is known that over-65 Medicare participants in any plan
tend to give substantially higher ratings than younger members.
Even among HMO and POS plans, you should be aware that the ratings
given by non-Federal members may have been given by members who were in a
different variant of the plan than the variant offered to Federal employees and
retirees. We have found, for example, that among members of the same plan, POS
users are about two to three percentage points less likely than basic HMO users
to give high ratings to the overall plan.
It should also be noted that differences in the way the
survey was administered might explain small differences in plan scores. All of
the plans are required to use an independent firm to conduct their surveys
under the supervision of the nonprofit National Committee for Quality Assurance
(NCQA) using standardized survey procedures. But there is some room for
variation in procedures. For example, some plans allow members to respond by
the Internet in addition to mail and phone calls, and Internet responders tend
to give somewhat lower ratings. Also, some plans get a relatively high
percentage of their responses by phone (as opposed to mail), and phone responders
tend to give higher ratings than mail responders.
Along with the customer satisfaction survey results, we have
another indicator of service quality for the fee-for-service plans. We checked
"disputed claims" on file at OPM. A "disputed claim" is a case in which a plan
member has been denied benefits and has followed the required procedure to
appeal the denial to OPM.
The Disputed Claims table shows disputed claims per 10,000
Federal enrollees for the period from October 1, 2008 through September 30,
2009. The table also shows in how many cases per 10,000 enrollees a plan’s
initial decision in a disputed claim was changed or reversed. The disputed
claim information is shown for fee-for-service/PPO plans.
There are several possible explanations for differences in
incidence of disputed claims. For example, some plans may have an unusually
large share of hypercritical members, be more aggressive than others in
enforcing their policy limitations to prevent benefit abuses, or have benefit limits
that enrollees tend not to notice or not to understand. Most of the disputed
claims are resolved in favor of the plans on the grounds that they involve
matters that are not within the plans’ coverage. But do you want to be in a
plan where you will feel the need to file a disputed claim? Everything else
equal, it seems preferable to join a plan where the coverage limits are easily
understood, communication is good, benefit limitations are interpreted
broadly—and disputed claims are rare.
The National Committee for Quality Assurance (NCQA) is the
largest organization that accredits health plans. The table at the end of the
book shows whether or not plans are accredited by NCQA or by URAC or AAAHC, two
smaller accrediting organizations. These organizations have procedures to
determine whether plans meet the organization’s accreditation standards. The
standards cover many areas of performance, such as whether the plan takes
appropriate steps to check the credentials of its physicians, whether the plan
has appropriate health promotion and disease prevention programs, and whether
the plan has appropriate protections of patients’ rights. NCQA includes in its
accreditation process assessments of plan performance on member satisfaction
survey measures and effectiveness of care measures, such as the percentage of
two-year-olds who have had all recommended immunizations and the percentage of
heart attack patients who are given a specific type of recommended medication.
All accredited plans are not of equal quality, and there are
many aspects of quality that accreditation reviews can’t measure. But
accreditation is a plus, and absence of accreditation should raise concerns
The Internal Revenue Code provides a number of tax
advantages for health insurance. The “employer share” of health insurance—paid
by agencies for employees and by OPM for annuitants—is part of employee
compensation but by law is exempted from being counted as taxable income. For
Federal employees and annuitants, the non-taxable premium share paid by employing
agencies and OPM averages about $5,000 for self-only enrollments and $11,000
for families. The tax laws also allow employers to make the “employee share” of
the premium tax-free to employees, and to set up tax advantaged Flexible
Spending Accounts for employees. The average tax-sheltered employee share of
premium for Federal self-only enrollees is about $2,000 and for families about
$4,000. In total, employees in family plans shelter about $16,000 in employee
compensation for health insurance from Federal, State, and local income taxes,
as well as from OASDI taxes, in 2011. By law, only the tax benefits for the
employer share, but not the annuitant share, are available to retirees in
either the public or private sectors. But annuitants in Medicare Parts A and B
also get about $10,000 per person of untaxed insurance cost.
Federal employees shelter their share of the FEHBP plan premium
from income taxes through what is called “Premium Conversion.” Employees have
the right to opt out of this program. The only benefit of doing so is to
increase very slightly future Social Security benefits. However, in what
economists call “present value” terms, that offsetting amount is a very small
fraction—a few pennies on the dollar—of the gains from the Premium Conversion
program. Also, employees lose a very small amount of flexibility in changing
health options at times other than Open Season, but this will affect only a
handful of persons in any one year, and even those will probably still come out
ahead. We strongly advise all employees NOT to opt out of Premium
Conversion tax savings.
