How to use Checkbook's Guide to Health Plans for Federal Employees
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. 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:
- How can Checkbook's Guide to Health Plans for Federal Employees help me?
- "How the FEHB program works" provides background information on the FEHB program.
- "How to Compare FEHB plan costs" explains how and why some choices can save so much money.
- "What Federal Annuitants need to know about the FEHB program and Medicare" provides cost ratings that consider higher costs for the elderly, and the effects of enrolling in Medicare Part A or Parts A and B.
- "FEHB Plan Coverage Features" provides basic information on plan benefits for hospital, medical, and prescription drug expenses and addresses features such as skilled nursing and mental health coverage.
- "Should I purchase a standalone FEDVIP Dental or Vision Plan?" compares standalone plans with each other and with the dental, vision, and hearing aid coverage in the health insurance plans.
- "Types of FEHB Plans" explains the various types of plans and how they affect your ability to use the provider of your choice and to achieve additional savings.
- "FEHB Plan Quality" describes several measures of quality of plan service and presents quality ratings for all plans.
- "How much money can I save by switching FEHB plans" explains how premiums and out of pocket spending can be tax advantaged and how much employees can save.
- "Our Methods and Data Sources" explains the information we use to create our ratings.
We rate health plans by their likely cost to you, considering 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. After answering questions regarding family size, age, retirement status, health status, zip code, pay system, and several other factors users are taken to a summary ratings table for their area and then have the option to choose whether to look at tables providing detailed cost comparisons, cost sharing, coverage features, plan flexibility, or plan quality for plans.
There are many comparisons, but only one cost comparison applies to your current situation. Of course, your situation may change if your family changes, if you retire, and if you change your Medicare decisions—and you can our tool to compare those differences. Each cost comparison 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, 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 $3,000 (families);
- Costs for “Average” usage with medical and dental bills averaged over a wide range of expense taking into account the statistical likelihood of costs at each level;
- Costs for “High” usage with bills of about $30,000; and
- The yearly “Limit to you” showing the maximum you will ever be expected to pay for medical (but not dental) bills, also reflecting both premium and out of pocket costs.
We present two different premium columns to reduce confusion over two issues.
First, many employees do not understand Premium Conversion. For almost all employees, this tax preference creates about a one-third saving in premium cost. The dollar amount of this saving is never provided to employees, and only shows up indirectly through a lowered taxable income number in form W-2. 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 the employee share of Social Security and Medicare taxes. Annuitants are not eligible for Premium Conversion.
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 possible for you to have “free” health insurance in some High Deductible or Consumer-Driven plans. 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 $1,500 you actually come out ahead 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 medical bills now or in old age.
If you join a Consumer-Driven plan with a “personal account” or Health Reimbursement 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 these 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 medical bills.
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 $3,000 or less, or $30,000 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 far 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. It does not make sense to estimate expected costs by doctor visits you expect to make next year—it is the doctor and hospital and drug costs after some major health problem that you do not expect that need to be taken into account in a plan comparison.
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 some of the financial consequences of using non-network providers but plans’ cost-sharing for non-network providers do not include any payment for charges that may be double or triple or even higher multiples of the plan “allowance,” except in some emergencies.
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 family.
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 $30,000 (“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 size.
Second, consider your attitude about risk. If you are willing to spend a few hundred dollars extra to be sure you will not have heavy out-of-pocket expenses, you may want to pick one of the plans that is lowest cost for a person with high medical bills. However, all plans have such good coverage that you are well protected from most catastrophic expenses. Most have a dollar limit on the annual hospital, doctor, and prescription drug expenses you must pay—as noted under the heading “Limit to you.” Even where there is a gap, the effect of the generous benefit structure is to create a de facto limit.
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 as well as the “for sure” premium expense.
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. Again, this is because you have to pay the premium whether your medical expenses are high or low.