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
- 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
- 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
- We rate plans according to how well each covers low,
average, or high medical expenses, analyzing coverage of all major types of
- We adjust our estimates for the tax
advantages that reduce the after-tax premium cost to most employees (but
not retirees) by about one third.
- 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 12 through December 10, 2012. 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 begins.
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 carefully.
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, you can save about $700 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, 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, and NALC, are likely to save you about $1,500
compared to Blue Cross Standard Option. Why? Most of 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
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 publishes an annual 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
compare the brochures of several plans.
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, Vision, and Hearing compares standalone
plans with each other and with the dental, vision, and hearing aid 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
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 age.
- 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
- 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
- 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
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 it ranges from
about $1,000 to over $3,000 for individuals, and from about $2,500 to over
$7,500 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 them.
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
2013 for GS employees and annuitants is about $5,000 for singles, and $11,000
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.
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
$7,300. The government pays the maximum contribution of about $5,000 for GS
employees and you pay the extra $2,300. In contrast, under the GEHA Standard
option and some HMO plans, you pay about $1,200 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 2013, 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 significant.
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. Under new Affordable
Care Act rules, however, plans have had to expand coverage and eliminate all
cost sharing for preventive benefits. The effect on plan premiums has been
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. One
effect of this change has been to raise slightly the cost of FEHBP premiums,
probably by about one percentage point more. 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 (FSAs) and Health Savings Accounts will no longer be allowed to cover
over-the-counter drugs, unless ordered through a physician prescription. And
the maximum FSA contribution is now $2,500.
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 is spending several billion dollars over four years. It is clearly
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. 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.
Also, 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 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
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 now 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.
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 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. These 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.
Most of us buy automobile, life, fire, and health insurance.
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
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 an
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 gets tax
subsidies for employer health insurance created by the Internal Revenue Code.
Most employees save about one-third of their health care costs because of these
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 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, 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. 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 computer programs to perform these
calculations, and there are many complexities. For example, whether a low
deductible or a low coinsurance rate is better for you depends on the amount of
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 and PPO plans (only a few of which
cover out network care);
- Consumer-Driven and High Deductible plans (some
national and some local); and
- 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.
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. 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 illness;
- other types of hospital services (operating
- 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
- mental health treatment, outpatient and
- mammograms, Pap smears, and routine
- 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;
- chemotherapy and radiation therapy;
- physical and rehabilitation therapy;
- cosmetic (“plastic”) surgery or oral
surgery—only after an accident;
- 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 begins.
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 disfiguring illness;
- custodial nursing home care, or any kind of rest
- personal comfort items such as telephone or
television while in the hospital;
- non-prescription, over the counter drugs, such as
- care that is fully paid by another insurance
- care that is not medically necessary;
- experimental care (clinical trials are partly
- 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 routine exams 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. Comparisons
- 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 employees. We present rates for postal Category 1 employees in our
print Guide, and other categories online.
- 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 share.
- 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 rate.
- 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.
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 cost;
- 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 each level;
- Costs for “High” usage with bills of about
- 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. For almost all employees, this tax preference creates about a
one-third saving in premium cost. 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.
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). You can save the HSA
as an investment, or you can use it to pay your 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 can predict.
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 and Copays.”
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 hip
replacement is a large expense. A diabetic may have several expensive ailments.
A history of cancer or heart disease worsens your odds. You can use the $25,000
(“High”) cost comparisons if you have information that suggests you are much
likely to face much higher health expenses than others of your age and family
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
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 their
HSA or HRA 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. Plans calculate
limits differently and the dollar numbers published in a plan’s “Summary of
Benefits” do 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 loophole-free.
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 2013
||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. 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 is an excellent strategy
for doing so at minimum cost. All of the plans showing a very low or negative
number in the “No Costs” column are Consumer-Driven or High Deductible plans
that give you a savings account as large or 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, 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
For persons who pay full premiums, we compare plans based on
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 $6,000 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
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. As the print version
of the Guide goes to press, Medicare cost-sharing and premium updates are not
available. Historical experience provides us, however, with a basis to
estimate. In 2013 the Medicare Part A hospital
deductible will be about $1,200 and the Part B medical deductible about $150.
To obtain Medicare coverage roughly comparable to FEHBP plans you would have to
pay a Part B premium of about $106 a month, or about $1,300 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 about $1,800 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 live abroad.
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
By comparing tables for those with Part A only, versus
those with Parts A and B, you will see that in most plans you are likely to
spend several hundred dollars a year more for this combination than by
retaining the FEHBP plan alone. 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
||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, and 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.
Finally, there is an important innovation under way that
reduces the cost of enrolling under both programs. Under an OPM pilot program,
the MHBP plan will reimburse your Medicare Part B premium, up to the regular
amount. This gives you the advantage of “wrap around” coverage at a
significantly lower cost than you would otherwise pay.
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 (except for firms with fewer
than 20 employees). 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 (subject to the same exception for small firms).
- 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.
Under current law, however, some higher income enrollees pay more than the
traditional one-fourth share.
This 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 not 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 $1,800 for individual AGI of $85,000 to $107,000; $2,500 for income of
$107,000 to $160,000; $3,300 for income of $160,000 to $213,000; and $4,000 for
income of more than $213,000. The corresponding amounts for married couples
filing jointly are twice as high.
There are additional factors that may determine whether this
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 previously). The “bottom line” is that if your
income is above these thresholds and likely to remain there, the case for
enrolling in both the FEHBP and Medicare Part B becomes far weaker. Dropping
Part B will not affect your continued premium-free enrollment in Part A. The
sensible solution will be to drop out of Medicare Part B and rely on your FEHBP
plan. Why pay $1,800 or more for a Part B benefit that rarely results in
reduced cost sharing of as much as $1,000?