How much employees gain from this tax subsidy varies
depending on employee salary, spousal salary, other income, state income tax
rate, number of dependents, amount of deductions, whether or not they file
jointly, and whether or not they are in FERS (and hence paying Social Security
taxes). We present two tables that show the likely percent of premiums that
will be offset by tax savings under several typical scenarios. The tables show
the marginal tax rate, which represents the rate that applies to dollars earned
or premium dollars tax sheltered slightly above (or slightly below) current
total income levels. The Federal income tax rate on the next dollar earned (or
exempted) is, for almost all Federal employees, 15, 25, or 28 percent. When
Social Security, Medicare, and state taxes are added, the overall marginal tax
rate can reach 41 percent, or even more in some high tax states. Our table on “Marginal
Tax Rates for Single Earners with No Dependents” presents marginal tax rates
for singles at various income levels. For each income level, it also presents
equivalent General Schedule salary ranges using pay rates for the DC area. The
second table, “Marginal Tax Rates for Families of Four With Two Equal Earners,”
presents marginal tax rates for such families. Families of two, three, four,
and five will have similar rates.
At income ranges typical of Federal employees, whether in single-
or dual-earner families, and whether in the FERS or CSRS retirement systems,
these tables show that almost everyone will save at least 25 percent, and very
few will save much more than 40 percent, of tax-sheltered health care premiums
or other expenses.
|GS Grades with steps within income range
||GS-1 to GS-7
||GS-7 to GS-13
||GS-13 to GS-15
||GS-14 to SES
|Taxable income range after personal exemption and standard deduction
||$9,000 to $34,000
||$34,001 to $82,000
||$82,001 to $107,000
||$107,001 to $172,000
||$172,001 to $374,000|
|Marginal Federal income tax rate
|Marginal Medicare tax rate
|Net marginal state income tax rate (assuming deductions are itemized and gross rate of seven percent)
|Total marginal tax rate for CSRS employees
|Social Security marginal tax rate
|Total marginal tax rate for FERS employees
|$43,000 to $94,000
||$94,001 to $163,000
||$163,001 to $235,000
||$235,001 to $240,000
||$240,001 to $400,000|
|GS Grades with steps half-way up to income range
||GS-1 to GS-7
||GS-7 to GS-13
||GS-13 to GS-14
||GS-14 to GS-15
||GS-15 to SES|
|Taxable income range after exemptions and standard deduction
||$26,000 to $68,000
||$68,001 to $137,000
||$137,001 to $209,000
||$209,001 to $214,000
||$214,001 to $374,000|
|Marginal Federal income tax rate
|Marginal Medicare tax rate
|Net marginal state income tax rate (assuming deductions are itemized and gross rate of seven percent)
|Total marginal tax rate for CSRS employees
|Social Security marginal tax rate
|Total marginal tax rate for FERS employees
We provide a table showing how this tax shelter affects your
total costs. This table present our estimates of the likely average premium
cost to GS enrollees under some of the plans available in the Washington
metropolitan area, including both local plans and national plans. As the table
shows, the effects of Premium Conversion are substantial.
Because the effects of different marginal tax rates are
relatively small in comparing plans, and never change our relative rankings or
the general magnitude of plan-to-plan differences, we use the 33 percent
premium savings estimate in all Guide tables for persons who are
eligible for Premium Conversion. This simplifies presentation and gives you the
essential information you need to compare plans. You can, of course, make your
own calculation of marginal tax rate, but this is complicated and will not
affect plan comparisons substantially.
||Plan name (in order of premium cost for single person)
||Premium at Marginal tax rate of 33%
||Premium at Marginal tax rate of 33%
|Selected Local Plans in DC Area
||Aetna Open Access-Basic
||Aetna HealthFund CDHP
|Selected National, CDHP, and HDHP Plans
||Mail Handlers HDHP
Health Care Flexible Spending Accounts (FSAs) provide a way
to shelter even more health care spending from taxes. FSAs allow you to shelter
the out-of-pocket costs that you incur for copayments, coinsurance,
deductibles, charges above customary and reasonable, and uncovered health care
expenses. Under health reform, you can no longer use an FSA account to pay for
over-the-counter drugs without a physician prescription (insulin is an
exception) but all other categories of expense are unchanged. For most people,
the favored categories for using FSAs are dental expenses, vision expenses, and
your share of costs for services covered by the plan—for example, the
coinsurance you pay for mental health services, or the annual deductible.
Under IRS rules, you have to set up your FSA account and
amount in advance. OPM allows you to use the regular Open Season period for
setting up your account. For health care, you can elect to choose any amount
from a minimum of $250 to a maximum of $5,000. (You can also elect to set aside
additional amounts for “Dependent Care.”) You establish the account by
enrolling online at www.fsafeds.com or by calling 1-877-372-3337. Unlike
Premium Conversion, you have to elect this benefit and will NOT be enrolled automatically.
Any amount that you elect to set aside for an FSA must be
spent for health care by the end of the year (plus a 2 1/2 month grace period),
or it will be forfeited. You should plan carefully based on your best “guesstimate”
as to health care expenses that you are virtually certain to incur, such as
maintenance prescription drugs, routine dental care, and routine eye care or
any services for which you make multiple and foreseeable provider visits. In
the online version of the Guide, we allow you to compare costs among
plans assuming that you elect $1,000 for your FSA. Plans with larger
deductibles and no dental coverage rank higher when you have an FSA compared to
plans that cover virtually all costs.
We recommend that ALL employees who are not in High
Deductible plans establish an FSA if they have foreseeable expenses. Young and
healthy employees should set their amount roughly equal to what they will spend
on annual dental and vision services that their plans do not cover. Older and
less healthy employees might establish an FSA that contemplates expensive
dental and vision services, plus deductibles and expected copays. For some, the
$5,000 maximum will be the right amount to establish. Remember, however, that
if you do not spend the entire allocation for the year by March 15 of the
following year, you will lose the balance in your account.
Until recently, enrollees in Consumer-Driven and High
Deductible plans were not allowed to create FSAs. However, they may now set up “Limited
Expense” FSAs that cover only dental and vision expenses that are not
reimbursed by insurance. Reimbursements from either your health plan or a
separate dental or vision plan are not eligible for payment under these FSAs.
Only about one tenth of Federal employees are signing up
each year for FSA accounts. This means that about nine out of ten employees are
leaving money on the table each year. Almost everyone has at least a few
hundred dollars in out-of-pocket health care expenses. Those who don’t sign up
are throwing away a one-third discount on these costs.
Both Health Reimbursement Arrangements (HRAs) and Health
Savings Accounts (HSAs) provide significant tax advantages, beyond those
available through Premium Conversion and FSAs. The simpler case involves HRAs,
where your savings account can grow as long as you stay with the same plan (if
you change plans the entire amount is lost), and you can also use an FSA to
supplement the HRA amount set aside by the plan. For example, if you expect out
of pocket drug and dental expenses of five hundred dollars next year, you could
place that amount in an FSA in the expectation that the HRA amount paid through
your premiums would remain available for unforeseen expenses next year or in
future years. Unfortunately, retirees cannot use the FSA method of
HSAs convey far larger advantages. First, you can add to
your HSA account by advance planning, just as if it were an FSA. Second, while
you can only establish an FSA account in advance, you can add to your HSA
account at any time during the year. Thus, if you have unanticipated expenses
late in the year of an extra thousand dollars, in most High Deductible plans
you can have a thousand dollars transferred from your pay to your HSA, lower
your taxable income by a thousand dollars, pay the bill through the HSA, and
obtain what amounts to a one-third discount on your unplanned expenses. Or you
can transfer the extra thousand dollars even if you don’t have any unexpected
expenses, saving one third in taxes, and build up your account for future
years. Since you retain the HSA account for life, regardless of Open Season
plan changes or retirement, and it can accumulate tax-free earnings, it can
become a very substantial lifelong protection against health care expense.