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 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 insurance options.
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 about $1,300.
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 $2,600 for a self-only enrollment ($1,300 for the Medicare
Advantage plan, plus about $1,300 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
Health Reimbursable Arrangement (but not an HSA 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 benefits
millions of low-income elderly with premium-free drug coverage and extremely
low cost sharing. It benefits 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 former employer.
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 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 $18,000, 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. 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
Unfortunately, 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 2011 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. Almost all plans charge much 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.
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 display 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 the local plans in other parts of the country
that we are able to display online.)
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). Our cost comparisons reflect these differences, but if
you have unusually high (or low) name brand drug costs, you can use our tables
to identify plans most likely to match your needs.
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 while 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, just as in all
other plans 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 cost you.
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 insurance.
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 $2,500 in a health care FSA account ($5,000 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 restricts coverage.
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 Selection” section.
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 provided 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. Accordingly, they
will rarely if ever need any FEHBP benefit for this
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
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 standalone plans
charge a premium, but offer stronger benefits. Nonetheless, our ratings show
that for most people joining an FEHBP plan with modest dental benefits is a low
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 more visits.
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
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.
Prostheses and Durable Medical Equipment
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
Most plans let you call an expert nurse advisor service to
discuss medical problems that confuse you. Nurse advisors 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, on compliance with your medication needs, and diet and
health, and on other issues. 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
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 providers—without penalty.
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.
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
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 $15,000 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 uncommon.
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
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
affect 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 with providers for special discounts, some tailored to specific
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. Another
“win-win” measure is high discounts on generic drugs that are therapeutically
equivalent to name brand drugs. 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 this way 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 part of the bill, such as 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 have both groups 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 practices.
- They tend to stress preventive exams and health
- They eliminate the inconvenience of submitting
claims for costs of services.
- 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 participate.
- 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 features that you may or may not like are:
- Some HMOs rely very heavily on mid-level
professionals such as nurse practitioners and physician 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 conservative therapies.
- 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
routine preventive care 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 Social
Security. 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
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
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.
Customer Satisfaction Ratings
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 106. Ratings of 102 plans come from a February to May 2012
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.”
Interpreting the Survey
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, 2010 through September 30,
2012. 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 national 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 in 2013. 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
$15,000 in employee compensation for health insurance from Federal, State, and
local income taxes, as well as from OASDI taxes. 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 over $9,000 per person of untaxed insurance benefits.
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. This increases 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. 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. 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 tables on marginal tax rates for
single and family earners present marginal tax rates at various income levels.
For each income level, they also present equivalent General Schedule salary
ranges using pay rates for the DC area.
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-12
||GS-12 to GS-14
||GS-14 to SES
|Taxable income range after personal exemption and standard deduction
||$10,000 to $35,000
||$35,001 to $86,000
||$86,001 to $110,000
||$110,001 to $179,000
||$179,001 to $388,000|
|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
|$45,000 to $98,000
||$98,001 to $170,000
||$170,001 to $245,000
||$245,001 to $247,000
||$247,001 to $415,000|
|GS Grades with steps half-way up to income range
||GS-1 to GS-7
||GS-7 to GS-12
||GS-12 to GS-14
||GS-14 to GS-15
||GS-15 to SES|
|Taxable income range after exemptions and standard deduction
||$27,000 to $71,000
||$71,001 to $143,000
||$143,001 to $217,000
||$217,001 to $220,000
||$220,001 to $388,000|
|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
|Selected National, CDHP, and HDHP Plans
||Aetna HealthFund HDHP
||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 $2,500. (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. 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.
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
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. We recommend that ALL
employees who are not in High Deductible plans establish an FSA if they have
foreseeable expenses. For some, the $2,500 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
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 MHBP High Deductible plan, with a guarantee of $5,000 for a
self-only enrollment, also without significant loopholes. However, under MHBP
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.
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 service 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
these 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.
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. 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.
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 other
costly condition that strikes 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, 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 surgery? Do you really want to
have a particular benefit, such as chiropractic 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
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 an FEHBP 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
$1,500. These plans cost about $1,000 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
- 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 understate your risk by thousands of
- 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. 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 cost
sharing for providers who are not in your plan network. However, this choice is
- 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? Many plans offer low or no cost
maternity coverage. Compare brochures and before making your final decision,
check provider lists to see how many, and which, obstetricians are affiliated.
Or select a provider and then use the provider’s experience to steer you
towards a few plans from which to choose.
- 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. In comparing catastrophic expense limits, use Guide
figures. Our estimates include the “for sure” premium expense and adjust for
huge inconsistencies among stated catastrophic limits, such as exclusion of
prescription drugs or failing to include deductibles in the stated limit. If
you are not sure what plans will work best in your case, check brochures and
consult your surgeon to discuss which plans work best. Be sure your surgeon is
in your plan network or will 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 else. Or change doctors.
- 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 plans require using preferred providers for lower costs,
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 is to use an
arithmetic calculation. Estimate the number of visits you are likely to make
and how much each of several plans will pay for these visits. Then add the
annual premium cost to the amount that you will pay the doctor under 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 your cost 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.
- 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 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. 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 $1,300 a year in premium
cost. If your doctors are mostly preferred providers, 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.
If you decide to keep Part B, move to a low premium plan, such as GEHA Standard
- 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
- I read that High Deductible plans are bad
buys for older and less healthy individuals. Nonsense. These plans are
among the best deals in the program. 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
- 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 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. 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. Therefore, the premium covers not only true
insurance for rare, high-cost situations, but also pre-payment of routine
expenses. When your medical costs are zero the premium
is the only expense, but 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. Most 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 clearstory. 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