This account augmentation advantage is dramatic if you
consider the catastrophic guarantee provided by most FEHBP plans. One of the
very best guarantees is found in the Blue Cross Standard option, which holds
your total out-of-pocket cost to $5,000, without significant loopholes. Compare
that to the Mail Handlers High Deductible plan, with a guarantee of $5,000 for
a self-only enrollment, also without significant loopholes. However, under Mail
Handlers your plan-paid HSA account of over $800 can be used to defray large
expenses, thereby reducing your potential loss to $4,200. Beyond that, you are
allowed to make tax advantaged voluntary contributions of over $2,000 and pay
your bills through your augmented account. This lets you save approximately
$700 through lower tax payments if you face catastrophic expense. Hence, your
total cost exposure is only about $3,500, lower than that under Blue Cross.
Moreover, you save even more when the “for sure” premium expense, lower in Mail
Handlers High Deductible, is taken into account in your annual total. For a
family enrollment, where the nominal guarantee remains at $5,000 under Blue
Cross, but rises to $10,000 under Mail Handlers, the latter’s actual cost
exposure is reduced to about $7,000 by using your HSA, and the results are more
even. These kinds of calculations are complex, but we make them for you and as
a result rate most High Deductible plans as among the best bargains in the
FEHBP. Of course, traditional plans like Blue Cross pay better than Consumer-driven
and High Deductible plans when your expenses are not low, but do not reach
catastrophically high levels.
While retirees over the age of 65 cannot establish HSAs,
those nearing retirement not only can take advantage of HSAs, but also are eligible
for “catch up” contributions after age 55, until enrolled in Medicare. These
contributions can reduce after-tax expenses by hundreds of dollars a year more,
or simply be added to the growing HSA balance. Upon retirement, the HSA balance
remains available for the rest of your life, and continues to earn tax-free
interest, dividends, or capital gains.
Using the cost, features, and customer satisfaction data we
have presented, you should be able to narrow your choice to two or three of the
plans. At this point, compare the brochures of the best two or three plans
carefully. Underline key points, or parts of the plans that confuse you, and
compare these points among the plans. Probably the plans will be similar on
most things, so concentrate on differences that are important to you. Probably
someone you know is especially good at understanding health insurance. Ask that
person to help you with any confusing parts.
When you have figured out the major differences among the
best plans, you are ready to make your final decision. One way to do this is to
write out the most important ways in which the plans differ. These differences
may not be strictly financial.
For example, suppose it turns out that your choice is
between a national plan and an HMO. Let’s say that the HMO costs $500 dollars a
year less (on average), and has slightly better coverage for a benefit you
need. But you are unwilling to give up a particular doctor you have been using
for years. This seems to be an impasse, but there are several possible ways to
resolve it once you have the issue narrowed down. Perhaps your doctor is
affiliated with the HMO—why not ask? Or consider using part of the money you
will save by joining the HMO to continue going to your doctor and paying
out-of-pocket. Or you may have more than one doctor you want to keep and
conclude that the national plan is well worth the higher cost.
As another example, suppose you really like a plan that will
save you $1,000 in premium, but will likely cost you $1,000 more in copayments
for expensive prescription drugs you take. Before you reject that plan, consider
that you can set up an FSA account for $1,000, use it for those copayments,
save over $300 in reduced taxes, and wind up ahead in that less expensive plan.
Throughout this Guide we have argued that your best
strategy is to make the primary factor in your plan selection the overall
predicted cost of the plan, taking especially into account that none of us can
predict whether or not we may have a heart attack, a stroke, a cancer, or any
of hundreds of possible costly episodes that strike unexpectedly. You should
use your known, predictable routine expenses to calculate how much to put in a
Flexible Spending Account, not to choose an insurance plan whose main purpose
is to protect you against unexpected and high expenses. There is an important
exception to this general strategy. If you know that you will need some
particular service next year, and it is very expensive (for example, childbirth
or hip surgery) and likely to cost you tens of thousands of dollar, it makes
sense to talk to one or more providers and ask them a simple question: “In your
experience, which Federal employee health plan or plans pay best for the care I
need?” Sometimes the answer will be that all or most of them pay well. But
sometimes the answer will be that only a few plans pay well. In that case, look
first at these plans and choose one of them after you complete your detective
work (for example, reading the brochure as it applies to your condition, or
calling the plan, or checking with other people who have been in your situation).
But do not forget that some other disease may strike, so try to use our
comparisons to help you choose even among these few plans.
Whatever factor your personal decision turns on, you may be
overwhelmed by excessive details and confused by the choices you face. So here
are some concluding thoughts based on some of the most common questions we have
heard. Try to focus your decision on several key questions. Are you willing to
join an HMO or a High Deductible plan? Do you expect big bills for a particular
event such as maternity or surgery? Do you really want to have a particular
type of benefit, such as chiropractic or dental or hearing aid? Perhaps you can
afford a higher premium to get the benefits you want, or perhaps you cannot and
must pick a plan that at least gives you good catastrophic protection.
We conclude with some tips, and some questions and answers
that may apply to you and help to focus your decision.
Throughout the Guide we have provided vital
tips. We repeat some here:
- Getting “Free” Health Insurance—Some Consumer-Driven and
High Deductible FEHBP plans provide you a savings account larger than your
actual premium cost after taxes. You can end the year with more money than you
started if your medical costs are low.
- Avoid a Big Risk—Many people who are covered by their
spouse’s insurance drop FEHBP. This saves premium costs. However, if you are
not enrolled and die suddenly, your spouse cannot ever enroll again. Your best
option is to carry a family policy and drop the spousal insurance.
- Protect Your Retirement—It is not expensive to enroll in
the FEHBP for the five years before retirement. Several plans have annual
premiums that are about $1,000, including Mail Handlers Value Option, and GEHA
and Kaiser Standard Option. These plans cost about $700 after tax savings. Some
plans give you savings accounts higher than the tax advantaged premium cost.
- Be Sure to Elect a Survivor Annuity for Your Spouse—If you
die and your spouse receives no Federal pension at all, your spouse will lose
FEHBP health insurance coverage forever. If you die while enrolled as self-only,
your spouse will also lose coverage.
- Be Wary of Misleading Catastrophic Cost Protection Claims in
Plan Summaries—Some plans exclude deductibles, physician copayments, or
drug costs in the figure they claim for catastrophic limits. This can distort
the claimed cost protection by thousands of dollars.
- Bargain with Out of Network Providers—Most plans have very
low payments for non-preferred providers. You MUST negotiate with these doctors
before any expensive procedure in order to protect yourself. One good tactic is
to ask for either their “preferred” or Medicare rate.
- Check Your Brochure—Do not stay in the same plan without
reading at least “How We Change” for next year or join a new plan without
reading the “Summary of Benefits” and checking any benefits of particular
importance to your health care.
- Flexible Spending Account—You can only establish your FSA
during Open Season. Be sure to consider carefully this important option to
reduce your health costs. Foolishly, only one employee in ten now uses this
option. Almost all employees should establish an FSA.
- You Can Keep Flexibility Only at a Price—The best two
arguments for paying the Medicare Part B premium are to preserve your choices
over time, as both the FEHBP and Medicare evolve, and to get you low cost
sharing for providers who are not in your plan network. However, you will
probably spend hundreds of dollars every year for this choice.
- Huge Premium Cost Saving—Annuitants with Medicare Parts A
and B can suspend their FEHBP enrollment, join a Medicare Advantage plan, and
pay only the Medicare premium. They can reenroll in an FEHBP plan in the future
without penalty, and in the meantime enjoy good catastrophic protection, have
low copays, and save thousands in premium costs.
- Dealing with a Known High Expense—There is an exception to
our general advice about focusing on overall plan costs, not just one benefit
category. If you know for sure that you will need a particular expensive drug,
or some other expensive service, you should ask your pharmacist (or check formularies
online) or other provider “Which plans pay best?” If several plans pay equally
well, then you can choose whichever of these is an overall better buy.
Here is a short list of frequent questions and their
- What if I expect to have a baby? What plan offers the best
maternity benefits? You should consider an HMO, because coverage is usually 100
percent and in most cases premiums are several hundred dollars lower than for
other types of plans. Use the “average” expense column to compare plans. Before
making your final decision, be sure to check provider lists to see how many,
and which, obstetricians are affiliated. Almost all plans now publish their
provider lists on the Internet, so use the Internet to check out providers, but
call to double check. Better yet, try to select a provider during Open Season,
and then use the provider’s experience to steer you towards a few plans from
which to choose. Also, many national PPO plans waive cost sharing for
maternity, so check these as well.
- What if I am going to have a major operation? Pay
particular attention to catastrophic limits. If you know for sure that you are
going to face bills of $25,000 or more, then pick a plan with a tight limit on
your costs. Even if the plan you pick is on “average” a couple of hundred
dollars more expensive, if a catastrophic limit can save $1,000 or more, take
advantage of it. In comparing catastrophic expense limits, use Guide
figures. Our estimates include the “for sure” premium expense that can often
far exceed savings in the stated limit. Our estimates also adjust for huge
inconsistencies among stated catastrophic limits, such as exclusion of
prescription drugs or failing to include deductibles in the stated limit. Of
course, review the brochure carefully to make sure that the surgery you expect
is not somehow excluded or subject to a payment maximum. If you are not sure
what the plan you like will do in your case, call several surgeons to discuss
which plans work best, as well as to select your surgeon. This is a good way to
eliminate from consideration surgeons who are not in any network or who will
not give you a network rate.
- My two doctors aren’t preferred providers for any plan. What
should I do? Set up an FSA account for about half the amount you expect to
spend on those doctors. Then pick one of the top ranked plans that includes a
fee-for-service benefit, use that benefit for whatever it will pay (which will
probably be about half), and use the plan’s preferred providers for everything
- I need over 30 psychiatric visits. What plan is best? The mental
health parity requirement—which theoretically allows unlimited visits at a low
cost—might arguably make all plans meet your needs. But almost all plans
require using preferred providers, and for visits to be approved through a “treatment
plan.” They are very unlikely to approve a substantial number of visits. The
first step should be to talk to your provider and see if he or she is “preferred”
under any plan. If so, this plan is likely to be your best choice.
Alternatively, most PPO plans will pay sixty or seventy percent of the “plan
allowance” for out of network visits. Since that is well below what most
providers charge, you will likely pay half or more of the cost of each visit.
One way to decide among unpleasant choices is to use an arithmetic calculation
for your situation. Estimate the number of visits you are likely to make, and
figure out how much each of several plans will pay for these visits (checking
with your provider as to rates and plan allowance). Then add the annual premium
cost to the amount that you will pay the doctor, for each of those plans. If
one of them stands out, you have an answer. If they are all roughly the same,
choose on some other basis (like our overall ratings). Finally, you are a perfect
candidate for a Flexible Spending Account, which will reduce the cost of
out-of-network care or extra visits by about a third.
- I really like the service from plan X. But it is rated halfway
down your cost table. Would I be a sucker to stay with it? No. Differences
of several hundred dollars in estimated costs can move a plan up or down the
table a long way. Our methods of estimating average costs are only
approximations. Differences of $100 or less are not significant, and a national
plan even halfway down the table is a perfectly acceptable deal. Furthermore,
staying with the same plan will eliminate the hassle of getting a new card and
new claims forms, of changing doctors, and of dealing with a plan bureaucracy that
may not be as customer friendly as the one you have now. See our quality
ratings for information on how enrollees rate their plans.
- You rated the plan I am in very high last year, but this year
it has moved way down the table. Why did this happen and should I switch?
Premium differences are the biggest factor in our cost rankings, and premiums
can swing widely from year to year. That is probably why your plan moved so
far—but check the brochure’s change page for a benefit cutback that could have
affected our ratings. You can stick with your plan if it has not become
unreasonably costly and has given you good service. But consider the possible
savings from the plans we rank higher.
- I don’t have much money and can’t afford an expensive premium.
Is it safe to join one of the fee-for-service plans with a really low premium?
All plans are reputable, and all will pay the benefits they promise. Every
plan, not just the ones with the lowest premiums, has gaps or loopholes of one
kind or another. But the lower-premium national plans generally expose you to
higher copayments and deductibles, so they may not save you as much money as
you think. Look at our ratings tables and several brochures carefully, and then
decide. A lower premium does not mean a worse plan, or a higher premium a
better plan. Our estimates of average costs are a far better guide to likely costs
than premiums alone.
- I’m not very healthy and could easily have expenses of many
thousands of dollars next year. So I don’t think that your rankings based on
average costs are what I should use. What should I do? A good method is to
skip the average column and look at the column for high expenses of $25,000
(using the online version, choose the “heavy health care use” option in your
personal profile). Within that column, choose among several plans that our
comparisons indicate are relatively low-cost. Another approach is to compare
catastrophic limits. But keep in mind that our “average” columns include some
very expensive years.
- I can’t decide whether I should get Medicare Part B and join a
plan that guarantees I won’t pay anything at all for medical bills, or plan to
drop Medicare Part B and save about $1,200 a year in premium cost. Ten
years ago nothing but an HMO could beat Part B and one of the special
Medicare-coordination packages such as GEHA, NALC, or Blue Cross. But since
then most of the national plans give you almost as good a deal with preferred
providers as with Part B—without the Part B premium cost. If your doctors are
mostly preferred providers or affiliated with an HMO, consider dropping Part B.
You won’t save the entire amount of the Part B premium, but you will save most
of it in most years. The main argument for keeping Part B on top of the FEHBP
is that you have complete flexibility to use any doctor who accepts new
Medicare patients, even if he is not preferred. But this flexibility costs you
hundreds of dollars per year. Whatever you do, do not drop out of the FEHBP.
- My spouse has excellent family coverage from his or her
employer and pays no premium. Is there any reason why I should not drop out of
the Federal program? If you are within five years of retirement, do not
even consider dropping out. That private plan will go away sooner or later and
you and your spouse will be stuck. You are not allowed to remain in the FEHBP
after retirement without five years of continuous prior enrollment immediately
preceding retirement (there are some narrow exceptions, such as layoffs). Even
if you were much younger, if you were to die with your spouse not covered by
the FEHBP, your spouse would lose FEHBP coverage forever.
- I read that High Deductible plans are bad buys for older and
less healthy individuals. Nonsense. These plans get a lot of bad press from
so-called experts who don’t understand them, but are among the best deals in
the program. A so-called “high” deductible of $1,500 is no different after
adjustment for inflation than the common deductible level of $250 or $300 ten
or fifteen years ago among most national plans. Taking into account their tax
advantages and savings accounts, they rival or beat almost all traditional
national plans. If you know for sure that your routine physician and drug
expenses, priced at retail, will be three or four thousand dollars next year,
and the year after that, you will probably do better in an HMO or national plan
with low copayments. But high expense, in and of itself, is not an argument
against High Deductible plans. They have some of the best catastrophic limit
guarantees in the program.
- I have an expensive condition that I am not sure is covered by
several plans that you rank high. What should I do? The first step is to
get those plan brochures and compare them side-by-side. The OPM policy for
standardized brochures written in clear language is one of the best things
about the FEHBP. If you read and compare the specific language you may find the
answer. If you do not, call at least one plan, and preferably several plans,
and call again several times to protect yourself against mistakes that plan
representatives sometimes make. If you are still not sure, consult providers
who deal with your condition, or other patients with your condition, or both.
In other words, this is a homework issue and sometimes there is no way around
doing your homework.
- Skip all the details. What is the best plan? There is no
best plan. Every plan is best for at least some people. Our rankings give you a
good starting point, but only a starting point. If you don’t want to be
bothered with details, then check out only one or two plans carefully. But
whatever else you do, read the brochure of the plan before you sign up for it.
The underlying approach used in our Guide is to
compare plans in terms of their likely dollar cost to you, including both the “for
sure” expense of the premium and the out-of-pocket expenses you face for costs
the plan does not pay. All plans cover 80 percent or more of almost all types
of expenses whenever your costs are high, and provide a reasonably solid
catastrophic limit guarantee. (Dental is the major exception in most plans;
prescription drugs an exception in a few.) Therefore, the premium covers not
only true insurance for rare, high-cost situations, but also pre-payment of
routine expenses. As a result, the premium is the dominant factor in potential
costs, across a wide range of situations. For example, when your medical costs
are zero the premium is the only expense, and when your medical costs run into
the tens of thousands the catastrophic limit (which in most plans is between
$5,000 and $10,000 a year) comes into play. Consequently, a great deal of the
analysis underlying the Guide is aimed at quantifying, and expressing in
terms of annual costs, the various risks you face and the reimbursement
provided by each plan at each level of risk. We calculate costs assuming that
you use only preferred providers, or providers who will agree to network fees,
both because sensible consumers will avoid leaving the network if they can, and
also because there is no realistic way to estimate the many unknown rates that
individual providers may charge.
We calculate likely out-of-pocket costs, taking into account
the probability that families of various sizes and ages will incur relatively
low, medium, or high levels of expense. The first situation is most common but,
when weighted for dollar amounts, accounts for a relatively small portion of
statistically expected spending. Put in statistical terms, health care expenses
are a highly skewed distribution, and the average (or “mean”) is far higher
than the typical (or “median”) spending level.
Although most persons do not know whether they will incur
large expenses or not—heart attacks, serious accidents, and most other costly
scenarios are relatively unpredictable—some persons do have a pretty good idea
of some future costs. For example, they may be planning major surgery for a
congenital problem. We present data for both groups: persons with and without
good information on next year’s expenses and, for those with good prior
information, estimated out-of-pocket expenses at several expense levels for
Most of the data used in the Guide come from the plan
brochures themselves. Plans have several different benefit levels: one for most
enrollees when using preferred providers, one for enrollees with Medicare, and
one for enrollees when using out-of-plan providers (for most HMOs,
reimbursement is zero in this last case, except in emergencies). When analyzed
carefully, taking into account the exact wording of benefit descriptions, the
brochures tell a clear story. The premiums tell another clear story. However,
more is needed to compare the plans usefully and completely.
The percentage estimates for expenses of various amounts in
the cost tables used in the Guide are based on information taken from a
number of sources. The most important of these is the Medical Expenditure Panel
Survey (MEPS) of the Agency for Healthcare Research and Quality. This survey
produces information on what proportions of the population incur expenses at
various dollar levels. We adjust MEPS data slightly to “smooth” the estimates
and extrapolate it to current FEHBP spending levels. Our cost tables also use
rounded estimates to make them easier to read, and the cost headings represent
ranges. For example, the entry for expenses of $2,500 represents a range of
about $1,500 to $3,500.
Because some plans impose different deductibles and coinsurance
for different services, the distribution of costs between hospital and other
expenses can affect significantly the amount that a plan will require you to
pay for a particular expense total. We model our comparisons closely to average
experience. Though few persons or families will have exactly the same cost
profile as used in our tables, most situations will be at least close. Our
profile, when weighted for probability, corresponds closely to projected actual
expenses of the FEHB Program as a whole. Some of the details are shown in the
table “Profile of Expenses Used for Cost Tables.”
Our cost comparisons make several other simplifications.
First, in analyzing most plans we have to make assumptions about the number of
doctor visits and prescriptions to calculate the patient’s share of expenses.
Second, we assume that all bills are either for amounts
negotiated between plans and preferred providers (often called the “plan
allowance”) or, for other providers, “usual, customary, or reasonable” (UCR)
charges, which are the most that any plans cover. Some doctors charge more than
UCR allows, and all plans do not have the same “profiles” for calculating UCR.
Absent any basis for adjustment, we simply assume what is generally true: all
preferred doctors have agreed to limit their charges to “plan allowances,” and
many others will agree to meet that level or the plan’s UCR level (or will do
so if you tell them what plan you have and explain your cost concerns). There
are instances in which some plans’ schedules for some procedures are well below
those used by other plans. Unfortunately, there is no way to adjust for this in
our tables, though you can protect yourself in the real world by using
preferred providers or by getting your provider to promise to stay within your
plan’s payment level before getting any expensive service.
Third, we make assumptions about how many family members
incur expenses at each total cost level in a year to calculate deductibles. For
example, we assume that in a year with $1,000 in expenses, a family of five
will have expenses for three members, and in a year with $150,000 in expenses,
for all family members. In the real world, no one’s actual set of yearly
expenses will exactly match our assumptions. For plans whose coinsurance rates
and deductibles are low or the same for most services, a different mix of
expenses would have little or no effect on the cost estimates we present. For
other plans, such as those with 100 percent coverage of hospitalization and
limited coverage of prescription drugs, a different mix of expenses could
change the estimates considerably. However, a different mix would not likely
change any cost entry at $2,500 by more than two or three hundred dollars, or
any entry for the $25,000 column by more than one or two thousand dollars.
(Highly expensive specialty prescription drugs, such as AIDS drugs, hemophilia
drugs, growth hormone drugs, some chemotherapy drugs, and some osteo-arthritis
drugs are the most important potential exceptions.)
We apply the methodology consistently across plans, so that
any estimating problem is likely to be small in its effects on the comparative
information in the cost tables.
|Components of total expense:
|Hospital Room and Board
|Other Inpatient Hospital
|Risk of expense at each level:
|Self under age 55
|Family of two under age 55
|Self age 55-64
|Family of two age 55-64
|Self age 65 and older
|Family of two age 65 and older